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COST-VOLUME-PROFIT ANALYSIS
NOTATION USED IN CHAPTER 3 SOLUTIONS
SP:
VCU:
CMU:
FC:
TOI:
Selling price
Variable cost per unit
Contribution margin per unit
Fixed costs
Target operating income
3-16
a.
b.
c.
d.
Revenues
$2,000
2,000
1,000
1,500
Variable
Costs
$ 500
1,500
700
900
Fixed
Costs
$300
300
300
300
Total
Costs
$ 800
1,800
1,000
1,200
Operating
Income
$1,200
200
0
300
Contribution
Margin
$1,500
500
300
600
Contribution
Margin %
75.0%
25.0%
30.0%
40.0%
3-20
1a.
[Units sold (Selling price Variable costs)] Fixed costs = Operating income
[5,000,000 ($0.50 $0.30)] $900,000 = $100,000
1b.
= $ (100,000)
3.
= $ 110,000
4.
= $ 190,000
5.
4,950,000 units
6.
3,680,000 units
3-21
$
48
40%
$90,000
Quantity of output units Fixed costs + Target operating income = $120, 000 + $90, 000 =
required to be sold =
Contribution margin per unit
$2,500
84 cars
3-24
1.
2.
0.40 =
= 0.40 or 40%
percentage
SP $12
SP
0.40 SP = SP $12
0.60 SP = $12
SP = $20
3.
$1,600,000
1,000,000
$ 600,000
3-27
1.
SP
VCU
CMU
New
Customers
$210
90
120
Upgrade
Customers
$120
40
80
=
=
=
=
$14,000,000
53,846 units sold to upgrade customers (rounded)
80,770 units sold to new customers (rounded)
134,616 units
Check
Revenues ($210 80,770) + ($120 53,846)
Variable costs ($90 80,770) + ($40 53,846)
Contribution margin
Fixed costs
Operating income (caused by rounding)
2.
$23,423,220
9,423,140
14,000,080
14,000,000
$
80
$34,800,000
14,000,000
20,800,000
14,000,000
$ 6,800,000
3a.
Let
S = Number of units sold to upgrade customers
then 9S = Number of units sold to new customers
[$210 (9S) + $120S] [$90 (9S) + $40S] $14,000,000 = OI
2,010S 850S
= $14,000,000
1,160S
= $14,000,000
S
=
12,069 units sold to upgrade customers (rounded up)
9S
=
108,621 units sold to new customers (rounded up)
120,690 units
Check
Revenues ($210 108,621) + ($120 12,069)
Variable costs ($90 108,621) + ($40 12,069)
Contribution margin
Fixed costs
Operating income (caused by rounding)
$24,258,690
10,258,650
14,000,040
14,000,000
$
40
3c. As Zapo increases its percentage of new customers, which have a higher
contribution margin per unit than upgrade customers, the number of units required to
break even decreases:
Requirement 3(a)
Requirement 1
Requirement 3(b)
New
Customers
50%
60
90
Upgrade
Customers
50%
40
10
Breakeven
Point
140,000
134,616
120,690