The variable cost for each component are $ 2,000 The components are sold for $ The company sold during the prior year Ignore income taxes

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1 Hilton Ex 8-26, Air safety systems manufactures component used in radar safety systems The firms fixed costs are $ 4,000,000 per year The variable cost for each component are $ 2,000 The components are sold for $ 3,000 each The company sold during the prior year 5,000 components Ignore income taxes 1 Compute the break even point in units 2 What will the new BEP be it the fixed costs increase by 10 per cent? 3 What is the net income for the prior year? 4 Sale manager believes that a reduction in sale s price to $ 2,500 will result in orders for more components each year by 1,200 What will be the new BEP if the price is changed? What would be the profit? 5 Should the price change be made?

2 components

3 Company XYZ Investigate the following scenario You have the following data to figure out the break even point (in number 20 of units) $ for company XYZ plc: 1.Selling price per unit: 70,000 $ 2.Fixed costs 10 $ 3.Variable costs per unit Calculate the Break even point: how does the BEP change if the SP reduces to $16 if the fixed cost increase to and the price stays at 16

4 Hilton Ex 8-26, HW Tim's bicycle shop sells 21 speed bicycles. For a purposes of CVP analysis, the shop owner has divided sales into two categories, as follows: Product Type: Sales price Invoice Cost Sales Commission High quality Medium quality Three quarters of the shop's sales are medium quality bikes. The shop's annual fixed expenses are: $ Ignore taxes 1 Compute the unit contribution margin for each product type 2 What is the shop's sales mix? 3 Compute the unit average contribution margin, assuming a constant sales mix. 4 What is the shop's break-even sales volume in dollars? Assume a constant sales mix. 5 How many bicycles of each type must be sold to earn a target income of $ ? Assume a constant sales mix.

5 Hilton Ex 8-26, Air safety systems manufactures component used in radar safety systems The firms fixed costs are $ 4,000,000 per year The variable cost for each component are $ 2,000 The components are sold for $ 3,000 each The company sold during the prior year 5,000 components Ignore income taxes 1 Compute the break even point in units 2 What will the new BEP be it the fixed costs increase by 10 per cent? 3 What is the net income for the prior year? 4 Sale manager believes that a reduction in sale s price to $ 2,500 will result in orders for more components each year by 1,200 What will be the new BEP if the price is changed? What would be the profit? 5 Should the price change be made? Solution 1 BEP = / ( ) New BEP 4,400, Sales= 15,000,000 Total VC 10,000,000 Fixed costs 4,000,000 Income 1,000,000 4 Increased sales - pieces 6,200 New sales 18,600,000 Total VC 12,400,000 Fixed costs 4,000,000 New Income 2,200,000 New BEP / ( ) 8,000 5 yes

6 Investigate the following scenario You have the following data to figure out the break even point (in number of units) for company XYZ plc: 1.Selling price per unit: 20 $ 2.Fixed costs 70,000 $ 3.Variable costs per unit 10 $ Calculate the Break even point: BEP1= F / (SP - VC) 7,000 how does the BEP change if the SP reduces to $16 BEP2 = F / (SP 2 - VC) 11,667 if the fixed cost increase to and the price stays at 16 BEP3 = F 2 /(SP 2 - VC) 13,333

7 for company XYZ plc:

8 Hilton Ex 8-26, HW Tim's bicycle shop sells 21 speed bicycles. For a purposes of CVP analysis, the shop owner has divided sales into two categories, as follows: Product Type: Sales price Invoice Cost Sales Commission High quality Medium quality Three quarters of the shop's sales are medium quality bikes. The shop's annual fixed expenses are: $ Ignore taxes 1 Compute the unit contribution margin for each product type 2 What is the shop's sales mix? 3 Compute the unit average contribution margin, assuming a constant sales mix. 4 What is the shop's break-even sales volume in dollars? Assume a constant sales mix. 5 How many bicycles of each type must be sold to earn a target income of $ ? Assume a constant sales mix. 1 Compute the unit contribution margin for each product type High quality Medium quality What is the shop's sales mix? Three quarters of the shop's sales are medium quality bikes. 3 Compute the unit average contribution margin, assuming a constant sales mix. Assume a constant sales mix. (3* )/4 = per unit composed 1 h : 3 m 4 What is the shop's break-even sales volume in dollars? Assume a constant sales mix / units I.e. 300 medium 100 high or sales of: 300* *500 = How many bicycles of each type must be sold to earn a target income of $ ? to make above break even point it must sell must sell / = 300 units, I.e. 75 high 225 medium So all together: 175 high 525 medium

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