# FAFNA Cost Vol Profit Assignement 6

SHOW YOUR WORK FOR CALCULATION PROBLEMS

Based on the following information, complete the problems listed below on the Airwolf Helicopters Company. [In $ Dollars 000]

Sales……………$75,000

Gross Margin…60%

Op. Expenses..$12,000

# Units shipped…15

Operating Profit?

Gross Profit (GP)= Gross Margin x Sales

= 75,000 x 0.60

=45,000

Operating Profit (OP)= GP-Operating Exp (OE)

OP= 45,000-12,000

OP= 33,000

The remaining questions are based on the following assumptions: (1) Cost of Sales & Operating Expenses are Fixed Costs; (2) Contribution Margin =60%.

Break Even level in Units?

Break Even (BE)= Fixed Cost (FC)/Contribution Margin (CM)

Cost of Sales = Sales – GP

= 75,000 – 45,000

= 30,000

Since Cost of Sales & OE are Fixed Costs, this implies

FC =30,000 + 12,000 = 42,000

Contribution Margin per unit = Average Selling Price (ASP) – Variable Cost (VC) ASP = Sales / units = 75,000/15 = 5,000

CM value basis = (CM %) x ASP

=(0.60) x 5,000 = 3,000

Calculations:

CM = ASP – VC

CM = 5,000 – VC

3,000 = 5000 – VC

This implies VC = 2,000, which yields CM of 3,000 which is 60% of ASP. Break-even units = FC / ASP – VC

= 42,000/ (5,000-2,000)

= 42,000/3,000

= 14

Break Even sales Level?

Break-even sales = (Break-even units) x ASP

= 14 x 5,000

= 70,000

Calculation:

Break-even sales = Total Costs (TC) = FC + VC

FC = 42,000 [as above]

VC = (# units) x (VC per unit) = 14 x 2,000 = 28,000

Therefore;

TC = FC + VC = 42,000 + 28,000 = 70,000

And hence

TC = 70,000 = Break-even Sales

Total cost & breakdown between fixed and variable costs?

Total Cost (TC) = FC + VC

= 42,000 + 28,000

= 70,000

Calculation:

FC = 42,000 [see above]

VC = (# units) x (VC per unit)

= 14 x 2,000

= 28,000

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