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Chapter 20: Q4TI (page 1105)

A furniture manufacturer specializes in wood tables. The tables sell for \(100 per unit and incur \)40 per unit in variable costs. The company has \(6,000 in fixed costs per month. Calculate the breakeven point in units under each independent scenario.

14. Variable costs increase by \)10 per unit.

15. Fixed costs decrease by $600.

16. Sales price increases by 10%.

Short Answer

Expert verified

14.120 Units

15. 90 Units

16. 86 Units

Step by step solution

01

Calculation of breakeven point in units if variable costs increase by $10 per unit

Required sales in units = Fixed costs + Target profit/ Contribution margin per unit

=$6,000+$0/($100-$50)

=120 units

02

Calculation of breakeven point in units if fixed costs decrease by $600

Required sales in units = New Fixed costs + Target profit/ Contribution margin per unit

=($6,000-$600)+$0/($100-$40)

=$5,400/$60

=90 units

03

Calculation of breakeven point in units if sales price increase by 10%

New Sales Price = Existing Price (1+Increase in sales Price)

=$100(1+0.1)

=$110

Required sales in units = Fixed costs / Contribution margin per unit

=$6,000/($110-$40)

= 86 Units

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Most popular questions from this chapter

Question: 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.

S20-10 Computing contribution margin per unit, breakeven point in sales units

Compute the contribution margin per unit and the number of tickets Funday Park must sell to break even. Perform a numerical proof to show that your answer is correct.

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.

Owner Shan Mu is considering franchising her Noodles by Murestaurant concept. She believes people will pay \(10.00 for a large bowl ofnoodles. Variable costs are \)5.00 per bowl. Mu estimates monthly fixed costsfor a franchise at \(9,000.

Requirements

1. Use the contribution margin ratio approach to find a franchise’s breakevensales in dollars.

2. Mu believes most locations could generate \)61,500 in monthly sales. Isfranchising a good idea for Mu if franchisees want a minimum monthlyoperating income of $21,000? Explain your answer.

How can CVP analysis be used by companies with multiple products?

The budgets of four companies yield the following information:

Company

Beach Lake Mountain Valley

Net Sales Revenue \( 1,615,000 \)(d) \( 1,050,000 \)(j)

Variable Costs (a) 60,000 525,000 100,800

Fixed Costs (b) 232,000 260,000 (k)

Operating Income (Loss) 285,600 (e) (g) 31,500

Units Sold 170,000 10,000 (h) (l)

Contribution Margin per Unit \( 3.80 \) (f) \( 75.00 \) 9.00

Contribution Margin Ratio (c) 80% (i) 30%

Requirements

1. Fill in the blanks for each missing value. (Round the contribution margin per unit to the nearest cent.)

2. Which company has the lowest breakeven point in sales dollars?

3. What causes the low breakeven point?

See all solutions

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