Chapter 20: Q20-13RQ (page 1119)
What are the CVP assumptions?
Answer
When the volume of a product changes, the price per unit does not change.
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Of the three approaches to calculate sales required to achieve the breakeven point, which one(s) calculate the required sales in units and which one(s) calculate the required sales in dollars?
Computing margin of safety
Robbie’s Repair Shop has a monthly target profit of \(31,000. Variable costs are 20%of sales, and monthly fixed costs are \)19,000.
Requirements
1. Compute the monthly margin of safety in dollars if the shop achieves its income goal.
2. Express Robbie’s margin of safety as a percentage of target sales.
3. Why would Robbie’s management want to know the shop’s margin of safety?
Question: Use the following information to complete Short Exercises S20-10 through S20-15.
Funday Park competes with Cool World by providing a variety of rides. Funday Park sells tickets at \(70 per person as a one-day entrance fee. Variable costs are \)42 per person, and fixed costs are \(170,800 per month.
Using the Funday Park information presented, do the following tasks.
Requirements
1. Suppose Funday Park cuts its ticket price from \)70 to \(56 to increase the number of tickets sold. Compute the new breakeven point in tickets and in sales dollars.
2. Ignore the information in Requirement 1. Instead, assume that Funday Park increases the variable cost from \)42 to $56 per ticket. Compute the new breakeven point in tickets and in sales dollars.
The Circle Clock Company sells a particular clock for \(25. The variable costs are \)13 per clock and the breakeven point is 250 clocks. The company expects to sell 300 clocks this year. If the company actually sells 400 clocks, what effect would the sale of additional 100 clocks have on operating income? Explain your answer.
The budgets of four companies yield the following information:
Company
Beach Lake Mountain Valley
Net Sales Revenue \( 1,615,000 \)(d) \( 1,050,000 \)(j)
Variable Costs (a) 60,000 525,000 100,800
Fixed Costs (b) 232,000 260,000 (k)
Operating Income (Loss) 285,600 (e) (g) 31,500
Units Sold 170,000 10,000 (h) (l)
Contribution Margin per Unit \( 3.80 \) (f) \( 75.00 \) 9.00
Contribution Margin Ratio (c) 80% (i) 30%
Requirements
1. Fill in the blanks for each missing value. (Round the contribution margin per unit to the nearest cent.)
2. Which company has the lowest breakeven point in sales dollars?
3. What causes the low breakeven point?
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