Managerial Accounting
Cost-Volume-Profit (CVP) Relationship
Practice Problems
1.
The
break-even point is 35,000 units. Each unit is sold for Tk. 6. The variable
cost per unit is Tk. 4. What are the fixed costs within this relevant range of
operations?
2.
The
following information is for Wood Products Corporation: Total fixed costs, $345,700;
Unit variable costs, $50.95; Unit
selling price, $68.50.
Required:
(a) Compute
the contribution margin per unit.
(b) Compute
the contribution‑margin ratio.
(c)
Compute the break‑even point in units.
(d) Compute
the break‑even volume in dollars.
Answer: (a) $17.55 per unit; (b) 0.2562;
(c) 19,698 units; (d) $1,349,313
3.
The
fixed costs are Tk. 30,000 and the per unit contribution margin is Tk. 15. The
current sales volume is 2,800 units. How many more units must be sold to
achieve a target profit of Tk. 45,000?
4.
Jefferson
Company produces only product A. The
following information is available:
Selling price per unit $95
Variable costs per unit $70
Total fixed costs $130,000
Required:
(a) Compute
break‑even point in units.
(b) Compute
break‑even volume in dollars.
(c)
Compute the margin of safety assuming
planned unit sales of 6,000.
Answer: (a) 5,200 units; (b) $494,000; (c)
800 units
5.
Retread
Company manufactures running shoes. The
selling price per pair of shoes (one unit) averages $80 and variable costs per
pair are $47.50. The sales volume of
$776,000 produces $100,750 of net income before taxes.
Required:
(a) Compute
total fixed costs.
(b) Compute
total variable costs.
(c)
Compute the break‑even point in units.
Compute the quantity of units above breakeven to reach targeted
net income before taxes.
Answer: (a) $214,500; (b) $460,750; (c)
6,600 units; (d) 3,100 units
6.
BMRE
Co. reported the following:
|
Product
|
A
|
B
|
C
|
|
Sales (Taka)
|
20,000
|
40,000
|
80,000
|
|
Contribution margin ratio
|
20%
|
25%
|
40%
|
What is the overall
contribution margin ratio for the sales mix? If the fixed cost is Tk. 50,000
what is the amount of break-even point?
7.
The
sales price of a company is Tk. 50 and variable cost per unit is Tk. 48. Current
fixed cost is Tk. 240,000. The company management things that the variable cost
is very high. They are planning to add additional equipment having fixed costs
of Tk. 40,000. This will reduce the variable cost by Tk. 3. What would be the
new break-even point? On the basis of break-even point, do you suggest to
accept the proposal?
8.
Too
Hot To Handle Company produces fireworks and has provided the following
information: Total fixed costs, $100,000; Unit variable costs, $6; Planned unit
sales, 30,000. The break‑even point is 25,000 units.
Required:
(a) Compute
the selling price per unit.
(b) Compute
the contribution‑margin ratio.
(c)
Compute the break‑even volume in dollars.
(d) Compute
the margin of safety.
Answer:
(a) $10; (b) 0.40; (c) $250,000; (d) 5,000 fireworks
9.
Sales
price per unit, Tk. 40
|
Cost
per unit (Tk.):
|
|
|
|
|
Direct
material
|
15
|
|
|
Direct
labour
|
10
|
|
|
Variable
mfg. overhead
|
3
|
|
|
Variable
marketing overhead
|
2
|
|
|
|
|
|
Fixed
costs (Tk.):
|
|
|
|
|
Manufacturing
|
30,000
|
|
|
Selling
& marketing
|
20,000
|
|
|
Administrative
|
10,000
|
Required: Compute the following
(a) Break-even quantity.
(b) Break-even revenue.
(c) Variable cost ratio.
(d) Contribution margin ratio.
(e) Units to be sold if expected net income is Tk.
20,000.
10.
Cleveland
Manufacturing, Inc.’s most recent income statement is presented below:
Sales $450,000
Cost of goods sold 200,000
Gross margin 250,000
Other operating expenses 196,000
Operating income $54,000
Cleveland Manufacturing, Inc., has determined that $50,000 of
cost of goods sold and $166,000 of operating expenses is fixed.
Required:
(a) Compute
the contribution margin.
(b) Compute
the contribution-margin percentage.
(c)
Compute the break-even volume in sales
dollars.
(d) Compute
the current margin of safety.
Answer: (a) $270,000; (b) 60%; (c)
$360,000; (d) $90,000
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