Homework chapter 6

6-1
1. The sales volume increases by 100 units
Total Per unit
Sales (10,100 units) $353,500 $35.00
Variable expenses 202,000 20.00
Contribution margin $151,500 $15.00
Fixed expenses 135,000
Net operating income 16,500
2. The sales volume decreases by 100 units
Total Per unit
Sales (9,900 units) $346,500 $35.00
Variable expenses 198,000 20.00
Contribution margin $148,500 $15.00
Fixed expenses 135,000
Net operating income $13,500
3. The sales volume is 9,000 units
Total Per unit
Sales (9,000 units) $315,000 $35.00
Variable expenses 180,000 20.00
Contribution margin $135,000 $15.00
Fixed expenses 135,000
Net operating income $0
6-2
Price=$24
Variable expense=$18 per unit
Fixed expense= $24,000
1. Graph
2. Break-even point
 Profit=0
 0 = (P-V) * Q – fixed expense = (24-18) * Q – 24,000
 Q = 4,000 units
6-3
P = $16
V = $11 per unit
Fixed expense = $16,000
1. Graph
2. Break-even point
 Q = fixed expense/(P-V) = 3,200 units
6-4
50,000 units
Sales = $200,000
V = $120,000
Fixed expenses = $65,000
Contributionmargin $ 80,000
1. CM ratio = = = 40%
Sales $ 200,000
2. Sales increase by $1,000
Because fixed expense is unchanged regardless of changing in sales, changes in NOI
equals change in total CM = change in sales times CM ratio = $1,000 * 40% = $400
24
1.
2,000 units 2,100 units
Sales 180,000 189,000
Less: variable expenses 126,000 132,300
Contribution margin 54,000 56,700
Less: fixed expense 30,000 35,000
Net operating income 24,000 21,700
 No
2.
2,000 units 2,200 units
Sales 180,000 198,000 (= 180*(1+10%))
Less: variable expenses 126,000 143,000 (=2,200u*$65)
Contribution margin 54,000 55,000
Less: fixed expense 30,000 30,000
Net operating income 24,000 25,000
 Yes
6-6
P = $120
V = $80 per unit
Fixed expense = $50,000
1. To earn target profit of $10,000:
10,000 = (P-V) * Q – fixed expense = (120-80) * Q – 50,000
 Q = 1,500 units
2. To earn target profit of $15,000:
15,000 = (P-V) * Q – fixed expense = (120-80) *Q – 50,000
 Q = 1,625 units
6-7
1. Margin of safety in dollars = total sales – break-even sales = 30*1,000 – 22,500 =
$7,500
Break-even sales: Q = 7,500/ (30-20) = 750 => break-even sales = 750*30 = 22,500
2. Margin as a percentage of its sales = 7,500/30,000 = 25%
6-8
1. Degree of operating leverage = CM/NOI = 48,000/10,000 = 4.8
2. 5% increase in sales * operating leverage = 5%*4.8 = 24% increase in NOI
3.
Amount 5% increase in Percent of sales
sales
Sales $80,000 $84,000 100%
Variable expenses 32,000 33,600 40%
Contribution margin 48,000 50,400 60%
Fixed expenses 38,000 38,000
Net operating 10,000 12,400
income
6-9
1. Overall contribution margin ratio = CM/Sales = 30,000/100,000 = 30%
2. Overall break-even point in dollar sales = fixed expense/CM ratio = 24,000/30% =
$80,000
3. Break-even point
Climjumper Percent Makeover Percent Total Percent
of sales of sales of sales
Sales 24,000 100% 56,000 100% $80,000 100%
Variable 16,000 66.67% 40,000 71.43% 56,000 70%
expense
Contribution 8,000 33.33% 16,000 28.57% 24,000 30%
margin
Fixed 24,000
expense
Net 0
operating
income

6-10
a.
Case Units sold Sales Variable Contributio Fixed Net
expenses n margin per expenses operating
unit income
(loss)
1 15,000 $180,000 $120,000 $60,000 $50,000 $10,000
2 ???? $100,000 $90,000 $10,000 $32,000 $8,000
3 10,000 $83,000 $70,000 $13,000 $1,000 $12,000
4 6,000 $300,000 $210,000 $90,000 $100,000 $(10,000)
b.
Case Sales Variable Average Fixed Net
expenses contribution expenses operating
margin ratio income
(loss)
1 $500,000 $400,000 20% $93,000 $7,000
2 $400,000 $260,000 35% $100,000 $40,000
3 $250,000 $100,000 60% $130,000 $20,000
4 $600,000 $420,000 30% $185,000 $(5,000)
6-11
1. The number of units sold increases by 15%.
Total Per unit
Sales (23,000 units) $345,000 $15.00
Variable expenses 207,000 9.00
Contribution margin 138,000 $6.00
Fixed expenses 70,000
Net operating income 68,000
2. The selling price decreases by $1.50 per unit, and the number of units sold increases
by 25%.
Total Per unit
Sales (25,000 units) $337,500 $13.50
Variable expenses 225,000 9.00
Contribution margin 112,500 $4.50
Fixed expenses 70,000
Net operating income $42,500
3. The selling price increases by $1.500 per unit, fixed expenses increase by $20,000,
and the number of units sols decreases by 5%.
Total Per unit
Sales (19,000 units) $313,500 $16.50
Variable expenses 171,000 9.00
Contribution margin 142,500 $7.50
Fixed expenses 90,000
Net operating income $52,500
4. The selling price increases by 12%, variable expenses increase by 60 cents per unit,
and the number of units sold decreases by 10%
Total Per unit
Sales (18,000 units) $302,400 $16.80
Variable expenses 259,200 14.40
Contribution margin 43,200 $2.40
Fixed expenses 70,000
 Net operating income $(26,800)
6-12
P = $40 per unit
CM ratio = 30%
Fixed expense = $180,000
16,000 units
1. Variable expenses per unit = variable expense/unit = $448,000/16,000 = $28
Variable expense = Sales – CM = 40*16,000 -192,000 = $448,000
CM ratio = CM/Sales => CM = CM ratio * Sales = 30% * 40*16,000 = 192,000
2. Equation method
a. The break-even point
Unit sales
Profit = Unit CM*Q – fixed expenses
0 = (P-V) * Q – 180,000
0 = (40-28) * Q – 180,000
Q = 15,000 units
Dollar sales:
Profit = (Sales – variable expense) – fixed expense
0 = (Sales – 28*15,000) – 180,000
Sales = $600,000
b. To earn an annual profit of $60,000
Unit sales
Profit = Unit CM * Q – fixed expenses
60,000 = (40-28) * Q – 180,000
Q = 20,000 units
Dollar sales:
Profit = (Sales – variable expenses) – fixed expenses
60,000 = (Sales – $28*20,000) – 180,000
Sales = $800,000
c. Variable expenses decrease $4 per unit. What is the new break-even point in unit
sales and dollar sales?
3. Formuala method
Break-even point in unit sales = fixed expense/unit CM = 180,000/(P-V) = 180,000/
(40-28) = 15,000 units
Break-even point in dollar sales = fixed expense/CM ratio = 180,000/30% =
$600,000
6-13
15,000 units
P = $20
Fixed expenses = $182,000
V = $6 per unit
1. Income statement
Amount
Sales $300,000
Variable expenses 90,000
Contribution margin 210,000
Fixed expenses 182,000
Net operating income 28,000
Degree of operating leverage = CM/NOI = 210,000/28,000 = 7.5
2. The company can sell 18,000 games next year (an increase of 3,000 games, or 20%,
over last year)
a. % increase in NOI = % increase in Sales * operating leverage
= 20% * 7.5 = 150%
b. ????
6-14
1. The break-even point = fixed expense/unit CM = 6,000/15 = 400 person (Q)
Fixed expense = band + rental of ballroom + professsional antertainment during
intermission + tickets and advertising = $6,000
Unit CM = P-V = 35 – 18 – 2 = $15
2. If Q = 300, P =? To break-even
0 = (P-V) * Q – fixed expense
0 = (P – 20) * 300 – 6,000
P = $40
6-15
P = $50 per unit
V = $32 per unit
Fixed expense = $108,000
1. Unit sales to break-even point = Fixed expense/ unit CM = 108,000/ (50-32) = 6,000
stoves
Dollar sales:
Profit = (sale – variable expense) – fixed expense
0 = (sale – 32*6,000) – 108,000
Sales = $300,000
2. ???
3. 8,000 units
P decrease 10%, sales increase 25%