AIM 2302 CVP PROBLEMS
1. CVP computations. Fill in the blanks for each of the following independent cases Variable Case Revenues Costs a. #$$$$$$ #%&& b. )(&&& $$$$$$ c. 1(&&& +&& d. 1(%&& $$$$$$
Fixed Costs #$$$$$$$ *&& $$$$$$ *&&
Total Costs # '&& $$$$$$$$ 1(&&& $$$$$$$
perating !ncome #1()&& )&& $$$$$$$ $$$$$$$
Contribution "argin Percentage $$$$$$$ $$$$$$$$$ $$$$$$$$$ ,&-
). CVP computations. Patel "anufacturing sold 1'&(&&& units of its product for #)% per unit in )&&*. Variable Variable cost per unit is #)& and total fixed costs are #'&&(&&&. Required:
a. Calculate Calculate contributi contribution on margin and operating operating income. income. b. Patel/ Patel/s s curren currentt manufa manufactu cturin ring g process process is labor labor intens intensive ive.. Patel/ Patel/s s produc productio tion n manager has proposed investing in a new machine( which will increase total fixed costs to #)(%&&(&&& and decrease variable costs to #1& per unit. Patel expects to maintain the same sales volume and selling price next next 0ear. !f the0 purchase the machine( what will contribution margin and operating income be c. 2hould 2hould Patel Patel invest invest in the the new machine machine 3xplain. 3xplain. *. CVP anal0sis( changing changing revenues and costs. 2unshine Travel Travel 4genc0 speciali5es in flights between Toron Toronto to and 6amaica. !t books passengers on Canadian 4ir. 4ir. 2unshine/s fixed costs are #))(&&& per month. Canadian 4ir 4ir charges passengers #1(&&& per round7 trip ticket. Required:
Calculate the number of tickets 2unshine must sell each month to 81 break even and 8) make a target operating income of #1&(&&& per month in each of the following independent cases9 a. 2unshi 2unshine/ ne/s s variable variable costs costs are #*% per tickets tickets.. Canadi Canadian an 4ir pa0s pa0s 2unshine 2unshine 'commission on ticket price. b. 2unshi 2unshine/ ne/s s variable variable costs costs are #): per ticket. ticket. Canadi Canadian an 4ir 4ir pa0s pa0s 2unshine 2unshine 'commission on ticket price. c. 2uns 2unshi hine ne/s /s vari variab able le cost costs s are are #): #): per per tick ticket et.. Cana Canadi dian an 4ir pa0s pa0s #,' #,' fixe fixed d commission per ticket to 2unshine. d. 2unshi 2unshine/ ne/s s variab variable le costs are #): per ticket ticket.. !t receive receives s #,' commis commissio sion n per ticket from Canadian 4ir. !t charges its customers a deliver0 fee of #% per ticket.
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,. CVP exercises. The 2uper ;onut owns and operates six doughnut outlets in and around
#1&(&&&(&&& 1(+&&(&&& '()&&(&&&
Variable costs change with respect to the number of doughnuts sold. Compute the budgeted operating income for each of the following deviations from the original budget data. 8Consider each case independentl0 a. b. c. d. e. f. g. h.
4 1&- increase in contribution margin( holding revenues constant 4 1&- decrease in contribution margin( holding revenues constant 4 %- increase in fixed costs 4 %- decrease in fixed costs 4n '- increase in units sold 4n '- decrease in units sold 4 1&- increase in fixed costs and a 1&- increase in units sold 4 %- increase in fixed costs and a %- decrease in variable costs
%. CVP exercises. The ;oral Compan0 manufactures and sells pens. Currentl0( %(&&&(&&& units are sold per 0ear at #&.%& per unit. Fixed costs are #:&&(&&& per 0ear. Variable costs are #&.*& per unit. Consider each case separatel09 1a. >hat is the present operating income for a 0ear 1b. >hat is the present breakeven point in revenues Compute the new operating income for each of the following changes9 ). 4 #&.&, per unit increase in variable costs *. 4 1&- increase in fixed costs and a 1&- increase in units sold ,. 4 )&- decrease in fixed costs( a )&- decrease in selling price( a 1&decrease in variable cost per units( and a ,&- increase in units sold. Compute the new breakeven point in units for each of the following changes9 %. 4 1&- increase in fixed costs ?. 4 1&- increase in selling price and a #)&(&&& increase in fixed costs
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?. 4thletic scholarships( CVP anal0sis. "idwest @niversit0 has an annual budget of #%(&&&(&&& for athletic scholarships. 3ach athletic scholarship is for #)&(&&& per 0ear. Fixed operating costs of the athletic scholarship program are #?&&(&&&( and variable operating costs are #)(&&& per scholarship offered. a. ;etermine the number of athletic scholarships "idwest @niversit0 can offer each 0ear. b. 2uppose the total budget for next 0ear is reduced b0 ))-. Fixed costs are to remain the same. Calculate the number of athletic scholarships that "idwest can offer next 0ear. c. 4s in reAuirement )( assume a budget reduction of ))- and the same fixed costs. !f "idwest wanted to offer the same number of athletic scholarships as it did in reAuirement 1( calculate the amount that will be paid to each student who receives a scholarship. +. CVP anal0sis( service firm. >ildlife 3scapes generates average revenue of #,(&&& per person on its five7da0 package tours to wildlife parks in
#1&& +% )% #)&&
#)(&&& *&& *&& )(%&& %&& #%(?&&
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Tedd0 Dear charges each parent #?&& per child. a. Calculate the breakeven point. b. Tedd0 Dear/s target operating income is #1&(,&& per months. Compute the number of children that must be enrolled to achieve the target operating income. c. Tedd0 Dear lost its lease and had to move to another building. "onthl0 rent for the new building is #,(&&&. Bow much should Tedd0 Dear increase fees per child to meet the target operating income of #1&(,&& per month( assuming the same number of children as in ReAuirement b. :. CVP anal0sis. alax0 ;isk/s proected operating income for )&&* is #)&&(&&&( based on a sales volume of )&&(&&& units. alax0 sells disks for #1? each. Variable costs consist of the #1& purchase price and a #) shipping and handling cost. alax0/s annual fixed costs are #?&&(&&&. a. Calculate alax0/s breakeven point in units b. Calculate the compan0/s operating income in )&&* if there is a 1&increase in proected unit sales. c. For )&&,( management expects that the unit purchase price of the disks will increase b0 *&-. Calculate the sales revenue alax0 must generate in )&&, to maintain the current 0ear/s operating income if the selling price remains unchanged. 1&. Dreakeven anal0sis for a hospital. "ariposa "edical !nstitute operates a 1&&7bed hospital and offers a number of speciali5ed medical services. The hospital charges #1&& per patient da0. Dased on past cost data( "ariposa has estimated its flexible costs at #,%.+& per patient da0. Capacit07related costs are #:1(&&& per month. The hospital/s administrator has estimated that the hospital will average )(*&& patient da0s per month. Bow much will the hospital need to charge per patient da0 to break even at this level of activit0 11. 2uppose the fixed expenses of a travel agenc0 increase. >hat will happen to its break7even point( measured in number of clients served >h0 1). Chesapeake 0ster Compan0 has been able to decrease its variable expenses per pound of o0sters harvested. Bow will this affect the firm/s break7even sales volume 1*. >hat will happen to a compan0/s break7even point if the sales price and unit variable cost of its onl0 product increase b0 the same dollar amount
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