Question 1

Loren Inc.sold 30,000 units of its product last year with the following results:
 
The company expects variable costs to increase by $4.00 per unit this year.
a.Assuming the unit sale price remains constant,compute the unit contribution margin and the contribution margin ratio for this year.(Round percentage value to one decimal place. )
b.Given the expected change in variable costs,how many units will have to be sold this year to earn the same operating income as last year?
c.Assuming the company is willing to raise the unit sales price but wants the contribution margin to be the same as last year,determine the unit sales price the company must charge to cover the expected increase in variable costs.(Round your answers to two decimal places. )

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Question 2

Native American Pottery expects to earn a profit of $95,000 in 2014.The company manufactures ornamental ceramic tiles.Each lot of 100 blocks requires variable costs of $5.00 for direct materials,$3.50 for direct labor,and $4.50 for overhead.Total variable costs are thus $13 per lot.Fixed costs for 2014 are expected to be $130,000.Each hundred-block lot will sell for $33.
a.Determine how many lots of ceramic tiles the company must sell to earn its targeted profit,and convert this amount to sales dollars.
b.Compute breakeven sales in dollars.
c.Explain the dollar difference between breakeven sales dollars and the sales dollars necessary to earn the targeted profit.Use the contribution margin as part of your explanation.

Accepted Answer

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Question 3

Ryan's Landscaping sells a quality brand of hoes,shovels,and rakes in a sales mix of 2:4:2.The company's fixed costs are $61,600.Product data include the following:
  
a.Compute the weighted-average contribution margin.
b.Determine the weighted-average breakeven point.
c.Calculate the breakeven point for each product.
d.Determine the breakeven point in sales dollars.

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Question 4

Projected cost information for a new product to be produced by Kolier Manufacturing is as follows:
 The product is to be sold for $49.
a.Compute the number of units that must be sold to earn a profit of $80,000.
b.Compute the number of units that must be sold if advertising costs rise by $12,000 and a targeted profit of $120,000 is to be obtained.
c.Use the original information and sales of 10,000 units to compute the new selling price that the company must use to obtain a profit of $200,000.
d.The most in annual sales that could be projected is 20,000 units.Determine the added amount that could be spent on fixed advertising costs if the highest possible selling price that management believes can be charged is $50 and if there is a targeted profit of $225,000.

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Question 5

Meredith Marshall owns a home inspection business,offering her services to homeowners.She currently charges $180 per inspection but wants to know if her fee should be raised.She has provided the following data from the past six months:

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Question 6

J & C Stacy Enterprises is expecting to earn a profit of $180,000 in 2014.The company manufactures wrought iron lamps.Each lamp requires variable costs of $13 for direct materials,$9 for direct labor,and $12 for overhead.Total variable costs are thus $34 per lamp.Fixed costs for 2014 are expected to be $630,000.Each lamp will sell for $79.
a.Determine how many lamps the company must sell to earn its targeted profit,and convert this amount to sales dollars.
b.Compute breakeven sales in dollars.
c.Explain the dollar difference between breakeven sales dollars and the sales dollars necessary to earn the targeted profit.Use the contribution margin as part of your explanation.

Accepted Answer

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Question 7

Ben & Harry Co.sold 100,000 units last year with the following results:

a.Management thinks that a 5 percent reduction in the unit sales price and a $31,000 increase in fixed advertising costs will create a 30 percent increase in unit sales.Assess this proposal and make a recommendation on what action should be taken.
b.Assume that the marketing manager thinks that the unit sales price and advertisement costs should not be changed.Instead,he recommends a $0.40 per unit increase in sales commissions to generate the 30 percent increase in unit sales and a 20 percent increase in operating income.This results in reduction of fixed costs to a certain extent.
Assess this proposal.

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Quiz 19: Cost-Volume-Profit Analysis

Meredith Marshall owns a home inspection business,offering her services to homeowners.She currently charges $180 per inspection but wants to know if her fee should be raised.She has provided the following data from the past six months: