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7-53
PROBLEM 7-51 (35 MINUTES)
2.
Number of units of sales required
to earn target after-tax income
margin oncontributiunit
t) (1
incomenet tax-aftertarget
expenses fixed
−
+
=
3.
Break-even point (in units) for the
$554,400
Then we have:
7-54
PROBLEM 7-51 (CONTINUED)
4.
0%)($79.20)(9 $120.00
110% $475,200
point even-break New
−
=
5.
Weighted-average unit
contribution margin
$40.80) (50% $52.80) (50%
+=
PROBLEM 7-52 (45 MINUTES)
1. SUMMARY OF EXPENSES
Expenses per Year
(in thousands)
Variable
Fixed
Manufacturing ....................................................................
$ 10,800
$3,510
Chapter 07 - Cost-Volume-Profit Analysis
7-55
PROBLEM 7-52 (CONTINUED)
ratio margin oncontributi
expenses fixed total
dollars sales even-Break
=
(a)
0$24,000,00
0$14,400,00
1 ratio margin onContributi
−=
(b)
0$24,000,00
0$13,200,00
1 ratio margin onContributi
−=
2.
ratio margin oncontributi
taxesincome before income target costs fixed total
dollars sales Required +
=
.325
$2,400,000 $7,200,000
evenbreak todollars sales Required
+
=
7-56
PROBLEM 7-52 (CONTINUED)
3.
The volume in sales dollars (X) that would result in equal net income is the volume
of sales dollars where total expenses are equal.
Total expenses with agents paid
increased commission
=
total expenses with own sales force
$24, 000000 - $16, 200, 000 $24, 000, 000 - $13, 200, 000
X - $7, 200, 000 = X - $10, 800, 000
$24, 000, 000 $24, 000, 000
PROBLEM 7-53 (45 MINUTES)
1. a. In order to break even, Columbus Canopy Company must sell 500 units. This
amount represents the point where revenue equals total costs.
costs fixed costs variableRevenue
+=
b. In order to achieve its after-tax profit objective, Columbus Canopy Company
must sell 2,500 units. This amount represents the point where revenue equals
total costs plus the before-tax profit objective.
profit tax-beforecosts fixed costs variableRevenue
++=
2. To achieve its annual after-tax profit objective, management should select the first
7-58
PROBLEM 7-53 (CONTINUED)
Alternative (1):
)700,2)(720($)350)(800($venueRe
+=
Alternative (2):
)200,2)(740($)350)(800($venueRe
+=
Alternative (3):
)000,2)(760($)350)(800($venueRe
+=
Chapter 07 - Cost-Volume-Profit Analysis
7-59
SOLUTIONS TO CASES
CASE 7-54 (50 MINUTES)
1. The break-even point is 16,900 patient-days calculated as follows:
SUSQUEHANNA MEDICAL CENTER
COMPUTATION OF BREAK-EVEN POINT
IN PATIENT-DAYS: PEDIATRICS
FOR THE YEAR ENDED JUNE 30, 20X6
Total fixed costs:
Medical center charges ......................................................................................... $3,480,000
Supervising nurses ($30,000 4) ....................................................................... 120,000
7-60
CASE 7-54 (CONTINUED)
2. Net earnings would decrease by $728,000, calculated as follows:
SUSQUEHANNA MEDICAL CENTER
COMPUTATION OF LOSS FROM RENTAL
OF ADDITIONAL 20 BEDS: PEDIATRICS
FOR THE YEAR ENDED JUNE 30, 20X6
Increase in revenue
(20 additional beds 90 days $360 charge per day) ................................... $ 648,000
Increase in expenses:
7-61
CASE 7-55 (50 MINUTES)
1.
Break-even point for 20x4, based on current budget:
.20
$3,000,000 $9,000,000 0$15,000,00
ratio margin-onContributi
=
−−
=
2.
Break-even point given employment of sales personnel:
New fixed expenses:
Previous fixed expenses ........................................................................ $ 150,000
Sales personnel salaries (3 x $45,000) .................................................. 135,000
7-62
CASE 7-55 (CONTINUED)
3. Assuming a 25% sales commission:
New contribution-margin ratio:
Sales ........................................................................................................ $15,000,000
Sales volume in dollars
required to earn after-tax
ratio margin-oncontributi
) (1
incomenet tax-after target
expenses fixed
−
+
=t
Check:
Sales .................................................................... $ 20,000,000
7-63
CASE 7-55 (CONTINUED)
4. Sales dollar volume at which Lake Champlain Sporting Goods Company is
indifferent:
Since the tax rate is the same regardless of which approach management chooses,
we can find X so that the company’s before-tax income is the same under the two
alternatives. (In the following equations, the contribution-margin ratios of .35 and
.15, respectively, were computed in the preceding two requirements.)
Check:
Alternatives
Employ
Sales
Personnel
Pay 25%
Commission
Sales ............................................................................
$1,875,000
$1,875,000
