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CHAPTER 6
COST VOLUME - PROFIT
MATH 01
Menlo Company manufactures and sells a single product. The
companys sales and expenses for last quarter follow:
Total Per Unit
Sales !"#$###
%&
'ess: (aria)le *xpenses +,#$##
#
+&
Contri)ution Margin &-#$###
'ess: ixed *xpenses &+/$###
0et 1perating 2ncome "!$###
3equired:
+. 4hat is the quarterly )rea56e7en point in units sold and in
sales dollar8
&. 9ow many units would ha7e to )e sold each quarter to earn
a target profit of #$###8
%. 3efer to the original data. Compute the companys margin of
safety in )oth dollar and percentage terms.
!. 4hat is the companys CM ratio8 2f sales increase )y "#$###
per quarter and there is no change in fixedexpenses$ )y how much
would you expect quarterly net operating income to increase8
MATH 02
The 9artford Symphony ;uild is planning its annual dinner dance.
The dinner dance committee has assem)led the
following expected costs for the e7ent:
Dinner (per person !2"
F#$ors #n% pro&r#' (per person "
#n% "###
Ren)#* o+ #**roo' +#
Pro+ession#* en)er)#in'en) %,rin& in)er'ission ,##
Ti.e)s #n% #%$er)ise'en) +!##
The committee mem)ers would li5e to charge !# per person for the
e7enings acti7ities.
Re/,ire'en)s
(# Compute the )rea5 < e7en point for the dinner < dance
=in terms of the num)er of persons who must attend>
( ?ssume that last year only %"# persons attended the dinner
< dance. 2f the same num)er attends this year$ what price
per
tic5et must )e charged in order to )rea5 < e7en8
( 9ow many tic5ets would ha7e to )e sold )y the company at the
selling price of %" to yield a minimum net operating
income of %"$###8
(% Prepare a C(P graph for the dinner < dance and indicate
the )rea5 < e7en point on the graph. 0um)er of persons should
)e
placed on the hori@ontal =A> axis$ and dollar should )e
placed on the 7ertical =B> axis.
MATH 0
1ut)ac5 1utfitter sells recreational equipment. 1ne of the
Companys products$ a small camp sto7e$ sells for "# per unit.
(aria)le expenses are %& per sto7e$ and fixed expenses
associated with the sto7e total +$#,$### per month.
3equired:
+. Compute the )rea56e7en point in num)er of sto7es and in total
sales dollar.
&. 2f the 7aria)le expense per sto7e increases as percentage
of selling price$ will it result in a higher or lower )rea56
e7en point8 49B8
%. ?t present the company is selling ,### sto7es per month. The
sales manager is con7inced that a +# reduction in
the selling price would result in a &" increase in monthly
sales of sto7es. Prepare two contri)ution income
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statements$ one under present operating conditions and one as
operations would appear after the proposed
changes.
!. 3efer to the data in =%> a)o7e. 9ow many sto7es would ha7e
to )e sold at new selling price to yield a minimum
operating income of %"$### per month8
MATH 03
Serendipity Sound$ 2nc. manufactures and sells compact discs.
Price and cost data are as follows:
Selling price per unit=pac5age of two CDs> &".##
(aria)le Costs Per unit:
Direct Material +#."# Direct 'a)or ".##
Manufacturing 17erhead %.##
Selling *xpenses +.%#
Total (aria)le Cost Per Unit +.,#
?nnual ixed Costs:
Manufacturing 17erhead +&$###
Selling and ?dministrati7e &-/$###
Total fixed costs !/,$###
orecasted ?nnual Sales (olume=+$### Units> %$###$###
2n the following requirements$ ignore income taxes:
3equired:+. 4hat is Serendipity Sounds Erea5 < *7en point in
units8
&. 4hat is the companys )rea56e7en point in sales
dollar8
%. 9ow many units would Serendipity Sound ha7e to sell in order
to earn &/#$###8
!. 4hat is the firms margin of safety8
". Management estimates that direct6la)or costs will increase )y
, next year. 9ow many units will the company
ha7e to sell next year to reach its )rea56e7en8
/. 2f the companys direct la)or costs do increase )y ,$ what
selling price per unit of product must it charge to
maintain the same contri)ution < margin ratio8
