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Chapter 20: Q18RQ (page 1119)
Why is the calculation to determine the target profit considered a variation of the breakeven calculation?
Answer
The target profit is considered as variation of break-even calculation because at break-even profit is zero whereas in target profit amount of profit is pre-decided.
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Preparing a contribution margin income statement
Gabelman Company sells a product for \(95 per unit. Variable costs are \)40 per unit, and fixed costs are $2,200 per month. The company expects to sell 570 units in September. Prepare an income statement for September using the contribution margin format
Following is a list of costs for a furniture manufacturer that specializes in wood tables. Classify each cost as variable, fixed, or mixed relative to the number of tables produced and sold.
1. Wood used to build tables
2. Depreciation on saws and other manufacturing equipment
3. Compensation for sales representatives paid on a salary plus commission basis
4. Supervisor’s salary
5. Wages of production workers
What are the CVP assumptions?
Computing margin of safety
Robbie’s Repair Shop has a monthly target profit of \(31,000. Variable costs are 20%of sales, and monthly fixed costs are \)19,000.
Requirements
1. Compute the monthly margin of safety in dollars if the shop achieves its income goal.
2. Express Robbie’s margin of safety as a percentage of target sales.
3. Why would Robbie’s management want to know the shop’s margin of safety?
Use the following information to complete Short Exercises S20-10 through S20-15.
Funday Park competes with Cool World by providing a variety of rides. Funday Park sells tickets at \(70 per person as a one-day entrance fee. Variable costs are \)42 per person, and fixed costs are \(170,800 per month.
Refer to the original information (ignoring the changes considered in Short Exercise S20-12). Suppose Funday Park increases fixed costs from \)170,800 per month to $231,000 per month. Compute the new breakeven point in tickets and in sales dollars.
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