CHAPTER 21 Cost Behavior and Cost-Volume-Profit Analysis
Prob. 21–3B
Break-Even
Sales (units)
3.
4. Sales (32,000 × $150)…………………………… $4,800,000
Total Fixed Costs
Unit Selling Price – Unit Variable Cost
1. = Total Fixed Costs
Unit Contribution Margin =
Total Fixed Costs + Target Profit
2. Sales (units) = Unit Contribution Margin
$5,000,000
$6,000,000
$7,000,000
Operating Profit Area
CHAPTER 21 Cost Behavior and Cost-Volume-Profit Analysis
Prob. 21–4B
1.
$1,200,000
$1,400,000
Operating
Profit Area
CHAPTER 21 Cost Behavior and Cost-Volume-Profit Analysis
Prob. 21–4B (Continued)
1. Break-Even Units:
Break-Even Dollars:
=Unit Selling Price – Unit Variable Cost
Unit Selling Price
Contribution Margin Ratio = Unit Contribution Margin
Unit Selling Price
Break-Even Sales (units) = Total Fixed Costs =
Total Fixed Costs
Unit Contribution Margin Unit Selling Price – Unit Variable Cost
CHAPTER 21 Cost Behavior and Cost-Volume-Profit Analysis
Prob. 21–4B (Continued)
2.
a. b.
4,500 units 7,500 units
Sales…………………………………………………………
…
$900,000 $1,500,000
V
ariable costs………………………………………………
…
$562,500 $ 937,500
$600,000
$1,600,000
Sales and Costs
Units of Sales
Break-Even
$1,500,000
21-40
CHAPTER 21 Cost Behavior and Cost-Volume-Profit Analysis
Prob. 21–4B (Continued)
3.
$1,400,000
$1,600,000
Operating
21-41
CHAPTER 21 Cost Behavior and Cost-Volume-Profit Analysis
Prob. 21–4B (Continued)
3. Break-Even Units:
Break-Even Dollars:
Contribution Margin Ratio = Unit Contribution Margin =Unit Selling Price – Unit Variable Cost
Unit Selling Price Unit Selling Price
Break-Even Sales (units) = Total Fixed Costs =Total Fixed Costs
Unit Contribution Margin Unit Selling Price – Unit Variable Cost
CHAPTER 21 Cost Behavior and Cost-Volume-Profit Analysis
Prob. 21–4B (Concluded)
4.
a. b.
6,000 units 7,500 units
$0
$200,000
$400,000
$1,600,000
0 1,500 3,000 4,500 6,000 7,500
Sales and Costs
Units of Sales
Break-Even
Point
Operating
Loss Area
$1,500,000
$337,500
CHAPTER 21 Cost Behavior and Cost-Volume-Profit Analysis
Prob. 21–5B
(Overall product is labeled E.)
1. Unit Selling Price of E [($12 × 30%) + ($15 × 70%)]……………………………
…
$14.10
2. 4,500 units of E × 30% = 1,350 units of 12-inch pizza
3. Unit selling price of E [($12 × 50%) + ($15 × 50%)]……………………………
…
$13.50
Unit variable cost of E [($3 × 50%) + ($4 × 50%)]………………………………
…
3.50
CHAPTER 21 Cost Behavior and Cost-Volume-Profit Analysis
Prob. 21–6B
1.
Sales (12,000 × $240) $2,880,000
Cost of goods sold:
Direct materials (12,000 × $50) $600,000
Direct labor (12,000 × $30) 360,000
Expenses:
Selling expenses:
Sales salaries and commissions
[$340,000 + (12,000 × $4)] $388,000
Advertising 116,000
BELMAIN CO.
Estimated Income Statement
For the Year Ended December 31, 2016
CHAPTER 21 Cost Behavior and Cost-Volume-Profit Analysis
Prob. 21–6B (Continued)
2. Contribution Margin Ratio = Sales – Variable Costs
Sales
3. Break-Even Sales (units) = Fixed Costs
Unit Contribution Margin
21-46
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CHAPTER 21 Cost Behavior and Cost-Volume-Profit Analysis
Prob. 21–6B (Concluded)
4.
5. Margin of safety:
In dollars:
As a percentage of sales:
–
=Margin of Safety Sales – Sales at Break-Even Point
Sales
6.
Operating Leverage = Contribution Margin
Income from Operations
$3,500,000
$4,000,000
$4,500,000
0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000
Units
Operating
Profit Area
Break-Even Point
CHAPTER 21 Cost Behavior and Cost-Volume-Profit Analysis
CP 21–1
In an absolute sense, Edward’s actions are devious. He is clearly attempting
to use the first four-year scenario, which is favorable, as a way to market the
partnerships. They are really longer-term investments. After the first four
years, the risk increases dramatically. The break-even occupancy becomes
CASES & PROJECTS
CHAPTER 21 Cost Behavior and Cost-Volume-Profit Analysis
CP 21–2
The airline industry has a high operating leverage. This means that fixed costs
are a large part of the cost structure. The break-even volume is apparently around
65% of capacity. When the volume falls below 65%, the industry loses money. As
the percentage increases above 65%, the industry becomes very profitable. There
change in passenger volume. However, this is unlikely. The revenue from price
increases would need to increase faster than the lost revenue from lower traffic
volume for a price increase to lower break-even. To raise ticket prices, the airline
would have to minimize the impact on lost volume. This might be possible for fare
increases targeted to business travelers who need to fly, regardless of ticket price.
scale. For example, an airline could consolidate three flights departing in the
morning from Tulsa to Dallas into just two flights departing in the morning. This
would reduce the airline’s costs but would increase the airline passengers’
inconvenience. This strategy works only if there is little loss in revenue by going
to two flights, meaning that the people bumped from the third flight go to the other
CHAPTER 21 Cost Behavior and Cost-Volume-Profit Analysis
CP 21–3
Do-Nothing Strategy:
Revenue – Variable Costs – Fixed Costs = Profit
Thomas’s Strategy:
Revenue – Variable Costs – Fixed Costs = Profit
CP 21–4
The direct labor costs are not variable to the increase in unit volume. The unit
volume is the wrong activity base for direct labor costs. The “number of
impressions” is a more accurate reflection of the direct labor cost. An impression
is a separate printing color application on the banners. Thus, the analysis should
be done as follows:
One Three
Color Color Total
Number of banners 212 616 1,800
Color
Four
698
Two
Color
274
CP 21–5
The Shipping Department manager should respond by pointing out that the
activities performed by his department are not related to sales volume but to
sales orders. The orders require inventory pulling and sorting activities as well
as paperwork activities. Thus, even though the sales volume is decreasing, the
CP 21–6
There are many possible applications of break-even analysis in a school
environment. Below are just a few possible ideas.
Revenue Fixed Costs Variable Costs
1 Break-even number Student tuition Faculty salary, space Supplies, copying
of students in a class for a class costs
2 Break-even sales Book sales Manager’s salary, Cashier salaries,
in the bookstore space costs cost of books
3 Break-even daily Meal revenue Salaries, space Food costs
meal revenues
Break-Even Analysis