ACCT1501 presentation

Topics: Variable cost, Costs, Cost, Marginal cost, Contribution margin / Pages: 4 (288 words) / Published: Sep 12th, 2014
YCube Ltd
Case Study

Key Information o In 2011, YCube sold 35,000 games at $40 each. o Total Costs amounted to $550,000 of which $200,000 were fixed. o In 2012, the company replaces a part that costs $3.00 with a better part costing $4.50 per unit. o An installation in the same year costs $20,000 with a useful life of 5 years and no salvage value. It follows straight-line depreciation.

Useful Equations
Profit = Revenue − Total costs
Profit = P? − UVC? − FC
Profit + FC = ?(P − UVC)
FC + Profit
?=
P − UVC

Contribution margin ratio:

Unit selling price − Unit variable cost
Unit selling price

Q1: What was YCube Ltd’s break-even point in number of units in 2011?

Total variable cost
Number of units sold

?=

?? + ??????
? − ???

Total cost −fixed cost
=
Number of units solds

?=

200 000
40 − 10

350 000
=
35 000

? = 6667 ?????

UVC =

= $10
Break-even analysis: Profit = 0

Q2: How many units would the company have had to sell in 2011 to earn a profit of $140 000?

?? + ??????
?=
? − ???
200 000 + 140 000
?=
40 − 10
? = 11 333 ?????

Q3: If YCube holds the sales price constant and makes the suggested changes, how many units of product must be sold in 2012 to break even?
Firstly, machine depreciation must be taken into account:
i.e.

20000
= 4000 → FC = 200000 + 4000 = 204000
5

Therefore, using Profit = (P – UVC)x – FC:

?=

204000 + 0
(40 − 10 + 4.5 − 3 )

? = 7158 ?????

Q:4 If the firm holds price constant and makes the suggested changes, how many units of product will the company have to sell in 2012, to make the same net profit as in 2011?
Profit2012 = Profit2011 = 850 000
Again, using our trusty formula Profit = (P – UVC)x – FC, the required unit count is:

204000 + 850000
?=
40 − 11.5
? = 36982 units

Q:5 If YCube wishes to maintain the same contribution margin ratio in 2012 as it had in 2011, what selling price per unit must it charge to cover
the

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