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in fixed assets can lower variable costs (as is the case here), which lowers its
break-even point, making it easier to make a profit with less sales.
SERIAL PROBLEM — SP 18
Serial Problem, Business Solutions (50 minutes)
1. Selling price per composite unit
3 desk units @ $1,250 per unit..........................................................$3,750
2. Variable costs per composite unit
3 desk units @ $750 per unit.............................................................$2,250
3. Break-even point in composite units
Fixed costs
= Contribution margin per composite unit
4. Unit sales of desk units and chairs at break-even point
Desk units: 3 x 60 units (from 3)....................................................180 units
Reporting in Action — BTN 18-1
1. Some of the costs of Apple’s repair services department are:
Variable: Parts used to repair electronic devices, direct labor used to
perform the repairs, and indirect supplies used
2. As revenues grow, the variable costs will increase in total, as will the
mixed costs. Total fixed costs should not change in total. Since the
3. Since variable costs are not likely to increase with volume increases by
a constant amount, Apple cannot use a simple contribution margin ratio
useful.
Comparative Analysis — BTN 18-2
1. Apple Google
Average selling price per unit....................... $ 550 $ 470
Average variable cost per unit...................... 250 270
Average contribution margin per unit................ $ 300 $ 200
2. As unit sales decline, Apple’s operating profits will fall by $300 per unit
Ethics Challenge — BTN 18-3
Instructor note: This question can serve to generate class discussion on
cost analysis and estimation. Discussion can focus on accounting,
business, and other ethical concerns.
MEMORANDUM
To: “Mechanics” and “Owners”
From: Your name
RE: Analysis of labor costs for survey
Date: Current date
The memorandum should include many of the following points:
Objectivity: A statement about the need to be objective in the analysis. Both
ethical and professional concerns should motivate the preparer’s desire for
objectivity.
Cost Accounting Estimation: The memorandum should outline how cost
estimation is conducted. For example, you might describe how regression
professional ethics.
Business Concerns: The memorandum should point out that the repair
business should follow established business practices for setting cost
estimates. There should also be an expressed concern of fairness for the
Mechanic-Related Issues: The memorandum should also be concerned about
the quality of mechanical work. Is the work being done correctly and is
Communicating in Practice — BTN 18-4
Instructor note: Reports will vary, but a typical report would likely include
assumptions similar to the following.
1. Revenue (salary) assumptions
Find job that pays a specified amount.
2. Cost assumptions
Find living accommodations at a specified amount.
Avoid costly entertainment events.
Taking It to the Net — BTN 18-5
The site offers many tools for an entrepreneur in assessing costs, sales,
and profits. Specifically, a spreadsheet file is provided that allows an
entrepreneur to identify the start-up costs of the business. A new business
Also, many of the tools (such as the worksheet) are in the form of a
Teamwork in Action — BTN 18-6
(a) Questions for school administrators (others are possible)
Number of students that would attend the theater.
(b) Questions for owners (others are possible)
List of other potential markets for theater showings during school
days.
Entrepreneurial Decision — BTN 18-7
1. Costs that won’t change regardless of how many t-shirts Fast Yeti
2. Overly optimistic sales estimates could lead the company to expand
3. Reid, Jordan, and Ryan can use CVP techniques to manage their
company. Focusing on contribution margin per unit enables the
Hitting the Road — BTN 18-8
1. There is no set solution for this problem. Answers will vary because each
student will make different estimates for groups, costs, and volume. The
One simple example with crucial facts
Product
Estimated
Selling
Price per
unit
Estimated
CM ratio
Estimated
CM
per unit
Estimated
Sales
Mix
Estimated CM
for each
component in
composite unit
Burgers................................$2.00 0.75 $1.50 3.5 $ 5.25
Fries.....................................$1.00 0.70 $0.70 5.0 3.50
Unit sales of individual products per year required to break-even:
Burgers................................40,388 x 3.5 = 141,358 units
Fries.....................................40,388 x 5.0 = 201,940 units
In general, when evaluating a student’s solutions, look for:
Estimated selling price of products
Estimated contribution margin per item
Estimated sales mix
Detailed computations are described in the chapter under the section Computing
Multiproduct Break-Even Point.
2. The report should properly interpret the analysis from part 1. This
Global Decision — BTN 18-9
1. Managers at Samsung likely use multiproduct CVP analysis when
planning. Samsung designs, manufactures, and markets many different
2. If Samsung adds a new product line to their offerings, they will have to
consider its selling price and any variable costs, such as the cost of the
