chuong-3-bt

lOMoARcPSD|31081635
Chương 3 (BT)
Kế toán quản trị (Trường Đại học Công nghiệp Thành phố Hồ Chí Minh)
Scan to open on Studocu
Studocu is not sponsored or endorsed by any college or university

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)
lOMoARcPSD|31081635
Chapter 3 Cost-Volume-Profit Relationships

EXERCISE 5–1 Preparing a Contribution Format Income Statement [LO1]
EXERCISE 5–2 Prepare a Cost-Volume-Profit (CVP) Graph [LO2]
EXERCISE 5–3 Prepare a Profit Graph [LO2]
EXERCISE 5–4 Computing and Using the CM Ratio [LO3]
EXERCISE 5–5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume
[LO4]
EXERCISE 5–6 Compute the Level of Sales Required to Attain a Target Profit [LO5]
EXERCISE 5–7 Compute the Break-Even Point [LO6]
EXERCISE 5–8 Compute the Margin of Safety [LO7]
EXERCISE 5–9 Compute and Use the Degree of Operating Leverage [LO8]
EXERCISE 5–10 Compute the Break-Even Point for a Multiproduct Company [LO9]***
EXERCISE 5–11 Break-Even Analysis; Target Profit; Margin of Safety; CM Ratio [LO1,
LO3, LO5, LO6, LO7]
EXERCISE 5–13 Break-Even Analysis and CVP Graphing [LO2, LO4, LO6]
EXERCISE 5–14 Multiproduct Break-Even Analysis [LO9]
EXERCISE 5–15 Operating Leverage [LO4, LO8]
EXERCISE 5–16 Break-Even and Target Profit Analysis [LO3, LO4, LO5, LO6]
EXERCISE 5–17 Using a Contribution Format Income Statement [LO1, LO4]
EXERCISE 5–18 Missing Data; Basic CVP Concepts [LO1, LO9]
PROBLEM 5–19 Basic CVP Analysis; Graphing [LO1, LO2, LO4, LO6]
PROBLEM 5–20 Basics of CVP Analysis; Cost Structure [LO1, LO3, LO4, LO5, LO6]

lOMoARcPSD|31081635
EXERCISE 5–1 Preparing a Contribution Format Income Statement [LO1]

Wheeler Corporation’s most recent income statement follows:
Total Per Unit
Sales (8,000 units) $208,000 $26.00
Variable expenses 144,000 18.00
Contribution margin 64,000 8.00
Fixed expenses 56,000
Net operating income 8,000
Required:
Prepare a new contribution format income statement under each of the following
conditions (consider each case independently):
1. The sales volume increases by 50 units.
2. The sales volume declines by 50 units.
3. The sales volume is 7,000 units.
Solution:
1.
Total Per Unit
Sales (8,050 units) 8,050 x 26.00 =$209,300 $26.00
Variable expenses 8,050 x 18.00 = $144,900 $18.00
Contribution margin 8,050 x 8.00 = $64,400 $8.00
Fixed expenses $56,000
Net operating income 64,400 - 56,000 = $8,400
2.
Total Per Unit
Sales (7,950 units) 7,950 x 26.00 =$206,700 $26.00
Net operating income 63,600 - 56,000 = $7,600
3.
Total Per Unit
Sales (7,000 units) 7,000 x 26.00 =$182,000 $26.00
Net operating income 56,000 - 56,000 = $0

lOMoARcPSD|31081635
EXERCISE 5–2 Prepare a Cost-Volume-Profit (CVP) Graph [LO2]

Katara Enterprises distributes a single product whose selling price is $36 and whose
variable expense is $24 per unit. The company’s monthly fixed expense is $12,000.
Required:
1. Prepare a cost-volume-profit graph for the company up to a sales level of 2,000 units.
2. Estimate the company’s break-even point in unit sales using your cost-volume-profit
graph.
Solution:
1.
- Fixed expense = $12,000
- Variable expense = $24 per unit
- Total expense = 12,000 + 2,000 x 24 = $60,000
- Total revenue = 2,000 x 36 = $72,000
2.
The break-even point is the point where the total sales revenue and the total expense lines
intersect. This occurs at sales of 1,000 units.
Profit = Unit CM (Contribution Margin) x Q – Fixed expenses

lOMoARcPSD|31081635
= (36 -24) x 1,000 – 12,000 = $0

EXERCISE 5–3 Prepare a Profit Graph [LO2]
Capricio Enterprises distributes a single product whose selling price is $19 and whose
variable expense is $15 per unit. The company’s fixed expense is $12,000 per month.
Required:
1. Prepare a profit graph for the company up to a sales level of 4,000 units.
2. Estimate the company’s break-even point in unit sales using your profit graph.
Solution:
1.
Profit = Unit CM x Q – Fixed expenses = (19 – 15) x Q – 12,000 = 4Q – 12,000
+ Q = 0 Profit = ($12,000)
+ Q = 4,000 Profit = $4,000
2.
The break-even point in unit sales is Q = 3,000

lOMoARcPSD|31081635
Profit = 4Q – 12,000 = 4 x 3,000 – 12,000 = $0

EXERCISE 5–4 Computing and Using the CM Ratio [LO3]
Last month when Harrison Creations, Inc., sold 40,000 units, total sales were $300,000,
total variable expenses were $240,000, and fixed expenses were $45,000.
Required:
1. What is the company’s contribution margin (CM) ratio?
2. Estimate the change in the company’s net operating income if it were to increase its
total sales by $1,500.
Solution:
1. The company’s CM ratio:
CM ratio = = x 100 = 20%
2.
- Variable expense per unit = = = $6 per unit
- Change in CM = CM ratio x Change in sales = 20% x 1,500 = $300 Change in Net
operating income = $300 if fixed expenses do not change.
- Selling price per unit = = = $7.5 per unit
- Change (Increase) in unit = = = 200 units
Present (Original) Expected Change
(New) (Increased)
Volume in unit 40,000 40,200 200
1. Sales $300,000 300,000 + 1,500 = $1,500
$301,500
2. Variable $240,000 6 x 40,200 = $241,200 241,200 – 240,000 =
expenses $1,200
3. Contribution 300,000 – 240,000 301,500 – 241,200 = 60,300 – 60,000 = $300
margin =$60,000 $60,300
4. Fixed expenses $45,000 $45,000 $0
5. Net operating 60,000 – 45,000 = 60,300 – 45,000 = $300
income $15,000 $15,300
EXERCISE 5–5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume
[LO4]
Data for Herron Corporation are shown below:
Per unit Percent of Sales
Selling price $75 100%

lOMoARcPSD|31081635
Variable expenses 45 60%

Contribution margin $30 40%
Fixed expenses are $75,000 per month and the company is selling 3,000 units per month.
Required:
1. The marketing manager believes that an $8,000 increase in the monthly advertising
budget would increase monthly sales by $15,000. Should the advertising budget be
increased?
2. Refer to the original data. Management is considering using higher-quality components
that would increase the variable cost by $3 per unit. The marketing manager believes that
the higher-quality product would increase sales by 15% per month. Should the higher-
quality components be used?
Solution:
1.
Current Sales Sales with Additional Difference
Advertising Budget
Volume in unit 3.000
1. Sales 75 x 3,000 = 225,000 + 15,000 = $15,000
$225,000 $240,000.
2. Variable 45 x 3,000 = = $144,000 144,000 – 135,000 =
expenses $135,000 $9,000
3. Contribution 225,000 – 135,000 240,000 – 144,000 = 96,000 - 90,000

margin = $90,000 $96,000 =$6,000
4. Fixed expenses $75,000 75,000 + 8,000 = $83,000 $8,000
5. Net operating 90,000 – 75,000 = 96,000 – 83,000 = 13,000 – 15,000 =
income $15,000 $13,000 $(2,000)
- CM ratio = x 100 = x 100 = 40%

- Variable expense ratio = 60%
2.
Increase the variable cost by $3 per unit Decrease the contribution margin by $3 per unit.
Expected quatity sold:
= 3,450 units
Expected total contribution margin with higher-quality component:
3,450 x (30 – 3) = $93,150

lOMoARcPSD|31081635
Present total contribution margin:

3,000 x 30 = $90,000
Increase in total contribution margin:
93,150 – 90,000 = $3,150
EXERCISE 5–6 Compute the Level of Sales Required to Attain a Target Profit
[LO5]
Liman Corporation has a single product whose selling price is $140 and whose variable
expense is $60 per unit. The company’s monthly fixed expense is $40,000.
Required:
1. Using the equation method, solve for the unit sales that are required to earn a target
profit of $6,000.
2. Using the formula method, solve for the dollar sales that are required to earn a target
profit of $8,000.
Solution:
1. The equation method:
Profit = (Sales – Variable expenses) – Fixed expenses
= (Selling price x Quantity sold – Variable expenses per unit x Quantity sold) –
Fixed expenses
= (P – V) x Q – Fixed expenses
6,000 = (140 – 60) x Q – 40,000
Q = 575 units
2. The formula method:
Unit sales to attain the target profit = = = 600 units
The dollard sales: 600 x 140 = $84,000
EXERCISE 5–7 Compute the Break-Even Point [LO6]
Maxson Products distributes a single product, a woven basket whose selling price is $8
and whose variable cost is $6 per unit. The company’s monthly fixed expense is $5,500.
Required:
1. Solve for the company’s break-even point in unit sales using the equation method.

lOMoARcPSD|31081635
2. Solve for the company’s break-even point in sales dollars using the equation method
and the CM ratio.
3. Solve for the company’s break-even point in unit sales using the formula method.
4. Solve for the company’s break-even point in sales dollars using formula method and
the CM ratio.
Solution:
1. The equation method:
Profit = (Sales – Variable expenses) – Fixed expenses
= (P – V) x Q – Fixed expenses
0 = (8 – 6) x Q – 5,500 (The BE point: Profit = 0)
Q = 2,750 units
2.
The CM ratio = = = 25%
The equation method:
Profit = CM ratio x Sales – Fixed expenses
0 = 0.25 x Sales – 5,500
Sales = $22,000
3. The formula method:
Unit sales to the break-even point = = = 2,750 units
4.
The CM ratio = = = 25%
The formula method:
Sales = = = $22,000
EXERCISE 5–8 Compute the Margin of Safety [LO7]
Mohan Corporation is a distributor of a sun umbrella used at resort hotels. Data
concerning next month’s budget appear below:
Selling price..................................................................................................$25 per unit
Variable expenses..........................................................................................$15 per unit
Fixed expenses.........................................................................................$8,500 per unit

lOMoARcPSD|31081635
Unit sales.......................................................................................1,000 units per month

Required:
1. Compute the company’s margin of safety.
2. Compute the company’s margin of safety as a percentage of its sales.
Solution:
1. The margin of safety
- Total sales:
1,000 x 25 = $25,000
- The break-even sales:
Profit = x Sales – Fixed expenses
0 = x Sales – 8,500
Sales = $21,250
- The margin of safety:
Total sales – The break-even sales = 25,000 – 21,250 = $3,750
2. The margin of safety percentage:
= = 15%
EXERCISE 5–9 Compute and Use the Degree of Operating Leverage [LO8]
Eneliko Company installs home theater systems. The company’s most recent monthly
contribution format income statement appears below:
Amount Percent of Sales
Sales $120,000 100%
Variable expenses 84,000 70%
Contribution margin 36,000 30%
Net operating income 12,000
Required:
1. Compute the company’s degree of operating leverage.
2. Using the degree of operating leverage, estimate the impact on net operating income of
a 10% increase in sales.

lOMoARcPSD|31081635
3. Verify your estimate from part (2) above by constructing a new contribution format
income statement for the company assuming a 10% increase in sales.
Solution:
1. The degree of operating leverage:
= = 3.00
2. Percentage change in Net operating income:
Degree of operating leverage x Percentage change in Sales = 3.00 x 10% = 30%
3.
Amount Percent
of Sales
Sales 120,000 + 120,000 x 10% = $132,000 100%
Variable expenses 132,000 x 70% = $92,400 70%
Contribution margin 132,000 – 92,400 = $39,600 30%
Net operating income 39,600 – 24,000 = $15,600
Original Net operating $12,000
income (a)
Change in Net operating 15,600 – 12,000 = $3.600
income (b)
Percentage change in Net 3,600 12,000 = 30%
operating income (b a)
EXERCISE 5–10 Compute the Break-Even Point for a Multiproduct Company
[LO9]***
Lucky Products markets two computer games: Predator and Runway. A contribution
format income statement for a recent month for the two games appears below:
Predator Runway Total
Sales $100,000 $50,000 $150,000
Variable expense 25,000 5,000 30,000
Contribution $75,000 $45,000 120,000
margin
Net operating $30,000
income
Required:
1. Compute the overall contribution margin (CM) ratio for the company.
2. Compute the overall break-even point for the company in sales dollars.

lOMoARcPSD|31081635
3. Verify the overall break-even point for the company by constructing a contribution
format income statement showing the appropriate levels of sales for the two products.
Solution:
1. The overall CM ratio = = = 80%
2. The overall BE point in Sales dollards
0 = 80% x Sales – 90,000
Sales = $112,500
3.
Predator Runway Total
Original dollard $100,000 $50,000 $150,000
sales
Percent of total 100,000 150,000 50,000 150,000 100%
66.67% 33.33%
Sales at break-even 66.67% x 112,500 33.33% x $112,500
$75,000 112,500$37,500
Sales $75,000 $37,500 $112,500
Variable expenses x 25,000 $18,750 x 5,000 $3,750 $22,500
Contribution 75,000 – 18,750 = 37,500 – 3,750 = $90,000
margin $56,250 $33,750
Net operating $0
income
EXERCISE 5–11 Break-Even Analysis; Target Profit; Margin of Safety; CM Ratio
[LO1, LO3, LO5, LO6, LO7]
Pringle Company distributes a single product. The company’s sales and expenses for a
recent month follow:
Total Per Unit
Sales $600,000 $40
Variable expenses 420,000 28
Contribution margin 180,000 $12
Net operating income $30,000
Required:
1. What is the monthly break-even point in units sold and in sales dollars?

lOMoARcPSD|31081635
2. Without resorting to computations, what is the total contribution margin at the break-
even point?
3. How many units would have to be sold each month to earn a target profit of $18,000?
Use the formula method. Verify your answer by preparing a contribution format income
statement at the target level of sales.
4. Refer to the original data. Compute the company’s margin of safety in both dollar and
percentage terms.
5. What is the company’s CM ratio? If monthly sales increase by $80,000 and there is no
change in fixed expenses, by how much would you expect monthly net operating income
to increase?
Solution:
1. The break-even point in units sold
Profit = (P – V) x Q – Fixed expenses
0 = (40 – 28) x Q – 150,000
Q = 12,500 units
The break-even in sales dollards
12,500 x 40 = $500,000
2. The total CM at the break-even point is $150,000 because it must be equal to Fixed
expenses at the break-even point.
3. The units sold each month to earn a target profit
Units sold to attain target = = = 14,000 units
Total Per unit
Sales 14,000 x 40 $40
=$560,000
Variable expenses 14,000 x 28 $28
=$392,000
Contribution 14,000 x 12 $12
margin =$168,000
Net operating 168,000 – 150,000
income = $18,000
4. The margin of safety in dollard
Total Sales – The break-even sales = 600,000 – 500,000 = $100,000
The margin of safety percentage

lOMoARcPSD|31081635
= 16.7%
5. CM ratio = = =30%
Original Expected Increased Percent
Sales $600,000600,000 + 80,000 $80,000 100%
= $680,000
Variable expenses $420,000 70% x 680,000 = 476,000 – 420,000 70%
$476,000 = $56,000
Contribution $180,000 680,000 – 476,000 204,000 – 180,000 30%
margin = $204,000 = $24,000
Fixed expenses $150,000 $150,000 $0
Net operating $30,000 204,000 – 150,000 54,000 – 30,000 =
income = $54,000 $24,000
EXERCISE 5–12 Break-Even and Target Profit Analysis [LO4, LO5, LO6]
Reveen Products sells camping equipment. One of the company’s products, a camp
lantern, sells for $90 per unit. Variable expenses are $63 per lantern, and fixed expenses
associated with the lantern total $135,000 per month.
Required:
1. Compute the company’s break-even point in number of lanterns and in total sales
dollars.
2. If the variable expenses per lantern increase as a percentage of the selling price, will it
result in a higher or a lower break-even point? Why? (Assume that the fixed expenses
remain unchanged.)
3. At present, the company is selling 8,000 lanterns per month. The sales manager is
convinced that a 10% reduction in the selling price will result in a 25% increase in the
number of lanterns sold each month. Prepare two contribution format income statements,
one under present operating conditions, and one as operations would appear after the
proposed changes. Show both total and per unit data on your statements.
4. Refer to the data in (3) above. How many lanterns would have to be sold at the new
selling price to yield a minimum net operating income of $72,000 per month?
Solution:
1. The break-even point in number of lanterns
0 = (90 – 63) x Q – 135,000
Q = 5,000 units
The break-even in total sales dollards

lOMoARcPSD|31081635
Profit = 5,000 units x $90 per unit = $450,000

2. An increase in variable expenses as a percentage of the selling price would result in a
higher break-even point. If variable expenses increase as a percentage of sales, then the
contribution margin will decrease as a percentage of sales. With a lower CM ratio, more
lanterns would have to be sold to generate enough contribution margin to cover the fixed
costs.
3.
Precent Per Expected Per
Unit Unit
Units sold 8,000 8,000 + 8,000 x 25%
=10,000
Sales 8,000 x 90 = $720,000 $90 10,000 x (90 – 90 x 10%) $81
= $810,000
Variable expenses 8,000 x 63 = $504,000 $63 10,000 x 63 = $630,000 $63
Contribution 720,000 – 504,000 = $27 810,000 – 630,000 = $18
margin $216,000 $180,000
Fixed expenses $135,000 $135,000
Net operating 216,000 – 135,000 = 180,000 – 135,000 =
income $81,000 $45,000
At contribution format income statement, a 25% increase in volume is not enough to
offset a 10% reduction in the selling price; thus, net operating income descreases.
4.
72,000 = (81 – 63) x Q – 135,000
Q = 11,500 units
EXERCISE 5–13 Break-Even Analysis and CVP Graphing [LO2, LO4, LO6]
Chi Omega Sorority is planning its annual Riverboat Extravaganza. The Extravaganza
committee has assembled the following expected costs for the event:
Dinner (per person)......................................................................................................$7
Favors and program (per person).................................................................................$3
Band...................................................................................................................... $1,500
Tickets and advertising............................................................................................$700
Riverboat rental.....................................................................................................$4,800
Floorshow and strolling entertainers.....................................................................$1,000

lOMoARcPSD|31081635
The committee members would like to charge $30 per person for the evening’s activities.
Required:
1. Compute the break-even point for the Extravaganza (in terms of the number of persons
that must attend).
2. Assume that only 250 persons attended the Extravaganza last year. If the same number
attend this year, what price per ticket must be charged to break even?
3. Refer to the original data ($30 ticket price per person). Prepare a CVP graph for the
Extravaganza from zero tickets up to 600 tickets sold.
Solution:
1.
Sales per unit= Ticket price = $30 per person
Variable expenses per unut = Diner + Favors and program = 7 + 3 = $10 per person
Contribution margin per unit = 30 – 10 = $20 per person
Fixed expenses = Band + Tickets and advertising + Riverboat rental + Floorshow and
strolling entertainers = 1,500 + 700 + 4,800 + 1,000 = $8,000
The break-even point for persons
Profit = Unit CM x Q – Fixed expenses
0 = 20 x Q – 8,000
Q = 400 persons
2.
Profit per unit = Variable expenses per unit + Fixed expenses per unit
= 10 + (8,000 250) = $42 per person
3. CVP graph

lOMoARcPSD|31081635
EXERCISE 5–14 Multiproduct Break-Even Analysis [LO9]

Okabee Enterprises is the distributor for two products, Model A100 and Model B900.
Monthly sales and the contribution margin ratios for the two products follow:
Product
Model A100 Model B900 Total
Sales $700,000 $300,000 $1,000,000
Contribution 60% 70% ?
margin ratio
The company’s fixed expenses total $598,500 per month.
Required:
1. Prepare a contribution format income statement for the company as a whole.
2. Compute the break-even point for the company based on the current sales mix.

lOMoARcPSD|31081635
3. If sales increase by $50,000 per month, by how much would you expect net operating
income to increase? What are your assumptions?
Solution:
1.
Model A100 Model B900 Total
Sales $700,000 (100%) $300,000 (100%) $1,000,000 (100%)
Variable expenses 40% x 700,000 = 30% x 300,000 = 280,000 + 90,000 =
$280,000 (40%) $90,000 (30%) $370,000 (37%)
Contribution 60% x 700,000 = 70% x 300,000 = 420,000 + 210,000
margin $420,000 (60%) $210,000 (70%) = $630,000 (63%)
Net operating 630,000 – 598,500
income = $31,500
2. The break-even point
0 = 63% x Sales – 598,500
Sales = $950,000
3.
The additional contribution margin from the additional sales is computed as follows:
$50,000 x 63% = $31,500
Assuming no change in fixed expenses, all of this additional contribution margin should
drop to the bottom line as increased net operating income.
This answer assumes no change in selling prices, variable costs per unit, fixed expenses,
or sales mix.
EXERCISE 5–15 Operating Leverage [LO4, LO8]
Superior Door Company sells prehung doors to home builders. The doors are sold for $60
each. Variable costs are $42 per door, and fixed costs total $450,000 per year. The
company is currently selling 30,000 doors per year.
Required:
1. Prepare a contribution format income statement for the company at the present level of
sales and compute the degree of operating leverage.
2. Management is confident that the company can sell 37,500 doors next year (an
increase of 7,500 doors, or 25%, over current sales). Compute the following:
a. The expected percentage increase in net operating income for next year.

lOMoARcPSD|31081635
b. The expected net operating income for next year. (Do not prepare an income statement;
use the degree of operating leverage to compute your answer)
Solution:
1.
Present Percent
Sales 30,000 x 60 = $1,800,000 100%
Variable expenses 30,000 x 42 = $1,260,000 70%
Contribution margin 1,800,000 – 1,260,000 = 30%
$540,000
Fixed margin $450,000
Net operating income 540,000 – 450,000 =
$90,000
The degree of operating leverage
CM Net operating income = 540,000 90,000 = 6.00
2.
a) Percentage change in Net operating income:
Degree of operating leverage x Percentage change in Sales = 6.00 x 25% = 150%
Expected Net operating income:
90,000 x 150% = $135,000
b) Present Net operating income = $90,000
Expected Net operating income = $135,000
Total expected Net operating income = 90,000 + 135,000 = $225,000
EXERCISE 5–16 Break-Even and Target Profit Analysis [LO3, LO4, LO5, LO6]
Super Sales Company is the exclusive distributor for a revolutionary bookbag. The
product sells for $60 per unit and has a CM ratio of 40%. The company’s fixed expenses
are $360,000 per year. The company plans to sell 17,000 bookbags this year.
Required:
1. What are the variable expenses per unit?
2. Using the equation method:
a. What is the break-even point in units and in sales dollars?
b. What sales level in units and in sales dollars is required to earn an annual profit of
$90,000?

lOMoARcPSD|31081635
c. Assume that through negotiation with the manufacturer the Super Sales Company is
able to reduce its variable expenses by $3 per unit. What is the company’s new break-
even point in units and in sales dollars?
3. Repeat (2) above using the formula method.
Solution:
1. The total variable expenses
CM ratio =
40% =
Variable expenses = $612,000
The variable expenses per unit = 612,000 17,000 = $36 per unit
2. The equation method
a) The break-even point in dollards
0 = 40% x Sales – 360,000
Sales = $900,000
The break-even point in units
0 = (60 – 36) x Q – 360,000
Q = 15,000 units
b) The level in dollards attain to target profit
90,000 = 40% x Sales – 360,000
Sales = $1,125,000
The level in units attain to target profit
90,000 = (60 – 36) x Q – 360,000
Q = 18,750 units
c) Reduce the variable expenses by $3 per unit
CM ratio = = = 45%

lOMoARcPSD|31081635
The break-even point in dollards

0 = 45% x Sales – 360,000
Sales = $800,000
The break-even point in units
0 = (60 – 33) x Q – 360,000
Q 13,333 units
3. Do yourself
EXERCISE 5–17 Using a Contribution Format Income Statement [LO1, LO4]
Porter Company’s most recent contribution format income statement is shown below:
Total Per Unit
Sales (30,000 units) $150,000 $5
Variable expenses 90,000 3
Contribution margin 60,000 $2
Net operating income $10,000
Required:
Prepare a new contribution format income statement under each of the following
conditions (consider each case independently):
1. The number of units sold increases by 15%.
2. The selling price decreases by 50 cents per unit, and the number of units sold increases
by 20%.
3. The selling price increases by 50 cents per unit, fixed expenses increase by $10,000,
and the number of units sold decreases by 5%.
4. Variable expenses increase by 20 cents per unit, the selling price increases by 12%, and
the number of units sold decreases by 10%.
Solution:
1.
Expected Percent Per unit
Sales 34,500 x 5 = $172,500 100% $5
(34,500
units)

lOMoARcPSD|31081635
Variable 34,500 x 3 = $103,500 60% $3

expenses
Contribution 172,500 – 103,500 = 40% $2
margin $69,000
Net operating 69,500 – 50,000 = $19,500
income
2.
Sales 36,000 x 4.50 = $162,000 100% $4.50
(36,000
units)
Variable 36,000 x 3 = $108,000 60% $3
expenses
Contribution 162,000 – 108,000 = $54,000 40% $1.50
margin
Fixed $50,000
expenses
Net operating 54,000 – 50,000 = $4,000
income
3.
Sales 28,500 x 5.50 = $156,750 100% $5.50
(28,500
units)
Variable 28,500 x 3 = $85,500 60% $3
expenses
Contribution 156,750 – 85,500 = $71,250 40% $2.50
margin
Fixed 50,000 + 10,000 = $60,000
expenses
Net operating 71,250 – 60,000 = $11,250
income
4.
Sales 27,000 x 5.60 = $151,200 100% $5.60
(27,000
units)
Variable 27,000 x 3.20 = $86,400 60% $3.20
expenses
Contribution 151,200 – 86,400 = $64,800 40% $2.40
margin

lOMoARcPSD|31081635
Fixed $50,000
expenses
Net operating 64,800 – 50,000 = $14,800
income
EXERCISE 5–18 Missing Data; Basic CVP Concepts [LO1, LO9]
Fill in the missing amounts in each of the eight case situations below. Each case is
independent of the others. (Hint: One way to find the missing amounts would be to
prepare a contribution format income statement for each case, enter the known data, and
then compute the missing items.)
a. Assume that only one product is being sold in each of the four following case
situations:
Cas Units Sales Variable Contribution Fixed
Net
e Sold expenses margin per
operating expenses
Unit
income
(Loss)
1 9,000 $270,000 $162,000 ? $90,000 ?
2 ? $350,000 ? $15 $170,000 $40,000
3 20,000 ? $280,000 $6 ? $35,000
4 5,000 $160,000 ? ? $82,000 $(12,000)
b. Assume that more than one product is being sold in each of the four following case
situations:
Cas Sales Variable Average Fixed Net
e expenses Contribution expenses operating
margin income
(Percent) (Loss)
1 $450,000 ? 40% ? $65,000
2 $200,000 $130,000 ? $60,000 ?
3 ? ? 80% $470,000 $90,000
4 $300,000 $90,000 ? ? $(12,000)
Solution:
1.
Case 1 Case 2 Case 3 Case 4
Units sold 9,000 20,000 5,000
14,000
Sales $270,000 $350,000 280,000 + $160,000
120,000 =
$400,000
Variable $162,000 350,000 – 210,000 $280,000 160,000 –
expenses = $140,000 70,000 =
$90,000

lOMoARcPSD|31081635
Contribution 270,000 – 170,000 + 40,000 = 20,000 x 6 = 82,000 –

margin 162,000 = $210,000 $120,000 12,000 =
$108,000 $70,000
Contribution $12 $15 $6 70,000 5,000
margin per Unit = $14
Fixed expenses $90,000 $170,000 120,000 – $82,000
35,000 =
$85,000
Net operating 108,000 – $40,000 $35,000 $(12,000)
income 90,000 =
$18,000
* Case 1:
Selling price per unit = 270,000 9,000 = $30 per unit
Variable expenses per unit = 162,000 9,000 = $18 per unit
Contribution margin per unit = 30 – 18 = $12 per unit
Variable ratio = Variable expenses Total Sales = 162,000 270,000 = 60%
CM ratio = CM Total Sales = 108,000 270,000 = 40%
* Case 2:
Units sold = 210,000 15 = 14,000 units
2.
Case 1 Case 2 Case 3 Case 4
Sales $450,000 $200,000 560,000 80% $300,000
= $700,000
Variable 450,000 – $130,000 700,000 – $90,000
expenses 180,000 = 560,000 =
$270,000 $140,000
Contribution 40% x 200,000 – 130,000 470,000 + 300,000 –
margin 450,000 = = $70,000 90,000 = 90,000 =
$180,000 $560,000 $210,000
Average 40% 35% 80% 70%
Contribution
margin (Percent)
Fixed expenses 180,000 – $60,000 $470,000 210,000 +
65,000 = 15,000 =
$115,000 $225,000
Net operating $65,000 70,000 – 60,000 = $90,000 $(15,000)
income $10,000
* Case 2:

lOMoARcPSD|31081635

* Case 3:
PROBLEM 5–19 Basic CVP Analysis; Graphing [LO1, LO2, LO4, LO6]
Shirts Unlimited operates a chain of shirt stores that carry many styles of shirts that are
all sold at the same price. To encourage sales personnel to be aggressive in their sales
efforts, the company pays a substantial sales commission on each shirt sold. Sales
personnel also receive a small basic salary.
The following worksheet contains cost and revenue data for Store 36. These data are
typical of the company’s many outlets:
Per Shift
Selling price $40.00
Variable expenses:
Invoice cost $18.00
Sales commission $7.00
Total variable expenses $25.00
Annual
Fixed expenses:
Rent $80,000
Advertising $150,000
Salaries $70,000
Total fixed expenses $300,000
The company has asked you, as a member of its planning group, to assist in some basic
analysis of its stores and company policies.
Required:
1. Calculate the annual break-even point in dollar sales and in unit sales for Store 36.
2. Prepare a CVP graph showing cost and revenue data for Store 36 from zero shirts up to
30,000 shirts sold each year. Clearly indicate the break-even point on the graph.
3. If 19,000 shirts are sold in a year, what would be Store 36’s net operating income or
loss?
4. The company is considering paying the store manager of Store 36 an incentive
commission of 3 per shirt (in addition to the salespersons’ commissions). If this change is
made, what will be the new break-even point in dollar sales and in unit sales?
5. Refer to the original data. As an alternative to (4) above, the company is considering
paying the store manager a $3 commission on each shirt sold in excess of the break-even

lOMoARcPSD|31081635
point. If this change is made, what will be the store’s net operating income or loss if
23,500 shirts are sold in a year?
6. Refer to the original data. The company is considering eliminating sales commissions
entirely in its stores and increasing fixed salaries by $107,000 annually.
a. If this change is made, what will be the new break-even point in dollar sales and in unit
sales in Store 36?
b. Would you recommend that the change be made? Explain.
Solution:
1. The break-even point in unit sales
Profit = Unit CM x Q - Fixed expenses
0 = (40 – 25) x Q – 300,000
Q = 20,000 units
Sales = 20,000 x 40 = $800,000
2. Do yourself
3.
Expected
Sales 19,000 x 40 =
$760,000
Variable expenses 19,000 x 25 =
$475,000
Contribution 760,000 – 475,000
margin = $285,000
Net operating 285,000 – 300,000
income = $(15,000)
If 19,000 shirts are sold in a year, the Net operating income (loss) is $15,000
4. The break-even point in unit sales
0 = (40 – 25 - 3) x Q – 300,000
Q = 25,000 units
Sales = 25,000 x 40 = $1,000,000

lOMoARcPSD|31081635
5.
Sales 23,500 x 40 = $940,000

Variable expenses 20,000 x 25 + 3,500 x 28 = $598,000
Contribution margin 940,000 – 598,000 = $342,000
Net operating income 342,000 – 300,000 = $42,000
6.
a) The break-even point in unit sales
0 = (40 – 18) x Q – 407,000
Q = 18,500 units
Sales = 18,500 x 40 = $740,000
b) Although the change will lower the break-even point from 20,000 shirts to 18,500
shirts, the company must consider whether this reduction in the break-even point is more
than offset by the possible loss in sales arising from having the sales staff on a salaried
basis. Under a salary arrangement, the sales staff may have far less incentive to sell than
under the present commission arrangement, resulting in a loss of sales and a reduction in
profits. Although it generally is desirable to lower the break-even point, management
must consider the other effects of a change in the cost structure. The break-even point
could be reduced dramatically by doubling the selling price per shirt, but it does not
necessarily follow that this would increase the company’s profit.
PROBLEM 5–20 Basics of CVP Analysis; Cost Structure [LO1, LO3, LO4, LO5,
LO6]
Memofax, Inc., produces memory enhancement kits for fax machines. Sales have been
very erratic, with some months showing a profit and some months showing a loss. The
company’s contribution format income statement for the most recent month is given
below:
Sales (13,500 units at $20 per unit)...................................................................$270,000
Variable expenses................................................................................................189,000
Contribution margin..............................................................................................81,000
Fixed expenses .....................................................................................................90,000
Net operating income ........................................................................................$(9,000)

lOMoARcPSD|31081635
Required:
1. Compute the company’s CM ratio and its break-even point in both units and dollars.
2. The sales manager feels that an $8,000 increase in the monthly advertising budget,
combined with an intensified effort by the sales staff, will result in a $70,000 increase in
monthly sales. If the sales manager is right, what will be the effect on the company’s
monthly net operating income or loss? (Use the incremental approach in preparing your
answer.)
3. Refer to the original data. The president is convinced that a 10% reduction in the
selling price, combined with an increase of $35,000 in the monthly advertising budget,
will double unit sales. What will the new contribution format income statement look like
if these changes are adopted?
4. Refer to the original data. The company’s advertising agency thinks that a new package
would help sales. The new package being proposed would increase packaging costs by
$0.60 per unit. Assuming no other changes, how many units would have to be sold each
month to earn a profit of $4,500?
5. Refer to the original data. By automating, the company could slash its variable
expenses in half. However, fixed costs would increase by $118,000 per month.
a. Compute the new CM ratio and the new break-even point in both units and dollars.
b. Assume that the company expects to sell 20,000 units next month. Prepare two
contribution format income statements, one assuming that operations are not automated
and one assuming that they are.
c. Would you recommend that the company automate its operations? Explain.
Solution:
1. CM ratio = 81,000 270,000 = 30%
Profit = CM ratio x Sales - Fixed expenses
0 = 30% x Sales – 90,000
Sales = $300,000
The break-even point in unit sales
Q = 300,000 20 = 15,000 units
2. Incremental CM
Increase in sales x CM ratio = 70,000 x 30% = $21,000

lOMoARcPSD|31081635
Less increase fixed expenses = $8,000

Increase in Net operating income = 21,000 – 8,000 = $13,000
3. The new contribution format income statement
Sales (27,000 units at $18 per unit) 27,000 x 18 = $486,000
Variable expenses (27,000 units at 27,000 x 14 = $378,000
$14 per unit)
Contribution margin 486,000 – 378,000 = $108,000
Fixed expenses 90,000 + 35,000 = $125,000
Net operating income 108,000 – 125,000 = $(17,000)
* Variable expenses per unit = 189,000 13,500 = $14
4.
Increase packaging cost = Increase variable expense by $0.60 per unit
4,500 = (20 – 14.60) x Q – 90,000
Q = 17,500 units
5.
a) The new variable expenses = 14 2 = $7 per unit
CM ratio = = 65%
Profit = CM ratio x Sales - Fixed expenses
0 = 65% x Sales – 208,000
Sales = $320,000
The break-even point in unit sales
Q = 320,000 20 = 16,000 units
b)
Not automated Per Automated Per
unit uni
t
Sales 20,000 x 20 = $20 20,000 x 20 = $400,000 $20
$400,000
Variable expenses 20,000 x 14 = $14 20,000 x 7 = $140,000 $7
$280,000
Contribution 400,000 – 280,000 = $6 400,000 – 140,000 = $13

lOMoARcPSD|31081635
margin $120,000 $260,000

Fixed expenses $90,000 $208,000
Net operating 120,000 – 90,000 = 260,000 – 208,000 =
income $30,000 $52,000
c) I don’t know.

chuong-3-bt

Uploaded by

Copyright:

Available Formats

chuong-3-bt

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

chuong-3-bt

Uploaded by

Copyright:

Available Formats

lOMoARcPSD|31081635

Scan to open on Studocu

Studocu is not sponsored or endorsed by any college or university

Chapter 3 Cost-Volume-Profit Relationships

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

EXERCISE 5–1 Preparing a Contribution Format Income Statement [LO1]

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

EXERCISE 5–2 Prepare a Cost-Volume-Profit (CVP) Graph [LO2]

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

= (36 -24) x 1,000 – 12,000 = $0

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

Profit = 4Q – 12,000 = 4 x 3,000 – 12,000 = $0

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

Variable expenses 45 60%

3. Contribution 225,000 – 135,000 240,000 – 144,000 = 96,000 - 90,000

- CM ratio = x 100 = x 100 = 40%

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

Present total contribution margin:

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

Unit sales.......................................................................................1,000 units per month

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

Profit = 5,000 units x $90 per unit = $450,000

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

EXERCISE 5–14 Multiproduct Break-Even Analysis [LO9]

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

The break-even point in dollards

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

Variable 34,500 x 3 = $103,500 60% $3

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

Contribution 270,000 – 170,000 + 40,000 = 20,000 x 6 = 82,000 –

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

CM ratio = CM Total Sales = 70,000 200,000 = 35%

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

Sales 23,500 x 40 = $940,000

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

Less increase fixed expenses = $8,000

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

margin $120,000 $260,000

Downloaded by HUY?N TR?N PHAN MINH (huyentran.31231026299@st.ueh.edu.vn)

You might also like