Acc1 I ) I - Chapter 03 Fundamentals of CostmiddotVolumemiddotProfit Analysis

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A-~CY I VI -----~-

Chapter 03 Fundamentals of Cost-Volume-Profit Analysis

87 The president of AMG Enterprises is considering expanding sales by producing three different versions of their product Each will be targeted by the marketing department to different income levels and hence will be produced from three different qualities of materials After reviewing the sales forecasts the sales department feels that for every itern of A sold 4 of Mcan be sold and 8 of Gcan be sold The following information has been assembled by the sales department and the production department

A M G Sales price (per unit) $1500 $1000 $5 00 tvIaterial cost 500 400 200 Direct labor 200 150 125 Variable overhead 200 150 125

The fixed costs associated with the manufacture of these three products are $75000 per year Required Determine the number of units of each product that would be sold at the break-even point

Weighted average eM = [(15 - 9)(1) + (10 - 7)(4) + (5 - 450)(8)](1 + 4 + 8) = $169231 BE = $750001169231 = 44319 total units A = 44319 x (113) = 3410 M=44319 x (413) = 13637 G= 44319 x (813) = 27274

AACSB Analytic AICPA FN-Decision Making Blooms Application Difficulty Medium Learning Objective 4 Topic Area Multiproduct CVP Analysis

3- 1

2shy

5

88 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

Advertising $200 per month Rent $400 per month Barber Supplies $90 per haircut Utilities $175 per month plus $35 per haircut Magazines $ 25 per month Cleaning Supplies $15 per haircut

Stanley currently charges $8 per haircut Required (a) Com8ut~ the break-even point in number of haircu~~1 sales dollars)and sect percenta~ of capacity it ) In March 1400 haircuts were given Compute the operating profits for the month (c) Stanley wants a $2160 operating profit in April Compute the number of haircuts that must be given in order to achieve this goal (d) If 1500 haircuts are given in April compute the selling price that would have to be charged in order to have $2160 in operating profits

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88 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

Advertising $200 per month Rent $400 per month Barber Supplies $90 per haircut Utilities $175 per month plus $35 per haircut Magazines $ 25 per month Cleaning Supplies $15 per haircut

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 1400 haircuts were given Compute the operating profits for the month (c) Stanley wants a $2160 operating profit in April Compute the number of haircuts that must be given in order to achieve this goal (d) If 1500 haircuts are given in April compute the selling price that would have to be charged in order to have $2160 in operating profits

Fixed costs =5($500) + $300 + $200 + $400 + $175 + $25 =$3600 Variable costs = $300 + $090 + $035 + $015 = $440 per haircut (a) (1) $3600($8 - 440) = 1000 haircuts (2) 1000 x $800 = $8000 ) 1000(5 x~x 24) =~ L-I 1t1Jo (b) [($800 - 440) x 1400] -$-3600 = $1440 (c) ($3600 + $2160)($800 - 440) = 1600 haircuts (d) [($SP - 440) x 1500] - 3600 =2160 SP = $824 per haircut

3-2

+

A-~CY I VI -----~-

Chapter 03 Fundamentals of Cost-Volume-Profit Analysis

87 The president of AMG Enterprises is considering expanding sales by producing three different versions of their product Each will be targeted by the marketing department to different income levels and hence will be produced from three different qualities of materials After reviewing the sales forecasts the sales department feels that for every itern of A sold 4 of Mcan be sold and 8 of Gcan be sold The following information has been assembled by the sales department and the production department

A M G Sales price (per unit) $1500 $1000 $5 00 tvIaterial cost 500 400 200 Direct labor 200 150 125 Variable overhead 200 150 125

The fixed costs associated with the manufacture of these three products are $75000 per year Required Determine the number of units of each product that would be sold at the break-even point

Weighted average eM = [(15 - 9)(1) + (10 - 7)(4) + (5 - 450)(8)](1 + 4 + 8) = $169231 BE = $750001169231 = 44319 total units A = 44319 x (113) = 3410 M=44319 x (413) = 13637 G= 44319 x (813) = 27274

AACSB Analytic AICPA FN-Decision Making Blooms Application Difficulty Medium Learning Objective 4 Topic Area Multiproduct CVP Analysis

3- 1

2shy

5

88 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

Advertising $200 per month Rent $400 per month Barber Supplies $90 per haircut Utilities $175 per month plus $35 per haircut Magazines $ 25 per month Cleaning Supplies $15 per haircut

Stanley currently charges $8 per haircut Required (a) Com8ut~ the break-even point in number of haircu~~1 sales dollars)and sect percenta~ of capacity it ) In March 1400 haircuts were given Compute the operating profits for the month (c) Stanley wants a $2160 operating profit in April Compute the number of haircuts that must be given in order to achieve this goal (d) If 1500 haircuts are given in April compute the selling price that would have to be charged in order to have $2160 in operating profits

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88 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

Advertising $200 per month Rent $400 per month Barber Supplies $90 per haircut Utilities $175 per month plus $35 per haircut Magazines $ 25 per month Cleaning Supplies $15 per haircut

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 1400 haircuts were given Compute the operating profits for the month (c) Stanley wants a $2160 operating profit in April Compute the number of haircuts that must be given in order to achieve this goal (d) If 1500 haircuts are given in April compute the selling price that would have to be charged in order to have $2160 in operating profits

Fixed costs =5($500) + $300 + $200 + $400 + $175 + $25 =$3600 Variable costs = $300 + $090 + $035 + $015 = $440 per haircut (a) (1) $3600($8 - 440) = 1000 haircuts (2) 1000 x $800 = $8000 ) 1000(5 x~x 24) =~ L-I 1t1Jo (b) [($800 - 440) x 1400] -$-3600 = $1440 (c) ($3600 + $2160)($800 - 440) = 1600 haircuts (d) [($SP - 440) x 1500] - 3600 =2160 SP = $824 per haircut

3-2

+

5

88 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

Advertising $200 per month Rent $400 per month Barber Supplies $90 per haircut Utilities $175 per month plus $35 per haircut Magazines $ 25 per month Cleaning Supplies $15 per haircut

Stanley currently charges $8 per haircut Required (a) Com8ut~ the break-even point in number of haircu~~1 sales dollars)and sect percenta~ of capacity it ) In March 1400 haircuts were given Compute the operating profits for the month (c) Stanley wants a $2160 operating profit in April Compute the number of haircuts that must be given in order to achieve this goal (d) If 1500 haircuts are given in April compute the selling price that would have to be charged in order to have $2160 in operating profits

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88 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

Advertising $200 per month Rent $400 per month Barber Supplies $90 per haircut Utilities $175 per month plus $35 per haircut Magazines $ 25 per month Cleaning Supplies $15 per haircut

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 1400 haircuts were given Compute the operating profits for the month (c) Stanley wants a $2160 operating profit in April Compute the number of haircuts that must be given in order to achieve this goal (d) If 1500 haircuts are given in April compute the selling price that would have to be charged in order to have $2160 in operating profits

Fixed costs =5($500) + $300 + $200 + $400 + $175 + $25 =$3600 Variable costs = $300 + $090 + $035 + $015 = $440 per haircut (a) (1) $3600($8 - 440) = 1000 haircuts (2) 1000 x $800 = $8000 ) 1000(5 x~x 24) =~ L-I 1t1Jo (b) [($800 - 440) x 1400] -$-3600 = $1440 (c) ($3600 + $2160)($800 - 440) = 1600 haircuts (d) [($SP - 440) x 1500] - 3600 =2160 SP = $824 per haircut

3-2

+

88 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

Advertising $200 per month Rent $400 per month Barber Supplies $90 per haircut Utilities $175 per month plus $35 per haircut Magazines $ 25 per month Cleaning Supplies $15 per haircut

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 1400 haircuts were given Compute the operating profits for the month (c) Stanley wants a $2160 operating profit in April Compute the number of haircuts that must be given in order to achieve this goal (d) If 1500 haircuts are given in April compute the selling price that would have to be charged in order to have $2160 in operating profits

Fixed costs =5($500) + $300 + $200 + $400 + $175 + $25 =$3600 Variable costs = $300 + $090 + $035 + $015 = $440 per haircut (a) (1) $3600($8 - 440) = 1000 haircuts (2) 1000 x $800 = $8000 ) 1000(5 x~x 24) =~ L-I 1t1Jo (b) [($800 - 440) x 1400] -$-3600 = $1440 (c) ($3600 + $2160)($800 - 440) = 1600 haircuts (d) [($SP - 440) x 1500] - 3600 =2160 SP = $824 per haircut

3-2

+

-----

()eJl~

luma Inc is considering the introduction of a new music player with the following price and cost characteristics

Sales price $ 125 each Variable costs 75 each Fixed costs 180000 per year

Projected sales are 7500 units per year Required (consider each question independent of each other) (a) What will the operating profit be (b) What is the impact on operating profit if the selling price per unit decreases by 15 (c) What is the net incorne if variable costs per unit increase by 15 and Zurna has a 38 tax rate

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93 Zuma Inc is considering the introduction of a new music player with the following price and cost characteristics

Sales price $ 125 each Variable costs 75 each Fixed costs 180000 per year

Projected sales are 7500 units per year Required (consider each question independent of each other) (a) What will the operating profit be (b) What is the impact on operating profit if the selling price per unit decreases by 15 (c) What is the net income if variable costs per unit increase by 15 and Zuma has a 38 tax rate

(a) [($125 - 75)7500] -180000 =$195000 (b) [($10625 - 75)7500] - 180000 =$54375a decrease of 72 (c) [($125 - 8625)7500] -180000](1 - 38) =$6858750

AACSB Analytic AICPA FN-Decision Making Blooms Analysis Difficulty Medium Learning Objective 1 Learning Objective 2 Topic Area Cost-Volume-Profit Analysis

3-4 b

93 Zuma Inc is considering the introduction of a new music player with the following price and cost characteristics

Sales price $ 125 each Variable costs 75 each Fixed costs 180000 per year

Projected sales are 7500 units per year Required (consider each question independent of each other) (a) What will the operating profit be (b) What is the impact on operating profit if the selling price per unit decreases by 15 (c) What is the net income if variable costs per unit increase by 15 and Zuma has a 38 tax rate

(a) [($125 - 75)7500] -180000 =$195000 (b) [($10625 - 75)7500] - 180000 =$54375a decrease of 72 (c) [($125 - 8625)7500] -180000](1 - 38) =$6858750

AACSB Analytic AICPA FN-Decision Making Blooms Analysis Difficulty Medium Learning Objective 1 Learning Objective 2 Topic Area Cost-Volume-Profit Analysis

3-4 b

w ~u have been provided with the following information regarding the York Manufacturing Company

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(tJ-)This information is based on forecasted sales of 30000 units Required (a) What are the expected operating profits for the upcoming year (b) What is the break-even point in units (c) If $160000 of operating profits is desired how many units must be sold

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96 You have been provided with the following information regarding the York Manufacturing Company

Sales price $ 50 Variable manufacturing cost per unit 24 Fixed manufacturing costs per unit 12 Variable marketing cost per unit 6 Fixed administrative costs per unit )

This information is based on forecasted sales of 30000 units Required (a) What are the expected operating profits for the upcoming year (b) What is the break-even point in units (c) If $160000 of operating profits is desired how many units must be sold

(a) [($50 - 24 - 6) x 30000] - ((12 + 3) x 30000) = $150000 (b) $450000$20 = 22500 units (c) ($450000 + 160000)20 = 30500 units

AACSB Analytic AICPA FN-Decision Making Blooms Application Difficulty Hard Learning Objective 1 Learning Objective 2 Topic Area Cost-Volume-Profit Analysis

3-5

--------

I

W ~dOCk sells three products Last months results are as follows

PI P2 P3 -r-+~ Revenues $150000 $225000 $225000 00 dUV Variable costs 60000 210000 120000 3tt 0 d1f)

90to tnro - 5( cfri) l 0 ~ t rrrv 2-O(dVO F aze (~)Total fixed costs are $100000 marketing and $125000 administrative r L-- 1-) S (110

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Required (a) What was the contribution margin ratio (b) What sales volume does Craddock need to achieve a $100000 monthly profit (c) What will profits be if Craddock increases sales by 20

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99 Craddock sells three products Last months results are as follows

PI P2 P3 Revenues $150000 $225000 $225000 Variable costs 60000 210000 120000

Total fixed costs are $100000 marketing and $125000 administrative Required (a) What was the contribution margin ratio (b) What sales volume does Craddock need to achieve a $100000 monthly profit (c) What will profits be if Craddock increases sales by 20

(a) ($600000 - 390000)600000 = 35 (b) ($225000 + 100000)35 = $928571 (c) ($600000 - 390000) x 12 =$252000 - 225000 =$27000

AACSB Analytic AICPA FN-Decision Making Blooms Analysis Difficulty Hard Learning Objective 1 Learning Objective 4 Topic Area Multiproduct CVP Analysis

3-6 to

--

100 The Scottso Corporation has budgeted fixed costs of $225000 and an estimated selling price of $24 per unit Thevariable cost ratio is 40 and the company plans to sell 48000 units in 2010 Required (a) Compute the break-even point in units (b) Compute the margin of safety (in units) for 2010 (c) Compute the expected operating profit for 2010

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100 The Scottso Corporation has budgeted fixed costs of $225000 and an estimated selling price of $24 per unit The variable cost ratio is 40 and the company plans to sell 48000 units in 2010 Required (a) Compute the break-even point in units (b) Compute the margin of safety (in units) for 2010 (c) Compute the expected operating profit for 2010

(a) BE =$225000($24 - 040 x $24) =15625 units (b) Margin of safety =48000 - 15625 =32375 units (c) 48000 x ($24 x 6) - $225000 =$466200

AACSB Analytic AICPA FN-Decision Making Blooms Application Difficulty Medium Learning Objective 1 Topic Area Cost-Volume-Profit Analysis

3-7

1--

102 The sales manager of Acme Enterprises is considering expanding sales by producing three different versions of their product Each will be targeted by the marketing department to different income levels and will be produced from three different qualities of materials After reviewing the sales forecasts the sales department feels that 40 of units sold will be the original product 35 will be new model 1 and the remainder will be new model 2 The following information has been assembled by the sales department and the production department

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Sales price (per unit) $10000 $7000 $5000

Material cost l 4500 3000 1 2000 Direct labor 2000 15 00 1000 Variable overhead 1500 1l25 750

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The fixed costs associated with the manufacture of these three products are $175000 per year Required Determine the number of units of each product that would be sold at the break-even point

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102 The sales rnanager of Acme Enterprises is considering expanding sales by producing three different versions of their product Each will be targeted by the marketing department to different income levels and will be produced from three different qualities of materials After reviewing the sales forecasts the sales department feels that 40 of units sold will be the original product 35 will be new model 1 and the remainder will be new model 2 The following information has been assembled by the sales department and the production department

Original lvfodel 1 Model 2 Sales price (per unit) $10000 $7000 $50 00 Material cost 4500 3000 2000 Direct labor 2000 1500 1000 Variable overhead 1500 1125 750

The fixed costs associated with the manufacture of these three products are $175000 per year Required Determine the number of units of each product that would be sold at the break-even point

Weighted average eM =(100 - 80)(4) + (70 - 5625)(35) + (50 - 3750)(25) =$159375 BE =$175000159375 = 10980 total units Original = 10980 x 40 = 4392 units Model 1 = 10980 x 35 =3843 units Model 2 = 10980 x 25 = 2745 units

AACSB Analytic AICPA FN-Decision Making Blooms Application Difficulty Medium Learning Objective 4 Topic Area Multiproduct CVP Analysis

3-8

It

96 You have been provided with the following information regarding the York Manufacturing Company

Sales price $ 50 Variable manufacturing cost per unit 24 Fixed manufacturing costs per unit 12 Variable marketing cost per unit 6 Fixed administrative costs per unit )

This information is based on forecasted sales of 30000 units Required (a) What are the expected operating profits for the upcoming year (b) What is the break-even point in units (c) If $160000 of operating profits is desired how many units must be sold

(a) [($50 - 24 - 6) x 30000] - ((12 + 3) x 30000) = $150000 (b) $450000$20 = 22500 units (c) ($450000 + 160000)20 = 30500 units

AACSB Analytic AICPA FN-Decision Making Blooms Application Difficulty Hard Learning Objective 1 Learning Objective 2 Topic Area Cost-Volume-Profit Analysis

3-5

--------

I

W ~dOCk sells three products Last months results are as follows

PI P2 P3 -r-+~ Revenues $150000 $225000 $225000 00 dUV Variable costs 60000 210000 120000 3tt 0 d1f)

90to tnro - 5( cfri) l 0 ~ t rrrv 2-O(dVO F aze (~)Total fixed costs are $100000 marketing and $125000 administrative r L-- 1-) S (110

t

Required (a) What was the contribution margin ratio (b) What sales volume does Craddock need to achieve a $100000 monthly profit (c) What will profits be if Craddock increases sales by 20

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99 Craddock sells three products Last months results are as follows

PI P2 P3 Revenues $150000 $225000 $225000 Variable costs 60000 210000 120000

Total fixed costs are $100000 marketing and $125000 administrative Required (a) What was the contribution margin ratio (b) What sales volume does Craddock need to achieve a $100000 monthly profit (c) What will profits be if Craddock increases sales by 20

(a) ($600000 - 390000)600000 = 35 (b) ($225000 + 100000)35 = $928571 (c) ($600000 - 390000) x 12 =$252000 - 225000 =$27000

AACSB Analytic AICPA FN-Decision Making Blooms Analysis Difficulty Hard Learning Objective 1 Learning Objective 4 Topic Area Multiproduct CVP Analysis

3-6 to

--

100 The Scottso Corporation has budgeted fixed costs of $225000 and an estimated selling price of $24 per unit Thevariable cost ratio is 40 and the company plans to sell 48000 units in 2010 Required (a) Compute the break-even point in units (b) Compute the margin of safety (in units) for 2010 (c) Compute the expected operating profit for 2010

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100 The Scottso Corporation has budgeted fixed costs of $225000 and an estimated selling price of $24 per unit The variable cost ratio is 40 and the company plans to sell 48000 units in 2010 Required (a) Compute the break-even point in units (b) Compute the margin of safety (in units) for 2010 (c) Compute the expected operating profit for 2010

(a) BE =$225000($24 - 040 x $24) =15625 units (b) Margin of safety =48000 - 15625 =32375 units (c) 48000 x ($24 x 6) - $225000 =$466200

AACSB Analytic AICPA FN-Decision Making Blooms Application Difficulty Medium Learning Objective 1 Topic Area Cost-Volume-Profit Analysis

3-7

1--

102 The sales manager of Acme Enterprises is considering expanding sales by producing three different versions of their product Each will be targeted by the marketing department to different income levels and will be produced from three different qualities of materials After reviewing the sales forecasts the sales department feels that 40 of units sold will be the original product 35 will be new model 1 and the remainder will be new model 2 The following information has been assembled by the sales department and the production department

Lf-o~ 3S~ -5~ Original Model 1 Model 2

Sales price (per unit) $10000 $7000 $5000

Material cost l 4500 3000 1 2000 Direct labor 2000 15 00 1000 Variable overhead 1500 1l25 750

Zooau ~ - ~ ( 2- S-

The fixed costs associated with the manufacture of these three products are $175000 per year Required Determine the number of units of each product that would be sold at the break-even point

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102 The sales rnanager of Acme Enterprises is considering expanding sales by producing three different versions of their product Each will be targeted by the marketing department to different income levels and will be produced from three different qualities of materials After reviewing the sales forecasts the sales department feels that 40 of units sold will be the original product 35 will be new model 1 and the remainder will be new model 2 The following information has been assembled by the sales department and the production department

Original lvfodel 1 Model 2 Sales price (per unit) $10000 $7000 $50 00 Material cost 4500 3000 2000 Direct labor 2000 1500 1000 Variable overhead 1500 1125 750

The fixed costs associated with the manufacture of these three products are $175000 per year Required Determine the number of units of each product that would be sold at the break-even point

Weighted average eM =(100 - 80)(4) + (70 - 5625)(35) + (50 - 3750)(25) =$159375 BE =$175000159375 = 10980 total units Original = 10980 x 40 = 4392 units Model 1 = 10980 x 35 =3843 units Model 2 = 10980 x 25 = 2745 units

AACSB Analytic AICPA FN-Decision Making Blooms Application Difficulty Medium Learning Objective 4 Topic Area Multiproduct CVP Analysis

3-8

It

--------

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W ~dOCk sells three products Last months results are as follows

PI P2 P3 -r-+~ Revenues $150000 $225000 $225000 00 dUV Variable costs 60000 210000 120000 3tt 0 d1f)

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99 Craddock sells three products Last months results are as follows

PI P2 P3 Revenues $150000 $225000 $225000 Variable costs 60000 210000 120000

Total fixed costs are $100000 marketing and $125000 administrative Required (a) What was the contribution margin ratio (b) What sales volume does Craddock need to achieve a $100000 monthly profit (c) What will profits be if Craddock increases sales by 20

(a) ($600000 - 390000)600000 = 35 (b) ($225000 + 100000)35 = $928571 (c) ($600000 - 390000) x 12 =$252000 - 225000 =$27000

AACSB Analytic AICPA FN-Decision Making Blooms Analysis Difficulty Hard Learning Objective 1 Learning Objective 4 Topic Area Multiproduct CVP Analysis

3-6 to

--

100 The Scottso Corporation has budgeted fixed costs of $225000 and an estimated selling price of $24 per unit Thevariable cost ratio is 40 and the company plans to sell 48000 units in 2010 Required (a) Compute the break-even point in units (b) Compute the margin of safety (in units) for 2010 (c) Compute the expected operating profit for 2010

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I (

100 The Scottso Corporation has budgeted fixed costs of $225000 and an estimated selling price of $24 per unit The variable cost ratio is 40 and the company plans to sell 48000 units in 2010 Required (a) Compute the break-even point in units (b) Compute the margin of safety (in units) for 2010 (c) Compute the expected operating profit for 2010

(a) BE =$225000($24 - 040 x $24) =15625 units (b) Margin of safety =48000 - 15625 =32375 units (c) 48000 x ($24 x 6) - $225000 =$466200

AACSB Analytic AICPA FN-Decision Making Blooms Application Difficulty Medium Learning Objective 1 Topic Area Cost-Volume-Profit Analysis

3-7

1--

102 The sales manager of Acme Enterprises is considering expanding sales by producing three different versions of their product Each will be targeted by the marketing department to different income levels and will be produced from three different qualities of materials After reviewing the sales forecasts the sales department feels that 40 of units sold will be the original product 35 will be new model 1 and the remainder will be new model 2 The following information has been assembled by the sales department and the production department

Lf-o~ 3S~ -5~ Original Model 1 Model 2

Sales price (per unit) $10000 $7000 $5000

Material cost l 4500 3000 1 2000 Direct labor 2000 15 00 1000 Variable overhead 1500 1l25 750

Zooau ~ - ~ ( 2- S-

The fixed costs associated with the manufacture of these three products are $175000 per year Required Determine the number of units of each product that would be sold at the break-even point

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IS

102 The sales rnanager of Acme Enterprises is considering expanding sales by producing three different versions of their product Each will be targeted by the marketing department to different income levels and will be produced from three different qualities of materials After reviewing the sales forecasts the sales department feels that 40 of units sold will be the original product 35 will be new model 1 and the remainder will be new model 2 The following information has been assembled by the sales department and the production department

Original lvfodel 1 Model 2 Sales price (per unit) $10000 $7000 $50 00 Material cost 4500 3000 2000 Direct labor 2000 1500 1000 Variable overhead 1500 1125 750

The fixed costs associated with the manufacture of these three products are $175000 per year Required Determine the number of units of each product that would be sold at the break-even point

Weighted average eM =(100 - 80)(4) + (70 - 5625)(35) + (50 - 3750)(25) =$159375 BE =$175000159375 = 10980 total units Original = 10980 x 40 = 4392 units Model 1 = 10980 x 35 =3843 units Model 2 = 10980 x 25 = 2745 units

AACSB Analytic AICPA FN-Decision Making Blooms Application Difficulty Medium Learning Objective 4 Topic Area Multiproduct CVP Analysis

3-8

It

99 Craddock sells three products Last months results are as follows

PI P2 P3 Revenues $150000 $225000 $225000 Variable costs 60000 210000 120000

Total fixed costs are $100000 marketing and $125000 administrative Required (a) What was the contribution margin ratio (b) What sales volume does Craddock need to achieve a $100000 monthly profit (c) What will profits be if Craddock increases sales by 20

(a) ($600000 - 390000)600000 = 35 (b) ($225000 + 100000)35 = $928571 (c) ($600000 - 390000) x 12 =$252000 - 225000 =$27000

AACSB Analytic AICPA FN-Decision Making Blooms Analysis Difficulty Hard Learning Objective 1 Learning Objective 4 Topic Area Multiproduct CVP Analysis

3-6 to

--

100 The Scottso Corporation has budgeted fixed costs of $225000 and an estimated selling price of $24 per unit Thevariable cost ratio is 40 and the company plans to sell 48000 units in 2010 Required (a) Compute the break-even point in units (b) Compute the margin of safety (in units) for 2010 (c) Compute the expected operating profit for 2010

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I (

100 The Scottso Corporation has budgeted fixed costs of $225000 and an estimated selling price of $24 per unit The variable cost ratio is 40 and the company plans to sell 48000 units in 2010 Required (a) Compute the break-even point in units (b) Compute the margin of safety (in units) for 2010 (c) Compute the expected operating profit for 2010

(a) BE =$225000($24 - 040 x $24) =15625 units (b) Margin of safety =48000 - 15625 =32375 units (c) 48000 x ($24 x 6) - $225000 =$466200

AACSB Analytic AICPA FN-Decision Making Blooms Application Difficulty Medium Learning Objective 1 Topic Area Cost-Volume-Profit Analysis

3-7

1--

102 The sales manager of Acme Enterprises is considering expanding sales by producing three different versions of their product Each will be targeted by the marketing department to different income levels and will be produced from three different qualities of materials After reviewing the sales forecasts the sales department feels that 40 of units sold will be the original product 35 will be new model 1 and the remainder will be new model 2 The following information has been assembled by the sales department and the production department

Lf-o~ 3S~ -5~ Original Model 1 Model 2

Sales price (per unit) $10000 $7000 $5000

Material cost l 4500 3000 1 2000 Direct labor 2000 15 00 1000 Variable overhead 1500 1l25 750

Zooau ~ - ~ ( 2- S-

The fixed costs associated with the manufacture of these three products are $175000 per year Required Determine the number of units of each product that would be sold at the break-even point

L f-0lta j ~ vS ~

-eM 20 l 3 1S l2- ~

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-

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Fe

IS

102 The sales rnanager of Acme Enterprises is considering expanding sales by producing three different versions of their product Each will be targeted by the marketing department to different income levels and will be produced from three different qualities of materials After reviewing the sales forecasts the sales department feels that 40 of units sold will be the original product 35 will be new model 1 and the remainder will be new model 2 The following information has been assembled by the sales department and the production department

Original lvfodel 1 Model 2 Sales price (per unit) $10000 $7000 $50 00 Material cost 4500 3000 2000 Direct labor 2000 1500 1000 Variable overhead 1500 1125 750

The fixed costs associated with the manufacture of these three products are $175000 per year Required Determine the number of units of each product that would be sold at the break-even point

Weighted average eM =(100 - 80)(4) + (70 - 5625)(35) + (50 - 3750)(25) =$159375 BE =$175000159375 = 10980 total units Original = 10980 x 40 = 4392 units Model 1 = 10980 x 35 =3843 units Model 2 = 10980 x 25 = 2745 units

AACSB Analytic AICPA FN-Decision Making Blooms Application Difficulty Medium Learning Objective 4 Topic Area Multiproduct CVP Analysis

3-8

It

--

100 The Scottso Corporation has budgeted fixed costs of $225000 and an estimated selling price of $24 per unit Thevariable cost ratio is 40 and the company plans to sell 48000 units in 2010 Required (a) Compute the break-even point in units (b) Compute the margin of safety (in units) for 2010 (c) Compute the expected operating profit for 2010

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1 (c) I f~1CD

I (

100 The Scottso Corporation has budgeted fixed costs of $225000 and an estimated selling price of $24 per unit The variable cost ratio is 40 and the company plans to sell 48000 units in 2010 Required (a) Compute the break-even point in units (b) Compute the margin of safety (in units) for 2010 (c) Compute the expected operating profit for 2010

(a) BE =$225000($24 - 040 x $24) =15625 units (b) Margin of safety =48000 - 15625 =32375 units (c) 48000 x ($24 x 6) - $225000 =$466200

AACSB Analytic AICPA FN-Decision Making Blooms Application Difficulty Medium Learning Objective 1 Topic Area Cost-Volume-Profit Analysis

3-7

1--

102 The sales manager of Acme Enterprises is considering expanding sales by producing three different versions of their product Each will be targeted by the marketing department to different income levels and will be produced from three different qualities of materials After reviewing the sales forecasts the sales department feels that 40 of units sold will be the original product 35 will be new model 1 and the remainder will be new model 2 The following information has been assembled by the sales department and the production department

Lf-o~ 3S~ -5~ Original Model 1 Model 2

Sales price (per unit) $10000 $7000 $5000

Material cost l 4500 3000 1 2000 Direct labor 2000 15 00 1000 Variable overhead 1500 1l25 750

Zooau ~ - ~ ( 2- S-

The fixed costs associated with the manufacture of these three products are $175000 per year Required Determine the number of units of each product that would be sold at the break-even point

L f-0lta j ~ vS ~

-eM 20 l 3 1S l2- ~

~jmiddotLJeJ ~ + if 12~ +-

-

3 I~ ( 1 ~ I ~7~ I eM

Fe

IS

102 The sales rnanager of Acme Enterprises is considering expanding sales by producing three different versions of their product Each will be targeted by the marketing department to different income levels and will be produced from three different qualities of materials After reviewing the sales forecasts the sales department feels that 40 of units sold will be the original product 35 will be new model 1 and the remainder will be new model 2 The following information has been assembled by the sales department and the production department

Original lvfodel 1 Model 2 Sales price (per unit) $10000 $7000 $50 00 Material cost 4500 3000 2000 Direct labor 2000 1500 1000 Variable overhead 1500 1125 750

The fixed costs associated with the manufacture of these three products are $175000 per year Required Determine the number of units of each product that would be sold at the break-even point

Weighted average eM =(100 - 80)(4) + (70 - 5625)(35) + (50 - 3750)(25) =$159375 BE =$175000159375 = 10980 total units Original = 10980 x 40 = 4392 units Model 1 = 10980 x 35 =3843 units Model 2 = 10980 x 25 = 2745 units

AACSB Analytic AICPA FN-Decision Making Blooms Application Difficulty Medium Learning Objective 4 Topic Area Multiproduct CVP Analysis

3-8

It

100 The Scottso Corporation has budgeted fixed costs of $225000 and an estimated selling price of $24 per unit The variable cost ratio is 40 and the company plans to sell 48000 units in 2010 Required (a) Compute the break-even point in units (b) Compute the margin of safety (in units) for 2010 (c) Compute the expected operating profit for 2010

(a) BE =$225000($24 - 040 x $24) =15625 units (b) Margin of safety =48000 - 15625 =32375 units (c) 48000 x ($24 x 6) - $225000 =$466200

AACSB Analytic AICPA FN-Decision Making Blooms Application Difficulty Medium Learning Objective 1 Topic Area Cost-Volume-Profit Analysis

3-7

1--

102 The sales manager of Acme Enterprises is considering expanding sales by producing three different versions of their product Each will be targeted by the marketing department to different income levels and will be produced from three different qualities of materials After reviewing the sales forecasts the sales department feels that 40 of units sold will be the original product 35 will be new model 1 and the remainder will be new model 2 The following information has been assembled by the sales department and the production department

Lf-o~ 3S~ -5~ Original Model 1 Model 2

Sales price (per unit) $10000 $7000 $5000

Material cost l 4500 3000 1 2000 Direct labor 2000 15 00 1000 Variable overhead 1500 1l25 750

Zooau ~ - ~ ( 2- S-

The fixed costs associated with the manufacture of these three products are $175000 per year Required Determine the number of units of each product that would be sold at the break-even point

L f-0lta j ~ vS ~

-eM 20 l 3 1S l2- ~

~jmiddotLJeJ ~ + if 12~ +-

-

3 I~ ( 1 ~ I ~7~ I eM

Fe

IS

102 The sales rnanager of Acme Enterprises is considering expanding sales by producing three different versions of their product Each will be targeted by the marketing department to different income levels and will be produced from three different qualities of materials After reviewing the sales forecasts the sales department feels that 40 of units sold will be the original product 35 will be new model 1 and the remainder will be new model 2 The following information has been assembled by the sales department and the production department

Original lvfodel 1 Model 2 Sales price (per unit) $10000 $7000 $50 00 Material cost 4500 3000 2000 Direct labor 2000 1500 1000 Variable overhead 1500 1125 750

The fixed costs associated with the manufacture of these three products are $175000 per year Required Determine the number of units of each product that would be sold at the break-even point

Weighted average eM =(100 - 80)(4) + (70 - 5625)(35) + (50 - 3750)(25) =$159375 BE =$175000159375 = 10980 total units Original = 10980 x 40 = 4392 units Model 1 = 10980 x 35 =3843 units Model 2 = 10980 x 25 = 2745 units

AACSB Analytic AICPA FN-Decision Making Blooms Application Difficulty Medium Learning Objective 4 Topic Area Multiproduct CVP Analysis

3-8

It

102 The sales manager of Acme Enterprises is considering expanding sales by producing three different versions of their product Each will be targeted by the marketing department to different income levels and will be produced from three different qualities of materials After reviewing the sales forecasts the sales department feels that 40 of units sold will be the original product 35 will be new model 1 and the remainder will be new model 2 The following information has been assembled by the sales department and the production department

Lf-o~ 3S~ -5~ Original Model 1 Model 2

Sales price (per unit) $10000 $7000 $5000

Material cost l 4500 3000 1 2000 Direct labor 2000 15 00 1000 Variable overhead 1500 1l25 750

Zooau ~ - ~ ( 2- S-

The fixed costs associated with the manufacture of these three products are $175000 per year Required Determine the number of units of each product that would be sold at the break-even point

L f-0lta j ~ vS ~

-eM 20 l 3 1S l2- ~

~jmiddotLJeJ ~ + if 12~ +-

-

3 I~ ( 1 ~ I ~7~ I eM

Fe

IS

102 The sales rnanager of Acme Enterprises is considering expanding sales by producing three different versions of their product Each will be targeted by the marketing department to different income levels and will be produced from three different qualities of materials After reviewing the sales forecasts the sales department feels that 40 of units sold will be the original product 35 will be new model 1 and the remainder will be new model 2 The following information has been assembled by the sales department and the production department

Original lvfodel 1 Model 2 Sales price (per unit) $10000 $7000 $50 00 Material cost 4500 3000 2000 Direct labor 2000 1500 1000 Variable overhead 1500 1125 750

The fixed costs associated with the manufacture of these three products are $175000 per year Required Determine the number of units of each product that would be sold at the break-even point

Weighted average eM =(100 - 80)(4) + (70 - 5625)(35) + (50 - 3750)(25) =$159375 BE =$175000159375 = 10980 total units Original = 10980 x 40 = 4392 units Model 1 = 10980 x 35 =3843 units Model 2 = 10980 x 25 = 2745 units

AACSB Analytic AICPA FN-Decision Making Blooms Application Difficulty Medium Learning Objective 4 Topic Area Multiproduct CVP Analysis

3-8

It

102 The sales rnanager of Acme Enterprises is considering expanding sales by producing three different versions of their product Each will be targeted by the marketing department to different income levels and will be produced from three different qualities of materials After reviewing the sales forecasts the sales department feels that 40 of units sold will be the original product 35 will be new model 1 and the remainder will be new model 2 The following information has been assembled by the sales department and the production department

Original lvfodel 1 Model 2 Sales price (per unit) $10000 $7000 $50 00 Material cost 4500 3000 2000 Direct labor 2000 1500 1000 Variable overhead 1500 1125 750

The fixed costs associated with the manufacture of these three products are $175000 per year Required Determine the number of units of each product that would be sold at the break-even point

Weighted average eM =(100 - 80)(4) + (70 - 5625)(35) + (50 - 3750)(25) =$159375 BE =$175000159375 = 10980 total units Original = 10980 x 40 = 4392 units Model 1 = 10980 x 35 =3843 units Model 2 = 10980 x 25 = 2745 units

AACSB Analytic AICPA FN-Decision Making Blooms Application Difficulty Medium Learning Objective 4 Topic Area Multiproduct CVP Analysis

3-8

It

105 The Spice House packages horseradish and mustards in a factory that can operate one two or three shifts The product sells for $10 a case and has variable costs of $4 per case Fixed costs are related to the number of shifts that are operated with the estimated costs as follows

Dailv volume Fixed Costs 1 shift 0 - 2000 $3000 2 shifts 2001 - 4000 $5 700 3 shifts 4001 - 6000 $8200

Required (a) Determine the break-even point(s) (b) If Spice House can sell all it can produce how many shifts should be operated

Igt

105 The Spice House packages horseradish and mustards in a factory that can operate one two or three shifts The product sells for $10 a case and has variable costs of $4 per case Fixed costs are related to the number of shifts that are operated with the estimated costs as follows

Daily volume Fixed Costs 1 shift 0-2000 $3000 2 shifts 2001 - 4000 $5 700 1 shifts 4001 - 6000 $8200

Required (a) Determine the break-even point(s) (b) If Spice House can sell all it can produce how many shifts should be operated

1shift = $3000(10 - 4) = 500 cases break-even 2shifts =$57006 = 950 cases break-even 3 shifts = $82006 = 1367 cases break-even Spice House will break-even at any shift level (b) 1shift 2000 x 6 - 3000 = $9000 2shift 4000 x 6 - 5700 = $18300 3shift 6000 x 6 - 8200 = $27800 Spice House will maximize profits by operating 3 shifts

AACSB Analytic AICPA FN-Decision Making Blooms Synthesis Difficulty Hard Learning Objective 4 Topic Area Alternative Cost Structures

3-9

lfo

105 The Spice House packages horseradish and mustards in a factory that can operate one two or three shifts The product sells for $10 a case and has variable costs of $4 per case Fixed costs are related to the number of shifts that are operated with the estimated costs as follows

Daily volume Fixed Costs 1 shift 0-2000 $3000 2 shifts 2001 - 4000 $5 700 1 shifts 4001 - 6000 $8200

Required (a) Determine the break-even point(s) (b) If Spice House can sell all it can produce how many shifts should be operated

1shift = $3000(10 - 4) = 500 cases break-even 2shifts =$57006 = 950 cases break-even 3 shifts = $82006 = 1367 cases break-even Spice House will break-even at any shift level (b) 1shift 2000 x 6 - 3000 = $9000 2shift 4000 x 6 - 5700 = $18300 3shift 6000 x 6 - 8200 = $27800 Spice House will maximize profits by operating 3 shifts

AACSB Analytic AICPA FN-Decision Making Blooms Synthesis Difficulty Hard Learning Objective 4 Topic Area Alternative Cost Structures

3-9

lfo