# Exercises and Problems Cvp

Pages: 7 (1807 words) Published: April 2, 2012
CVP: EXERCISES AND PROBLEMS 1. Gilley, Inc., sells a single product. The company's most recent income statement is given below. Sales (4,000 units) Less variable expenses Contribution margin Less fixed expenses Net income Required: a. b. Contribution margin per unit is If sales are doubled to \$240,000, total variable costs will equal If sales are doubled to \$240,000, total fixed costs will equal If 10 more units are sold, profits will increase by Compute how many units must be sold to break even. Compute how many units must be sold to achieve profits of \$20,000. \$ _______________ per unit \$120,000 (68,000) 52,000 (40,000) \$ 12,000

\$ _______________

c.

\$ _______________ \$ _______________ # _______________

d. e. f.

# _______________

Answer: a. b. c. d. e. f. Contribution margin per unit is \$30 – \$17 = \$13 \$68,000 x 2 = \$136,000 \$40,000 Contribution margin of \$13 x 10 units = \$130 Fixed costs of \$40,000 / Contribution margin per unit \$13 = 3,077 units (Fixed costs of \$40,000 + Profits \$20,000) / CM per unit \$13 = 4,616 units

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2.

Blankinship, Inc., sells a single product. The company's most recent income statement is given below. Sales Less variable expenses Contribution margin Less fixed expenses Net income Required: a. b. c. d. Contribution margin ratio is Breakeven point in total sales dollars is To achieve \$40,000 in net income, sales must total If sales increase by \$50,000, net income will increase by __________ % \$ _______________ \$ _______________ \$ _______________ \$200,000 (120,000) 80,000 (50,000) \$ 30,000

Answer: a. b. c. d. Contribution margin ratio is \$80,000 / \$200,000 = 40% Fixed costs \$50,000 / 0.40 CM% = \$125,000 in sales [Fixed costs \$50,000 + Net income \$40,000] / 0.40 CM% = \$225,000 in sales \$50,000 x 0.40 CM% = \$20,000 increase in net income

3.

In 2004, Grant Company has sales of \$800,000, variable costs of \$200,000, and fixed costs of \$300,000. In 2005, the company expects annual property taxes to decrease by \$15,000. Required: a. Calculate operating income and the breakeven point for 2004. b. Calculate the breakeven point for 2005.

In 2004, operating income is \$800,000 sales revenue – \$200,000 variable costs – \$300,000 fixed costs = \$300,000. The breakeven point for 2004 is \$400,000 in total sales dollars. \$600,000 CM / \$800,000 sales revenue = 0.75 CM ratio. \$300,000 total fixed costs / 0.75 CM ratio = \$400,000 in total sales to break even.

b.

The breakeven point for 2005 is \$380,000 in total sales dollars. \$300,000 fixed costs – \$15,000 reduction in property taxes = \$285,000 estimated fixed costs for 2005. \$285,000 total fixed costs / 75% CM ratio = \$380,000 in total sales to break even. 2

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4.

Berhannan’s Cellular sells phones for \$100. The unit variable cost per phone is \$50 plus a selling commission of 10%. Fixed manufacturing costs total \$1,250 per month, while fixed selling and administrative costs total \$2,500. Required: a. What is the contribution margin per phone? b. What is the breakeven point in phones? c. How many phones must be sold to earn pretax income of \$7,500?

Answer: a. CM per phone = \$100 – \$50 – 0.1(\$100) = \$40 b. N = Breakeven in phones \$100N – \$50N – \$10N – \$1,250 – \$2,500 = 0 \$40N – \$3,750 = 0 N = \$3,750 / \$40 = 93.75 phones Breakeven is 94 phones c. N = Phones to be sold \$100N – \$50N – \$10N – \$1,250 – \$2,500 = \$7,500 \$40N = \$11,250 N = \$11,250 / \$40 = 281.25 phones 282 phones must be sold

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Alex Miller, Inc., sells car batteries to service stations for an average of \$30 each. The variable cost of each battery is \$20 and monthly fixed manufacturing costs total \$10,000. Other monthly fixed costs of the company total \$8,000. Required: a. b. c. d. What is the breakeven point in batteries? What is the margin of safety,...