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340
E11–14
Break-Even Sales (units) = arginM onContributiUnit
Costs Fixed
E11–15
The cost of the promotion campaign is the fixed cost in this analysis since we
want to determine the break-even adoption rate of the campaign.
Promotional cost = $20,900,000
The contribution margin earned per new subscriber is essentially the revenue
earned less the variable cost over the 18-month subscription period.
Revenue: (18 months – 2 free months) × $9.95 per month = $159.20 per new account
Variable cost: 18 months × $4.20 per month = $75.60 per new account.
341
E11–16
a.
b. $200,000 (the intersection of the total sales line and the total costs line)
c. The graphic format permits the user (management) to visually determine the
break-even point and the operating profit or loss for any given level of sales.
$500,000
$450,000
$400,000
$350,000
Break-Even
Total
Sales
Operating
Profit Area
342
E11–17
a. $60,000 (total fixed costs)
b. Sales (5,000 units × $100) ......................................... $ 500,000
c.
d. 2,000 units (the intersection of the profit line and the horizontal axis)
E11–18
Cost-volume-profit graph
343
E11–19
Profit-volume graph
a. fixed costs or maximum operating loss
E11–20
a. Unit Selling Price of E = ($50 × 70%) + ($120 × 30%)
= $35 + $36 = $71
Unit Variable Cost of E = ($30 × 70%) + ($80 × 30%)
= $21 + $24 = $45
344
E11–21
a. Unit contribution margin of overall product (E):
Fixed costs of the Portland to Minneapolis round-trip flight:
Fuel and landing fees .... $ 19,400
Flight crew salaries ....... 3,760
Airplane depreciation .... 2,600
Total fixed costs ......... $25,760
345
E11–22
a. SunRise Inc.:
Operating Leverage =
Contribution Margin
Operating Income
b. SunRise Inc.’s operating income would increase by 62.5% (2.5 × 25%), or
$312,500 (62.5% × $500,000), and SunSet Inc.’s operating income would
increase by 85% (3.4 × 25%), or $850,000 (85% × $1,000,000).
346
PROBLEMS
P11–1
Fixed Variable Mixed
Cost Cost Cost Cost
a. X
b. X
h. X
i. X
j. X
k. X
r. X
s. X
t. X
347
P11–2
1. Fixed Costs Variable Costs
2. a. $96.60 ($38,640,000 ÷ 400,000 units)
b. $150.00 ($246.60 – $96.60)
3. Break-Even Sales (units) = arginMnontributioCUnit
ostsCFixed
=
150$
000,860,16$ = 112,400 units
5. Sales (units) = Margin onContributiUnit
ProfitTarget + CostsFixed
= 150$
000,140,43$+000,460,20$ = 150$
000,600,63$ = 424,000 units
P11–2, Concluded
8. The possibility of increasing operating income by $1,650,000 (from $43,140,000
to $44,790,000) is a positive point for the proposal. However, there are many
points against the proposal, including the following:
a. The break-even point increases by 24,000 units (from 112,400 to 136,400).
