Chapter 8: Cost-Volume-Profit Analysis

Chapter 8: Cost-Volume-Profit Analysis

Chapter Review Solutions
2.
%
Fees $10.00 100.00
Var Costs - 5.40 - 54.00
Cont Margin $ 4.60 46.00

Sales Break Even ( hours ) = Fixed Cost + Required Profit

Contribution Margin

= $100,000 + $ 38,000 = 30,000

$4.60 hours

4. (a)
Sales $25.00 Sales $31.00
Var Costs - 15.00 Var Costs - 15.00
Cont Margin $10.00 Cont Margin $16.00

Sales B/e units = Fixed Cost = $10,000 = 1,000 units

Cont. Margin $10
(b)
Sales B/e units = Fixed Cost = $10,000 = 625 units
Cont. Margin $16

6. (a)
Selling Price $65.00 100 %
- Variable Cost - 39.00 60 %
= Contribution Margin $26.00 40 %

Sales Break Even ( units ) = Fixed Cost = $13,000 = 500 units

Contribution Margin $26.00

= Fixed Cost = $13,000 = $32,500

Contribution Margin Ratio 0.40

(b)
Sales Break Even ( units ) = Fixed Cost + Required Profit
Contribution Margin

= $13,000 + $ 26,000 = 1,500 units

$26.00

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Management Accounting - Solutions

8. (a)

Product Gross Profit C.O.G.S Markup

x 25,000 35,000 71.43%
y 20,000 35,000 57.14%
z 42,000 53,000 79.25%

(b) Product Gross Profit Sales Gross Profit

Rate
x 25,000 60,000 41.67%
y 20,000 55,000 36.36%
z 42,000 95,000 44.21%
Total 87,000 210,000 41.43%

(c) If the company’s target gross profit rate is 40% , it is apparent that:
 Product y is achieving a lower margin return possibly due to stock
surpluses, obsolescence or the need to increase the selling price.

 Product z is achieving a higher margin return possibly due to special sales

or greater than anticipated demand allowing a higher selling price.

10.
$ %
Sales price 200 100.00
Less Variable costs - 90 45.00
Contribution Margin 110 55.00

Break even quantity = Fixed Cost = $110,000 1,000 units

Contribution Margin $110

Contribution Margin: $110

Contribution Margin Ratio 55%

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 Chapter 8: Cost-Volume-Profit Analysis

12.
$ %
Revenue 130,000 20.00 100.00
Variable Cost 74,750 11.50 57.50
Contribution Margin 55,250 8.50 42.50
Fixed Cost 48,100
Profit 7,150

(a) Required Sales = 10,200 = $24,000

0.4250

(b) New Variable Exp. per Unit = $10.35 11.50 x 0.90

New Contribution Margin = $9.65 $20.00 - 10.35
New Sales Volume = 6,175 6,500 units x 0.95

 new net profit = Contribution Margin - Fixed Expenses

= (6,175 x 9.65) - (48,100 + 5,000)
= 59,588.75 - 53,100
= $6,488.75

 the company should not reduce sales commissions as the net profit would
reduce from $7,150 to $6,488.75.

(c) New Variable Expenses = $12.65 11.50 x 1.1

New Fixed Expenses = $40,885 48,100 x 0.85
New Sales Volume = 7,800 units 6,500 x 1.2
12.65
Contribution Margin Ratio = 0.3675 1-( /20.00)
40,885
Break-even = $111,252 /0.3675

(d) New Sales = 8,320 units 6,500 x 1.28

New Contribution Margin = $70,720 8,320 x 8.50
Expected Net Profit = Contribution Margin - Fixed Expenses
= 70,720 - 48,100
= 22,620

Actual Net Profit = $25,025 7,150 + (7,150 x 2.5)

 the company did better than expected.

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Management Accounting - Solutions

14. (a)
$ per unit %
Selling Price 576,000 8.00 100.00
Less Variable costs 216,000 3.00 37.50
Contribution margin per unit 360,000 5.00 62.50
Less Fixed Costs 200,000
Equals Profit 160,000

(b)
Break-even point ( units ) = $200,000 = 40,000 units
$5.00

Break-even point ($) = $200,000 = $320,000

0.625

(c)
Sales req for profit = $200,000 + $320,000 = 104,000 units
of $320,000 $5.00

(d)
Margin of Safety = 576,000 – 320,000 = $256,000

(e)
$ per unit %
Selling Price 8.00 100.00
Less Variable costs 2.00 25.00
Contribution margin per unit 6.00 75.00
(i)
Sales B/even = $250,000 = 62,500 units
$4.00

(f)
Selling Price 100.00
Less Variable costs 37.50
Variable Profit per unit 12.50 - 50.00
Contribution margin per unit 50.00

Break-even point ( $ ) = $200,000 = $400,000

0.5

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 Chapter 8: Cost-Volume-Profit Analysis

16. ( a ) $ %
Revenue 1,920,000 80.00 100.00
Variable Cost 1,152,000 48.00 60.00
Contribution Margin 768,000 32.00 40.00
Fixed Cost 600,000
Profit 168,000

Fixed Costs . = $ 600,000 = 18,750 Units

Contribution Margin $32
(b)
Revenue 1,920,000 80.00 100.00
Variable Cost 1,152,000 ( 48 + 12 ) 60.00 75.00
Contribution Margin 768,000 20.00 25.00
Fixed Cost 600,000
Profit 168,000

Fixed Costs . = $ 600,000 = $2,400,000

Contribution Margin Ratio 0.25

(c) Hours = 1,920,000 = 24,000 hrs

80
Variable cost = 1,152,000 = $48
Hours 24,000

18.
Sales 4,800 $0.80 100.00
Variable Cost 1,800 0.30 37.50
Contribution Margin 3,000 0.50 62.50
Fixed Cost 1,650
Profit 1,350

(a) Selling price $ 0.80

Less Variable Cost ( Laundry 1,380 / 6,000 ) $0.23
( Admin 420 / 6,000 ) $0.07 - 0.30
Contribution Margin $ 0.50

(b) Fixed Costs = $ 1,650 = 3,300 Kgs

Contribution Margin 0.50

(c) Fixed Costs + Required Profit = 1,650 + 1,500 = 6,300 Kgs

Contribution Margin 0.50

(d) Fixed Costs = 1,650 = 6,600 Kgs

Contribution Margin 0.25

Sales $0.80 100.00

Variable Cost ( 0.30 + 0.25 ) 0.55 68.75
Contribution Margin 0.25 31.25

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Management Accounting - Solutions

(e) Profit before tax ( $1,225 / 0.70 ) = 1,750

Fixed Costs + Required Profit = 1,650 + 1,750 = 6,800 Kgs

Contribution Margin 0.50

20.
Sales 75 100.00
Variable Cost 25 33.33
Contribution Margin 50 66.67

Fixed Cost 300,000

Fixed Cost $300,000

(a) Breakeven (s) = = = 6,000 units
Contribution Margin 50

(b) To make an operating profit of $15,000

Fixed Costs + Required Profit = 300,000 + 15,000 = 6,300 Units
Contribution Margin 50

(c) At 7,000 units

Sales 7,000 x 75 525,000
Less Costs: Variable Costs 7,000 x 25 175,000
Equals Contribution Margin 350,000
Less Fixed Costs 300,000
Operating Profit $50,000

(d) Sales 60 100.00

Less Variable Cost - 25 42.00
Equals Contribution Margin 35 58.00

Fixed Cost $297,500

Breakeven (s) = = = 8,500 units
Contribution Margin 35

(e) Sales 75 100.00

Less Variable Cost - 15 20.00
Equals Contribution Margin 60 80.00

Fixed Cost $300,000

Breakeven (s) = = = 5,000 units
Contribution Margin 60

(f) New fixed costs = 300,000 + 50,000 = $350,000 per annum

Fixed Cost $350,000

Breakeven (s) = = = 7,000 units
Contribution Margin 50

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 Chapter 8: Cost-Volume-Profit Analysis

22. (a)
Selling price $25
Less Variable cost 10
Contribution margin 15

Break-even point (units) = $115,800 = 7,720 units

$15

( b ) Sales required (units) = $115,800 + 75,000 = 12,720 units

$15

( c ) Sales required (units) = $115,800 = 9, 264 units

($15 - $2.50)

(d) Sales increase (units) = $36,000 = 2,400 units

$15

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