Chapter 8: Cost-Volume-Profit Analysis Chapter Review Solutions

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1 Chapter 8: Cost-Volume-Profit Analysis Chapter Review Solutions 2. % Fees $ Var Costs Cont Margin $ Sales Break Even ( hours ) + Required Profit 4. ( a ) Sales $25.00 Sales $31.00 Var Costs Var Costs Cont Margin $10.00 Cont Margin $16.00 $100,000 + $ 38,000 30,000 $4.60 hours Sales B/e units $10,000 1,000 units Cont. Margin $10 Sales B/e units $10, units Cont. Margin $16 6. ( a ) Selling Price $ % - Variable Cost % $ % Sales Break Even ( units ) $13, units $26.00 $13,000 $32,500 Ratio 0.40 Sales Break Even ( units ) + Required Profit $13,000 + $ 26,000 1,500 units $

2 Management Accounting - Solutions 8. ( a ) Product Gross Profit C.O.G.S Markup x 25,000 35, % y 20,000 35, % z 42,000 53, % Product Gross Profit Sales Gross Profit Rate x 25,000 60, % y 20,000 55, % z 42,000 95, % Total 87, , % ( 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 Less Variable costs Break even quantity $110,000 1,000 units $110 : $110 Ratio 55% 56

3 12. $ % Revenue 130, Variable Cost 74, , ,100 Profit 7,150 ( a ) Required Sales 10,200 $24, New Variable Exp. per Unit $ x 0.90 New $9.65 $ New Sales Volume 6,175 6,500 units x 0.95 new net profit - Fixed Expenses (6,175 x 9.65) - (48, ,000) 59, ,100 $6, the company should not reduce sales commissions as the net profit would reduce from $7,150 to $6, ( c ) New Variable Expenses $ x 1.1 New Fixed Expenses $40,885 48,100 x 0.85 New Sales Volume 7,800 units 6,500 x 1.2 Ratio ( / ) 40,885 Break-even $111,252 / ( d ) New Sales 8,320 units 6,500 x 1.28 New $70,720 8,320 x 8.50 Expected Net Profit - 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. 57

4 Management Accounting - Solutions 14. ( a ) $ per unit % Selling Price 576, Less Variable costs 216, Contribution margin per unit 360, Less s 200,000 Equals Profit 160,000 Break-even point ( units ) $200,000 40,000 units $5.00 Break-even point ( $ ) $200,000 $320, ( c ) Sales req for profit $200,000 + $320, ,000 units of $320,000 $5.00 ( d ) Margin of Safety 576, ,000 $256,000 ( e ) $ per unit % Selling Price Less Variable costs Contribution margin per unit ( i ) Sales B/even $250,000 62,500 units $4.00 ( f ) Selling Price Less Variable costs Variable Profit per unit Contribution margin per unit Break-even point ( $ ) $200,000 $400,

5 16. ( a ) $ % Revenue 1,920, Variable Cost 1,152, , ,000 Profit 168,000 s. $ 600,000 18,750 Units $32 Revenue 1,920, Variable Cost 1,152,000 ( ) , ,000 Profit 168,000 s. $ 600,000 $2,400,000 Ratio 0.25 ( c ) Hours 1,920,000 24,000 hrs 80 Variable cost 1,152,000 $48 Hours 24, Sales 4,800 $ Variable 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 ) $ $ 0.50 s $ 1,650 3,300 Kgs 0.50 ( c ) s + Required Profit 1, ,500 6,300 Kgs 0.50 ( d ) s 1,650 6,600 Kgs 0.25 Sales $ Variable Cost ( )

6 Management Accounting - Solutions ( e ) Profit before tax ( $1,225 / 0.70 ) 1,750 s + Required Profit 1, ,750 6,800 Kgs Sales Variable Cost ,000 ( a ) Breakeven (s) $300,000 6,000 units 50 To make an operating profit of $15,000 s + Required Profit 300, ,000 6,300 Units 50 ( c ) At 7,000 units Sales 7,000 x ,000 Less Costs: Variable Costs 7,000 x ,000 Equals 350,000 Less s 300,000 Operating Profit $50,000 ( d ) Sales Less Variable Cost Equals Breakeven (s) $297,500 8,500 units 35 ( e ) Sales Less Variable Cost Equals Breakeven (s) $300,000 5,000 units 60 ( f ) New fixed costs 300, ,000 $350,000 per annum Breakeven (s) $350,000 7,000 units 50 60

7 22. ( a ) Selling price $25 Less Variable cost 10 Contribution margin 15 Break-even point (units) $115,800 7,720 units $15 Sales required (units) $115, ,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 61

VARIANCE ANALYSIS: ILLUSTRATION

VARIANCE ANALYSIS: ILLUSTRATION The following information relates to the production of product Alpha for the month of August Standard Cost Card Budgeted production overhead based on 10,000 units $ $ Selling