Tutorial No.

3 - CVP Analysis
Answer Section

MULTIPLE CHOICE

1. ANS: B
2. ANS: A
3. ANS: B
4. ANS: A
5. Fixed costs = $600,000
Total variable costs = $1,050,000 - $90,000 - $600,000 = $360,000
Variable cost per unit = $360,000/30,000 units = $12 per unit

6. Total fixed costs = 2,000 x $20 = $40,000

Sales = ($40,000 + $45,000)/$20 = 4,250 units

7. $250 - ($75 + $45) = $130

($90 + $20) x 2,000 = $220,000

2,000 - ($220,000/$130 per unit) = 308 units

8.
CM Mix
Product C: $9 x  6 = $54
Product D: $7 x  4 =  28
$82

Break-even = $82,000/$82 per package = 1,000 packages

Product C: 1,000 packages x 6 units per package = 6,000 units

Product D: 1,000 packages x 4 units per package =  4,000 units
Total 10,000 units

9.
Product E: $25 x 8 = $200
Product Z: $20 x 2 =   40
$240

Break-even = $90,000/$240 per package = 375 packages

Product E: 375 packages x 8 units per package = 3,000 units

Product Z: 375 packages x 2 units per package =   750 units
Total 3,750 units

10.
Product E: $25 x 8 = $200
Product Z: $20 x 2 =   40
$240

Break-even = ($90,000 + $120,000)/$240 per package = 875 packages

Product E: 875 packages x 8 units per package = 7,000 units

11. CM of package: ($2 x 3) + ($8 x 2) + ($15 x 1) = $31

BE package: $170,500/$31 = 5,500 units
BE in units for Economy: 5,500 units x 3 = 16,500 units
BE in sales for Economy: 16,500 units x $10 = $165,000

12. CM of package: ($2 x 3) + ($8 x 2) + ($15 x 1) = $31

BE package: ($170,500 + $62,000)/$31 = 7,500 units
BE in units for Standard: 7,500 units x 2 = 15,000 units
13.

CM of package: ($2 x 3) + ($8 x 2) + ($15 x 1) = $31

BE package: $170,500/$31 = 5,500 units
BE in sales for Economy: 5,500 units x 3 x $10 = $165,000
BE in sales for Standard: 5,500 units x 2 x $20 = 220,000
BE in sales for Deluxe: 5,500 units x 1 x $35 =  192,500
Total BE sales $577,500

Total expected sales =

  (18,000 x $10) + (12,000 x $20) + (6,000 x $35) = $630,000

Margin of safety = $630,000 - $577,500 = $52,500

14. Fixed costs = $220,000 x .75 = $165,000

Net income = [($220,000 + $20,000) x .75] - $165,000 = $15,000

15. Desired before-tax income = $56,000/1 - .3) = $80,000

Number of units
= (Fixed costs + Income)/(Price per unit - Variable cost per unit)
= [$50,000 + ($1,000 x 20) + ($30 x 1,000) + $80,000]/
  ($20 per unit - $10 per unit)
= 18,000 units

16. SPx – VCx – FC = Profit

SP(1) – (6.80(1) + 0.2SP(1)) – 0 = 1.20
SP – 0.2SP = 6.80 + 1.20
0.8SP = 8.00
SP = 8.00/0.8
SP = 10.00

17. SPx – VCx – FC = 0 at the B/E point

Therefore SPx – VCx = FC at the B/E point
Contribution = FC at the B/E point
If FC = $32,000 then Contribution = $32,000 at the B/E point

At 40,000 units: Contribution = 40,000($1.50 - $0.75)

= $30,000
Additional Contribution required = $32,000 - $30,000 = $2,000
$2,000/($1.00 - $0.75) = 8,000 units
Break even point in units = 40,000 + 8,000 = 48,000 units

18. SPx – VCx – FC = Profit

[(6000 x 12) + (8000 x 11) + (10000 x 10) + 6000x] – (30000 x 6) – 54,000 = 80,000
[72,000 + 88,000 + 100000 + 6000x] – 180,000 – 54,000 = 80,000
260,000 + 6000x - 234,000 = 80,000
6000x = 80,000 – 260,000 + 234,000
6000x = $54,000
x = $54,000/6000
x = $9.00

19. SPx – VCx – FC = Profit

192,000 – [2/3 (192,000)] – 40,000 = Profit

192,000 – 128,000 – 40,000 = 24,000

20.
a. 5,000 units ($500,000 + $250,000)/[$400 - ($100 + $80 + $50 + $20)]

b. 7,000 units ($750,000 + $300,000)/($400 - $250)

c. 6,000 units [$750,000 + ($90,000/.6)]/($400 - $250)

21.
a. 875 units ($100,000 + $40,000)/[$480 - ($160 + $100 + $40 + $20)]

b. 1,250 units ($140,000 + $60,000)/($480 - $320)

c. 1,500 units [$140,000 + ($60,000/.6)]/($480 - $320)

22.

Sales $100,000
Total variable costs $68,000
Contribution margin $32,000
Total fixed costs $20,000
Net income $12,000
Units sold 100
Price ($100,000/100) $10
Variable cost per unit $6.80
Contribution margin per unit $3.20
Contribution margin ratio 32%
Break-even point in units ($20,000/$3.20) 6,250 units

23. ANS:
Cost-volume-profit (CVP) analysis is a powerful tool for planning and decision
making. Because CVP analysis emphasizes the interrelationships of costs,
quantity sold, and price, it brings together all of the financial information of
the firm. CVP analysis can be a valuable tool to identify the extent and
magnitude of the economic trouble a division is facing and to help pinpoint the
necessary solution. CVP analysis can address many other issues as well, such as
the number of units that must be sold to break even, the impact of a given
reduction in fixed costs on the break-even point, and the impact of an increase
in price on profit. Additionally, CVP analysis allows managers to do sensitivity
analysis by examining the impact of various prices or cost levels on profit.