CVCP questions

1. Baker Optical Shop has been in operation for several years. Analysis of the firm's
recent financial statements and records reveal the following:
Average selling price per pair of glasses $70
Variable expenses per pair:
Lenses and frames $28
Sales commission 12
Variable overhead 8
Annual fixed costs:
Selling expenses $18,000
Administrative expenses 48,000
The company's effective tax rate is 40 percent. Sara's Baker, company president,
has asked you to help her answer the following questions about the business.
a. What is the break-even point in pairs of glasses? In Birr?
b. How much revenue must be generated to produce $80,000 of pretax
earnings? How many pairs of glasses would this level of revenue
represent?
c. How much revenue must be generated to produce $80,000 of after-tax
earnings? How many pairs of glasses would this represent?
d. What amount of revenue would be necessary to yield an after-tax profit
equal to 15% of revenue?
e. Banker is considering adding a lens-grinding lab, which will save Br. 6 per
pair of glasses in lens cost, but will raise annual fixed costs by Br. 8,000.
She expects to sell 5,000 pairs of glasses. Should she make this
investment?
f. A marketing consultant told Baker that she could increase the number of
glasses sold by 30 percent if she would lower the selling price by 10
percent and spend Br. 20,000 on advertising. She has been selling 3,000
pairs of glasses. Should she make these two related changes?
2. Meta Company has fixed costs of Br 100,000 and breakeven sales of Br 800,000.
What is its operating income at Br 1,200,000 sales?
3. During 1997, Harar Laboratory supplied hospitals with a comprehensive
diagnostic kit for Br 120, At a volume of 80,000 kits, Harar had fixed costs of Br
1,000,000 and as profit before income taxes of Br 200,000 due to an adverse legal
decision, Harar's 1998 liability insurance increased by Br 1,200,000 over 1997,
Assuming the volume and other costs are unchanged, what should the 1998 price
of the diagnostic kit be if Harar is to make the same Br 200,000 profit before
income taxes?
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-optical-shop-operation-several-years-analysis-firm-s-recent-financial-q78813229

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