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E22-6 Compute break-even point
The Palmer Acres Inn is trying to determine its break-even point during its off-peak season. The inn has 50 rooms that it rents at
$60 a night. Operating costs are as follows.
Salaries $5,900 per month
Utilities $1,100 per month
Depreciation $1,000 per month
Maintenance $100 per month
Maid Service $14 per room
Other costs $28 per room
Instructions
Determine the inn's break-even point in (a) number of rented rooms per month and (b) dollars.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
(a) Determine the inn's break-even point in number of rented rooms per month
Contribution margin per room
Rent per room Value
Variable cost per room ?
Contribution margin per room ?
Contribution margin ratio
Contribution margin per room Value
Rent per room Value
Contribution margin ratio ?
Fixed costs ?
Break-even point in rooms
Fixed costs Value
Contribution margin per room Value
Break-even point in rooms ?
(b) Determine the inn's break-even point in dollars.
Break-even point in dollars
Break-even point in rooms Value
Rent per room Value
Break-even point in dollars ?
OR
Fixed costs Value
Contribution margin ratio Value
Break-even point in dollars ?
When you have completed E22-6, consider the following additional question.
1. Assume that total fixed costs changed to $8,750 per month and the rental rate per room
for a night changed to $65. Show impact of these changes have on the calculations.
E22-6 Solution
(a) Contribution margin per room
Rent per room $60
Variable cost per room $42
Contribution margin ratio
Contribution margin per room $18
Rent per room $60
Break-even point in rooms
Fixed costs $8,100
(b) Break-even point in dollars
Break-even point in rooms 450
E22-6 Solution to additional question
1. Assume that total fixed costs changed to $8,750 per month and the rental rate per room
for a night changed to $65. Show impact of these changes on calculations.
Contribution margin per room
Rent per room $65
Contribution margin ratio
Contribution margin per room $23
Rent per room $65
Break-even point in rooms
Fixed costs $8,750
Contribution margin per room $23
(b) Break-even point in dollars
Break-even point in rooms 380
Rent per room $65
OR
Fixed costs $8,750
P22-2A Prepare a CVP income statement, compute break-even point, contribution margin ratio, margin of safety ratio
and sales for target net income
Jorge Company bottles and distributes B-Lite, a diet soft drink. The beverage is sold for 50 cents per 16-ounce bottle
to retailers, who charge customers 75 cents per bottle. For the year 2017, management estimates the following revenues
and costs.
Sales $1,800,000 Selling expenses - variable $70,000
Direct materials 430,000 Selling expenses - fixed 65,000
Direct labor 360,000 Administrative expenses - variable 20,000
Manufacturing overhead- variable 380,000 Administrative expenses - fixed 60,000
Manufacturing overhead -fixed 280,000
Instructions
(a) Prepare a CVP income statement for 2017 based on management estimates. (Show column for total amounts only.)
(b) Compute the break-even point in (1) units and (2) dollars.
(c ) Compute the contribution margin ratio and the margin of safety ratio. (Round to the nearest full percent.)
(d) Determine the sales dollars required to earn net income of $180,000.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
(a) Prepare a CVP income statement for 2017 based on management estimates. (Show column for total amounts only.)
Sales Value
Variable expenses
Cost of goods sold ?
Selling expenses Value
Administrative expenses Value
Total variable expenses ?
Contribution margin ?
Fixed expenses
Cost of goods sold Value
Selling expenses Value
Administrative expenses Value
Total fixed expenses ?
Net income ?
(b) Compute the break-even point in (1) units and (2) dollars.
(b)(1) Break-even point in units Value
Unit selling price Value
Unit variable costs ?
Unit contribution margin
Fixed costs Value
Unit contribution margin Value
Break-even point in units ?
(b)(2) Break-even point in dollars
Break-even point in units Value
Unit selling price Value
Break-even point in dollars ?
(c ) Compute the contribution margin ratio and the margin of safety ratio. (Round to the nearest full percent.)
Contribution margin ratio
Unit contribution margin Value
Unit selling price Value
Contribution margin ratio ?
Margin of safety ratio
Total sales Value
Break-even sales Value
Margin of safety (dollars) Value
Total sales Value
Margin of safety ratio Value
(d) Determine the sales dollars required to earn net income of $180,000.
Sales dollars required to earn target income
Fixed costs Value
Target income Value
Total fixed cost + target income ?
JORGE COMPANY
CVP Income Statement (Estimated)
For the Year Ending December 31, 2017
Contribution margin ratio ?
Sales dollars required ?
After you have completed P22-2A, consider the following additional question
1. Assume that the unit selling price per bottle changed to $0.60 each, and fixed manufacturing costs
increased to $300,000. Show impact of these changes on calculations.
P22-2A Solution
(a) Prepare a CVP income statement for 2017 based on management's estimates. Show columns
for total amounts only.)
Sales $1,800,000
Variable expenses
Cost of goods sold $1,170,000
(b) Compute the break-even point in (1) units and (2) dollars.
(b)(1) Break-even point in units
Unit selling price $0.50
Unit variable costs $0.35
Fixed costs $405,000
(b)(2) Break-even point in dollars
Break-even point in units 2,700,000
Unit selling price $0.50
(c ) Compute the contribution margin ratio and the margin of safety ratio. (Round to the nearest full percent.)
Contribution margin ratio
Unit contribution margin $0.15
Unit selling price $0.50
JORGE COMPANY
CVP Income Statement (Estimated)
For the Year Ending December 31, 2017
Total sales 1,800,000
(d) Determine the sales dollars required to earn net income of $180,000.
Sales dollars required to earn target income
Fixed costs $405,000
Target income $180,000
P22-2A Solution to additional question
1. Assume that the unit selling price per bottle changed to $0.60 each, and fixed manufacturing costs
increased to $300,000. Show impact of these changes on calculations.
(a) Prepare a CVP income statement for 2017 based on management's estimates. (Show columns
for total amounts only.)
Sales $2,160,000
Variable expenses
Cost of goods sold $1,170,000
Fixed expenses
Cost of goods sold 300,000
Selling expenses 65,000
Compute the break-even point in (1) units and (2) dollars.
(b)(1) Break-even point in units
Unit selling price $0.60
Unit variable costs $0.35
(b)(2) Break-even point in dollars
Break-even point in units 1,700,000
(c) Compute the contribution margin ratio and the margin of safety ratio. (Round to the nearest full percent.)
Contribution margin ratio
Unit contribution margin $0.25
Margin of safety ratio
JORGE COMPANY
CVP Income Statement (Estimated)
For the Year Ending December 31, 2017
Total sales $2,160,000
Sales dollars required to earn target income
Fixed costs 425,000
Target income 180,000
CD22 - EXCEL Tutorial
CURRENT DESIGNS
Bill Johnson, sales manager, and Diane Buswell, controller at Current Designs are beginning to analyze the cost
considerations for one of the composite models of the kayak division. They have provided the following production
and operational costs necessary to produce one composite kayak.
Kevlar® $250 per kayak
Resin and supplies $100 per kayak
Finishing kit (seat, rudder, ropes, etc.) $170 per kayak
Labor $420 per kayak
Selling and administrative expenses - variable $400 per kayak
Selling and administrative expenses - fixed
$119,000 per year
Manufacturing overhead - fixed $240,000 per year
Bill and Diane have asked you to provide a cost-volume-profit analysis, to help them finalize the budget projections for
the upcoming year. Bill has informed you that the selling price of the composite kayak will be $2,000.
Instructions
(a) Calculate variable cost per unit.
(b) Determine the unit contribution margin.
(c ) Using the unit contribution margin, determine the break-even point in units for this product line.
(d) Assume that Current Designs plans to earn $270,000 on this product line. Using the unit contribution
margin, calculate the number of units that need to be sold to achieve this goal.
(e ) Based on the most recent sales forecast, Current Design plans to sell 1,000 units of this model.
Using your results from part (c), calculate the margin of safety and the margin of safety ratio.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
(a) Calculate variable cost per unit. Value
Kevlar® Value
Resin and supplies Value
Finishing kit (seat, rudder, ropes, etc.) Value
Labor Value
Selling and administrative expenses - variable ?
Total variable costs per unit
(b) Determine the unit contribution margin.
Unit selling price
Unit variable cost Value
Unit contribution margin ?
?
(c ) Using the unit contribution margin, determine the break-even point in units for this product line.
Selling and administrative expenses - fixed
Value
Manufacturing overhead - fixed Value
Total fixed costs (a) ?
Unit contribution margin (b) Value
Break-even points (units) (a ÷ b) ?
(d) Assume that Current Designs plans to earn $270,000 on this product line. Using the unit contribution
margin, calculate the number of units that need to be sold to achieve this goal.
Total fixed costs Value
Target net income Value
Total fixed costs + target net income (a) ?
Unit contribution margin (b) Value
Units need to be sold (a ÷ b) ?
(e ) Based on the most recent sales forecast, Current Design plans to sell 1,000 units of this model.
Using your results from part (c ), calculate the margin of safety and the margin of safety ratio.
Margin of safety
Actual (expected) sales Value
Break-even sales Value
Margin of safety (dollars) ?
Margin of safety ratio
Margin of safety (dollars) (a) Value
Actual (expected) sales (b) Value
Margin of safety ratio (a ÷ b) ?
After you have completed CD-22, consider the following additional question
1. Assume that the unit selling price per kayak changed to $2,200 each, and fixed manufacturing overhead
increased to $360,000. Show impact of these changes on calculations.
CD22 - Solution
(a) Calculate variable cost per unit.
Kevlar® $250
Resin and supplies 100
(b) Determine the unit contribution margin.
Unit selling price $2,000
(c ) Using the unit contribution margin, determine the break-even point in units for this product line.
Selling and administrative expenses - fixed $119,700
Manufacturing overhead - fixed 240,000
(d) Assume that Current Designs plans to earn $270,600 on this product line. Using the unit contribution
margin, calculate the number of units that need to be sold to achieve this goal.
Total fixed costs $359,700
Target net income 270,600
(e ) Based on the most recent sales forecast, Current Design plans to sell 1,000 units of this model.
Using your results from part (c), calculate the margin of safety and the margin of safety ratio.
Margin of safety
Actual (expected) sales $2,000,000
Break-even sales $1,090,000
CD22 - Solution to additional question
1. Assume that the unit selling price per kayak changed to $2,200 each, and fixed manufacturing overhead
increased to $360,000. Show impact of these changes on calculations.
(a) Calculate variable cost per unit.
Kevlar® $250
Resin and supplies 100
Finishing kit (seat, rudder, ropes, etc.) 170
(b) Determine the unit contribution margin.
Unit selling price $2,200
(c ) Using the unit contribution margin, determine the break-even point in units for this product line.
Selling and administrative expenses - fixed $119,700
Manufacturing overhead - fixed 360,000
(d) Assume that Current Designs plans to earn $270,600 on this product line. Using the unit contribution
margin, calculate the number of units that need to be sold to achieve this goal.
Total fixed costs $479,700
Target net income 270,600
(e ) Based on the most recent sales forecast, Current Design plans to sell 1,000 units of this model.
Using your results from part (c ), calculate the margin of safety and the margin of safety ratio.
Margin of safety
Actual (expected) sales $2,200,000
