Structured Problem Solving

1. The Willow Furniture Company produces tables. The fixed monthly cost of production is $8,000,
and the variable cost per table is $65. The tables sell for $180 apiece.

a) For a monthly volume of 300 tables, determine the total cost, total revenue, and profit.

Total Cost = $ 27,000.00 Total revenue = $ 54,000.00 Profit = $ 26,500.00

Quantity Cost per unit Amount

Sales 300 $ 180 $ 54,000.00
Less: Variable Cost 300 65 19,500.00
Contribution Margin 300 $ 115 34,500.00
Less: Fixed Cost 8,000.00
Profit $ 26,500.00

b) Determine the monthly break-even volume for the Willow Furniture Company.

BE P unit = FC / CM per unit

BE P unit = $8,000 / $ 115

BE P unit = 69.56

Quantity Cost per unit Amount

Sales 69.56 $ 180 $ 27,502.2
Less: Variable Cost 69.56 65 9,931.35
Contribution Margin 69.56 $ 115 7,999.4
Less: Fixed Cost 8,000.00
Profit $ (.6)

2. The Rolling Creek Textile Mill produces denim. The fixed monthly cost is $21,000, and the variable
cost per yard of denim is $0.45. The mill sells a yard of denim for $1.30.

a) For a monthly volume of 18,000 yards of denim, determine the total cost, total revenue, and profit.

Total cost = $ 29,100.00 Total revenue = $ 23,400.00 Profit = $ (5,700.00)

Quantity Cost per unit Amount

Sales 18,000 $ 1.30 $ 23,400.00
Less: Variable Cost 18,000 .45 8,100.00
Contribution Margin 18,000 $ .85 15,300.00
Less: Fixed Cost 21,000.00
Profit $ (5,700.00)
 b) Determine the annual break-even volume for the Rolling Creek Textile Mill.

BE P unit = FC / CM per unit

BE P unit = $21,000 / $.85

BE P unit = 24,705.88

Quantity Cost per unit Amount

Sales 24,705.88 $ 1.30 $ 32,117.644
Less: Variable Cost 24,705.88 .45 11,117.646
Contribution Margin 24,705.88 $ .85 20,999.998
Less: Fixed Cost 21,000.00
Profit $ (.002)

Annually

Quantity Cost per unit Amount

Sales 296,470.56 $ 1.30 $ 385,411.728
Less: Variable Cost 296,470.56 .45 133,411.752
Contribution Margin 296,470.56 $ .85 251,999.976
Less: Fixed Cost 252,000.00
Profit $ (0.024)

$21,000.00 x 12 (Annually) = $252,000.00

3. Andy Mendoza makes handcrafted dolls, which he sells at craft fairs. He is considering mass-
producing the dolls to sell in stores. He estimates that the initial investment for plant and equipment will
be $25,000, whereas labor, material, packaging, and shipping will be about $10 per doll. If the dolls are
sold for $30 each, what sales volume is necessary for Andy to break even?

BE P unit = FC / CM per unit

BE P unit = $25,000 / $20

BE P unit = 1250

Quantity Cost per unit Amount

Sales 1,250 $ 30 $ 37,500.00
Less: Variable Cost 1,250 10 12,500.00
Contribution Margin 1,250 $ 20 25,000.00
Less: Fixed Cost 25,000.00
Profit $ -
4. If the maximum operating capacity of the Rolling Creek Textile Mill described in Problem 2 is 25,000
yards of denim per month, determine the break-even volume as a percentage of capacity.

Break-even P units
X 100
Capacity for period

24,705.88
X 100
25,000

0.9882 x 100

= 98.82%

Quantity Cost per unit Amount

Sales 24,705.88 $ 1.30 $ 32,117.644
Less: Variable Cost 24,705.88 .45 11,117.646
Contribution Margin 24,705.88 $ .85 20,999.998
Less: Fixed Cost 21,000.00
Profit $ (.002)

5. Pastureland Dairy makes cheese, which it sells at local supermarkets. The fixed monthly cost of
production is $4,000, and the variable cost per pound of cheese is $0.21. The cheese sells for $0.75 per
pound; however, the dairy is considering raising the price to $0.95 per pound. The dairy currently
produces and sells 9,000 pounds of cheese per month, but if it raises its price per pound, sales will
decrease to 5,700 pounds per month. Should the dairy raise the price?

No, because there will be an expected loss of $642.00 if they raised the price to $.95
 Current
Quantity Cost per unit Amount
Sales 9,000 $ .75 $ 6,750.00
Less: Variable Cost 9,000 .21 1,890.00
Contribution Margin 9,000 $ .54 4,860.00
Less: Fixed Cost 4,000.00
Profit $ 860.00

Change of Plan
Quantity Cost per unit Amount
Sales 5,700 $ .95 $ 5,415.00
Less: Variable Cost 5,700 .21 1,197.00
Contribution Margin 5,700 $ .74 4,218.00
Less: Fixed Cost 4,000.00
Profit $ 218.00

Members:

De Lara, Camille

Garcia, Janina Oana

Magpantay, Errol

Quiohilag, Carl Jeff