Scribd Logo
Hochladen

Welcome to Scribd!

  • Problems in CVP Set A

    Uploaded by

    Artee Gupta
    356 views5 pages
    This document contains four problems related to CVP (cost-volume-profit) analysis for different companies. Problem 1 provides information about Murder To Go! and asks questions about contribution margin ratio, sales volume needed to break-even and earn a target income, margin of safety, and operating income at a given sales level. Problem 2 gives data for EasyWriter pens and poses similar CVP questions. Problem 3 examines investment options at Arrow Products to increase sales or margins. Problem 4 details cost structure and sales plan for Thermal Tent and asks to calculate the price and sales volume needed to hit a target income or break-even.

    Original Description:

    CVP Analysis Problems

    Copyright

    © © All Rights Reserved

    Available Formats

    DOC, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    This document contains four problems related to CVP (cost-volume-profit) analysis for different companies. Problem 1 provides information about Murder To Go! and asks questions about contribution margin ratio, sales volume needed to break-even and earn a target income, margin of safety, and operating income at a given sales level. Problem 2 gives data for EasyWriter pens and poses similar CVP questions. Problem 3 examines investment options at Arrow Products to increase sales or margins. Problem 4 details cost structure and sales plan for Thermal Tent and asks to calculate the price and sales volume needed to hit a target income or break-even.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as doc, pdf, or txt
    356 views5 pages

    Problems in CVP Set A

    Uploaded by

    Artee Gupta
    This document contains four problems related to CVP (cost-volume-profit) analysis for different companies. Problem 1 provides information about Murder To Go! and asks questions about contribution margin ratio, sales volume needed to break-even and earn a target income, margin of safety, and operating income at a given sales level. Problem 2 gives data for EasyWriter pens and poses similar CVP questions. Problem 3 examines investment options at Arrow Products to increase sales or margins. Problem 4 details cost structure and sales plan for Thermal Tent and asks to calculate the price and sales volume needed to hit a target income or break-even.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as doc, pdf, or txt
    of 5

    Questions on CVP Analysis

    Problem no: 1

    Murder To Go! Writes and manufactures murder mystery parlor


    games that it sells to retail stores. The following is per-unit
    information relating to the manufacture and sale of this product:

    Unit Sales price………………….$ 28


    Variable cost per unit…………… 7
    Fixed costs per year……………..240,000

    Determine the following


    a. Contribution margin ratio
    b. Sales volume (in dollars) required to break-even
    c. Sales volume (in dollars) required to earn an annual operating
    income of $450,000
    d. The margin of safety sales volume (in dollars) if annual sales
    total 40,000 units
    e. Operating income if annual sales total 40,000 units
    Problem no: 2

    EasyWriter manufactures an erasable ballpoint pen, which sells for


    $1.75 per unit. Management recently finished analyzing the results
    of the company’s operations for the current month. At a break-even
    point of 40,000 units, the company’s total variable costs are
    $50,000 and its total fixed costs amount to $20,000.

    a. Calculate the contribution margin per unit


    b. Calculate the company’s margin of safety if monthly sales
    total 45,000 units
    c. Estimate the company’s monthly operating loss if it sells
    only 38,000 units
    d. Compute the total cost per unit at a production level of (i)
    40,000 pens per month and (ii) 50,000 pens per month.
    Explain the reason for the change in unit costs.
    Problem no: 3

    Arrow Products typically earns a contribution margin ratio of 25


    percent and has current fixed costs of $80,000. Arrow’s general
    manager is considering spending an additional $20,000 to do one
    of the following:

    1. Start a new ad campaign that is expected to increase sales


    revenue by 5 percent.
    2. License a new computerized ordering system that is expected
    to increase Arrow’s contribution margin ratio to 30 percent.

    Sales revenue for the coming year was initially forecast to equal
    $1,200,000(that is, without implementing either of the above
    options).

    Instructions

    a. For each option, how much will projected operating income


    increase or decrease relative to initial predictions?
    b. By what percentage would sales revenue need to increase to
    make the ad campaign as attractive as the ordering system?
    Problem no: 4

    Thermal Tent, Inc., is a newly organized manufacturing business


    that plans to manufacture and sell 50,000 units per year of a new
    product. The following estimates have been made of the
    company’s costs and expenses (other than income taxes):

    Particulars Fixed Variable


    per unit
    Manufacturing costs:
    Direct materials $ 47
    Direct labor 32
    Manufacturing $340,000 4
    overhead
    Period Expenses:
    Selling expenses 1
    Administrative 200,000
    expenses
    Total $540,000 $ 84

    Instructions
    a. What should the company establish as the sales price per unit
    if it sets a target of earning an operating income of $260,000
    by producing and selling 50,000 units during the first year of
    operations?
    b. At the unit sales price computed in part a, how many units
    must the company produce and sell to break even? (Assume
    all units produced are sold)
    c. What will be the margin of safety (in dollars) if the company
    produces and sells 50,000 units at the sales price computed in
    part a? Using the margin of safety, compute operating income
    at 50,000 units.
    d. Assume that the marketing manager thinks that the price of
    this product must be no higher that $94 to ensure market
    penetration. Will setting the sales price at $94 enable Thermal
    Tent to breakeven, given the plans to manufacture and sell
    50,000 units? Explain your answer.

    You might also like