Managerial Accounting Cost Volume Profit (CVP) Homework problems

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1 Managerial Accounting Cost Volume Profit (CVP) Homework problems Problem #29 CVP Analysis using CM per unit The controller of Sawdust Furniture Company has determined the following estimates for a new product: Sales price per unit $175 Variable manufacturing cost per unit $90 Variable sales cost per unit $15 Fixed manufacturing costs $310,000 Fixed sales costs $40, Compute the break-even point in units and sales revenue. Prepare an income statement to 2. Compute the number of units to be produced and sold to generate a before-tax profit of $140,000. Prepare an income statement to 3. Compute the number of units to be produced and sold to generate a before-tax profit of 10% of sales revenue. Prepare an income statement to 4. What is the profit at 10,000 units produced and sold above the break-even point? Prepare an income statement to 75

2 Problem #30 CVP Analysis using CM percentage The controller of Gnarly Furniture Company has forecasted an income statement for the coming year: Gnarly Furniture Projected income statement Revenue $860,000 Variable costs 215,000 Contribution Margin $645,000 Fixed costs 525,000 Profit $120, Compute the projected break-even point in sales revenue. Prepare an income statement to 2. Compute the projected sales revenue to generate a before-tax profit of $140,000. Prepare an income statement to 3. Compute the projected sales revenue to generate a before-tax profit of 10% of sales revenue. Prepare an income statement to 4. What is the profit at $100,000 of revenue above the break-even point? Prepare an income statement to Problem #31 CVP Analysis computing an indifference point The Smith Company is contemplating making and selling a new product. Smith can apply two different production processes, and needs you to analyze the costs and profits over different volumes. Under either process, the selling price for the product is $20 per unit. The first process requires fixed costs of $120,000 and variable costs of $15 per unit. The second process requires fixed costs of $960,000 and variable costs of $8 per unit. rcalculate the break even point in units under the first process. rcalculate the break even point in units under the second process. rif production must take place, which process should be used if sales are projected to be 10,000 units? 25,000? 50,000? 160,000? rat what volume is the company indifferent between the two methods? Prepare an income statement for each process at this volume. 76

3 Problem #32 CVP Analysis -- BE point with changing cost structures The Bagley Company is contemplating a new product, to be sold for $10 per unit. The projected cost structure varies depending on the relevant range. For the range from 1 to 25,000 units, the cost structure for units produced and sold is expected to be $6 per unit variable, $200,000 fixed. For the range above 25,000, the cost structure for units produced and sold is expected to be $5 per unit variable Compute the projected break even point for the Bagley Company and prepare an income statement to Problem #33 Difficult CVP Analysis During 2001 Freyman sold 75,000 units for $60 million and realized a loss of $10 million. The breakeven point was 100,000 units. Compute the: rcontribution margin per unit. rtotal fixed costs. rprofits if sales would have been twice as large. Problem #34 Difficult CVP Analysis In 2000, the David Stott Company was in financial distress, losing lots of money. His son took over and trimmed fixed costs by $2 million to reduce the breakeven point from 35,000 units in 2000 to 25,000 units in Compute the: rcontribution margin per unit (assumed constant for 2000 and 2001). rfixed costs for 2000 and r2000 losses assuming sales of 30,000 units. r2001 profits assuming sales of 40,000 units. 77

4 Problem #35 CVP Graph Identify each of the numbered items on the graph (Garrison 12E). Problem #36 CVP With Several Products Product Cheapo Value Quality Units sold 50,000 25,000 5,000 Sales Price per unit $3 $7 $20 Variable Cost per unit Fixed costs are projected to be $310, Prepare a contribution margin income statement at the above 80,000 unit sales. 2. Compute the break-even point, and prepare a contribution margin income statement at the break-even quantity. 3. Compute the amount of sales needed to generate a profit of 10% of total revenue. Prepare a contribution margin income statement to prove your results. 78

5 Problem #37 CVP Analysis using CM per unit The controller of ABC Company has determined the following estimates for a new product: Sales price per unit $71 Variable cost per unit $32 Fixed costs $472, Compute the break-even point in units. Prepare an income statement to 2. Compute the number of units to be produced and sold to generate a before-tax profit of $58,500. Prepare an income statement to 3. Compute the number of units to be produced and sold to generate a before-tax profit of 12% of sales revenue. Prepare an income statement to 4. What is the profit at 6,000 units produced and sold above the break-even point? Prepare an income statement to Problem #38 CVP Analysis using CM percentage The controller of Gnarly Furniture Company has forecasted an income statement for the coming year: Gnarly Furniture Projected income statement Revenue $497,000 Variable costs 164,000 Contribution Margin $333,000 Fixed costs 408,000 Profit ($75,000) 1. Compute the projected break-even point in sales revenue. Prepare an income statement to 2. Compute the projected sales revenue to generate a before-tax profit of $49,000. Prepare an income statement to 3. Compute the projected sales revenue to generate a before-tax profit of 21% of sales revenue. Prepare an income statement to 4. What is the profit at $10,000 of revenue above the break-even point? Prepare an income statement to 79

6 Problem #39 CVP Analysis computing an indifference point The Smith Company is contemplating making and selling a new product. Smith can apply two different production processes, and needs you to analyze the costs and profits over different volumes. Under either process, the selling price for the product is $25 per unit. The first process requires fixed costs of $90,000 and variable costs of $19 per unit. The second process requires fixed costs of $600,000 and variable costs of $13 per unit. rcalculate the break even point in units under the first process. rcalculate the break even point in units under the second process. rif production must take place, which process should be used if sales are projected to be 10,000 units? 25,000? 50,000? 160,000? rat what volume is the company indifferent between the two methods? Prepare an income statement for each process at this volume. Problem #40 CVP Analysis -- BE point with changing cost structures The Bagley Company is contemplating a new product, to be sold for $12 per unit. The projected cost structure varies depending on the relevant range. For the range from 1 to 25,000 units, the cost structure for units produced and sold is expected to be $4 per unit variable, $310,000 fixed. For the range above 25,000, the cost structure for units produced and sold is expected to be $7 per unit variable Compute the projected break even point for the Bagley Company and prepare an income statement to Problem #41 Difficult CVP Analysis At 50,000 units, the XYZ company loses $45,000. If it produces 10,000 additional units, it will do $13,000 better. What is the contribution margin per unit, the total fixed costs, and the breakeven point in units. 80