Chapter 20: Q20-17RQ (page 1119)
Question: What is target profit?
Answer
The target profit is the management’s expected goal.
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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.
S20-15 Computing degree of operating leverage
Refer to the original information (ignoring the changes considered in Short Exercises S20-12 and S20-13). If Funday Park expects to sell 8,100 tickets, compute the degree of operating leverage (round to two decimal places). Estimate the operating income if sales increase by 15%.
Mi Tierra Driving School charges \(680 per student to prepare and administer written and driving tests. Variable costs of \)408 per student include trainers’ wages, study materials, and gasoline. Annual fixed costs of \(63,920 include the training facility and fleet of cars.
Requirements
1. For each of the following independent situations, calculate the contribution margin per unit and the breakeven point in units by first referring to the original data provided:
a. Breakeven point with no change in information.
b. Decrease sales price to \)544 per student.
c. Decrease variable costs to \(340 per student.
d. Decrease fixed costs to \)53,040.
2. Compare the impact of changes in the sales price, variable costs, and fixed costs on the contribution margin per unit and the breakeven point in units.
What is cost stickiness? Why do managers need to be aware of cost stickiness?
What is a fixed cost? Give an example.
What is cost stickiness? Why do managers need to be aware of cost stickiness?
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