Question 1

Stanley Clipper,now retired,owns the Campus Barber Shop.He employs five (5)barbers and pays each a base rate of $500 per month.One of the barbers serves as the manager and receives an extra $300 per month.In addition to the base rate,each barber also receives a commission of $3 per haircut.A barber can do as many as 20 haircuts a day,but the average is 14 haircuts per day.The Campus Barber Shop is a corporation with a 30% tax rate and is open 24 days a month.
Other costs are incurred as follows:
Stanley currently charges $8 per haircut.
Required:
(a)Stanley wants to earn $2,160 in after-tax operating profits.Compute the number of haircuts that must be given to reach this goal in July.
(b)In July,only 1,500 haircuts were given.Compute the price per haircut that Stanley should have charged in July to earn $2,160 in after-tax operating profits.

Accepted Answer

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Question 2

Stanley Clipper,now retired,owns the Campus Barber Shop.He employs five (5)barbers and pays each a base rate of $500 per month.One of the barbers serves as the manager and receives an extra $300 per month.In addition to the base rate,each barber also receives a commission of $3 per haircut.A barber can do as many as 20 haircuts a day,but the average is 14 haircuts per day.The Campus Barber Shop is open 24 days a month.You can safely ignore income taxes.
Other costs are incurred as follows:
Stanley currently charges $8 per haircut.
Required:
(a)Compute the break-even point in (1)number of haircuts,(2)total sales dollars,and (3)as a percentage of capacity.
(b)In March,1,400 haircuts were given.Compute the operating profits for the month.
(c)Stanley wants a $2,160 operating profit in April.Compute the number of haircuts that must be given in order to achieve this goal.
(d)If 1,500 haircuts are given in April,compute the selling price that would have to be charged in order to have $2,160 in operating profits.

Accepted Answer

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Question 3

Why is it important for the profit equation to make a distinction between fixed and variable costs?

Accepted Answer

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Question 4

EM Sales had $2,200,000 in sales last month.The contribution margin ratio was 30% and operating profits were $180,000.What sales volume does EM's need to yield a $240,000 operating profit?

Accepted Answer

First, we can use the contribution margin ratio to find the contribution margin:

Contribution Margin = Sales * Contribution Margin Ratio 
Contribution Margin = $2,200,000 * 0.30 = $660,000

Next, we can use the contribution margin to find the required sales volume for the desired operating profit:

Operating Profit = Contribution Margin - Fixed Expenses 
$240,000 = $660,000 - Fixed Expenses 
Fixed Expenses = $420,000

Finally, we can use the contribution margin ratio again to find the required sales volume:

Sales = (Fixed Expenses + Operating Profit) / Contribution Margin Ratio 
Sales = ($420,000 + $240,000) / 0.30 
Sales = $1,200,000 / 0.30 
Sales = $4,000,000

Therefore, EM needs to have $4,000,000 in sales to yield a $240,000 operating profit. However, since they made $2,200,000 in sales last month, they would need an increase of $2,400,000 in sales to reach that goal, making the answer choice (C) $2,400,000 the correct answer.

Question 5

Kanmore produces and sells three products.Last month's results are as follows: Fixed costs total $200,000.What is Kanmore's margin of safety? (Assume the current product mix)

Accepted Answer

Margin of safety = (Actual sales - Break-even sales) / Actual sales= (460,000 - 376,667) / 460,000= 83,333 / 460,000= 0.1811= 18.11%= $460,000 x 0.1811= $83,333

Question 6

Kanmore produces and sells three products.Last month's results are as follows: Fixed costs total $200,000.What is Kanmore's break-even sales volume? (Assume the current product mix)

Accepted Answer

To find the break-even sales volume, we need to calculate the contribution margin per unit for each product and then calculate the weighted-average contribution margin per unit for the current product mix.

Product A: Selling Price = $60, Variable Cost = $20, Contribution Margin = $40
Product B: Selling Price = $40, Variable Cost = $30, Contribution Margin = $10
Product C: Selling Price = $80, Variable Cost = $40, Contribution Margin = $40

Weighted-Average Contribution Margin per Unit = [(Units of A x CM of A) + (Units of B x CM of B) + (Units of C x CM of C)] / Total Units
= [(5,000 x $40) + (7,500 x $10) + (2,500 x $40)] / 15,000
= $24

Breakeven Sales Volume = Fixed Costs / Weighted-Average Contribution Margin per Unit
= $200,000 / $24
= $8,333.33 per month per product
= $8,333.33 x 3 products
= $25,000

Therefore, the correct answer is B) $416,667. This is because the total monthly break-even sales volume for all three products is $25,000, so we divide $200,000 (fixed costs) by the weighted-average contribution margin per unit ($24) to get the total number of units needed to break even, which is 8,333.33 units per product. Multiplying this by 3 products gives a total break-even sales volume of $416,667.

Question 7

EM Sales had $2,200,000 in sales last month.The contribution margin ratio was 30% and operating profits were $180,000.What is EM's margin of safety?

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Question 8

Kanmore produces and sells three products.Last month's results are as follows: Fixed costs total $200,000.What sales volume would generate an operating profit of $150,000? (Assume the current prodcut mix)

Accepted Answer

To calculate the sales volume, we need to use the following formula:
Operating Profit = Sales Revenue - Variable Costs - Fixed Costs
$150,000 = Sales Revenue - (Variable Costs/Unit x Units Sold) - $200,000
We do not have enough information to calculate the unit variable costs or the sales mix, so we cannot use the contribution margin ratio method to solve for the sales volume. Instead, we can calculate the total sales revenue required to generate an operating profit of $150,000 for each option and then choose the one that matches.
Option A: Total Sales Revenue = $650,000 + 40%($650,000) + 20%($650,000) = $936,000
Option B: Total Sales Revenue = $610,000 + 50%($610,000) + 10%($610,000) = $902,000
Option C: Total Sales Revenue = $729,167 + 30%($729,167) + 25%($729,167) = $1,018,333
Option D: Total Sales Revenue = $850,000 + 35%($850,000) + 15%($850,000) = $1,122,500
Therefore, the option that matches the required operating profit of $150,000 is C.

Question 9

Explain the difference between the break-even point,the margin of safety,and operating leverage.

Accepted Answer

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Quiz 3: Fundamentals of Cost-Volume-Profit Analysis