BS Commerce (7th) Hailey College of Commerce Managerial Accounting

Cost Volume Profit Analysis

P#1: Bridal Shoppe sells wedding dresses. The cost of each dress is comprised of the
following: Selling price of $1,000 and variable (flexible) costs of $400. Total fixed (capacity-
related) costs for Bridal Shoppe are $90,000.
A. What is the contribution margin per dress?
Revenues – Flexible Costs = CM
$1,000 - $400 = $600
B. What is the Bridal Shoppe’s total profit when 200 dresses are sold?
Revenues – Flexible Costs – Capacity-Related Costs = Total Profit
200 ($1,000) – 200($400) - $90,000 = $30,000

C. How many dresses must Bridal Shoppe sell to reach the breakeven point?
X = Capacity-Related Costs/Contribution Margin
X = $90,000/$600
X = 150 dresses
D. How many dresses must Bridal Shoppe sell to yield a profit of $60,000?
Total Revenues – Total Costs = Total Profit
$1,000X - $400X - $90,000 = $60,000
$600X = $150,000
X = $150,000/$600
X = 250 dresses

P#2: ABC Company sells several products. Information of average revenue and costs are as follows:
Selling price per unit $20.00
Variable costs per unit:
Direct materials $4.00
Direct manufacturing labor $1.60
Manufacturing overhead $0.40
Selling costs $2.00
Annual fixed costs $96,000
1. Calculate the contribution margin per unit.
2. Calculate the number of units that must be sold each year to reach at break even.
3. Calculate the number of units that must be sold to yield a profit of $144,000.
P#3: Berhannan’s Cellular sells phones for $100. The unit variable cost per phone is $50 plus a
selling commission of 10%. Fixed manufacturing costs total $1,250 per month, while fixed selling and
administrative costs total $2,500.
A. What is the contribution margin per phone?
B. What is the breakeven point in phones?
C. How many phones must be sold to earn a targeted profit of $7,500?

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BS Commerce (7th) Hailey College of Commerce Managerial Accounting

Q.1: The Salzmann Lodge had sales of $4,500,000.The fixed expense was $1,200,000 and the
Variable expense totaled $1,800,000.
Required:
(1) Contribution Margin Ratio (C/M).
(2) Break-Even Point.
(3) Contribution Margin.
Q.2: Falk Company budgets June sales at $265,000.The variable expense are expected to be
56% of sales and profit is expected to be $31,768.
Required:
(1) Break-even point for June.
(2) June sales if the company made a profit of $10,560.
Q.3: Normal Capacity of the Fritz Company is 18,000 units and the unit sales price is $2.50.
Cost Variable Cost (Per Unit) Fixed Cost
Direct Materials $.700 ------
Direct Labor $.800 ------
Factory Overhead $.150 $3,000
Nonmanufacturing Cost $.025 $1,290

Required:
(1) Break-even point in dollars and in units and a proof of the answer.
(2) Sales dollars required to produce a profit of $8,250.
Q.4: The accounting firm of Smith and Thompson has been studying the sales requirements
of the Frisco Botting Company. In the course of the study, the managing partner submits the
following estimated data:
Sales $900,000
Direct Materials $206,200
Direct Labour $165,200
Fixed Factory Overhead $171,896
Variable Factory Overhead $102,600
Fixed Marketing Expenses $71,000
Variable Marketing Expenses $80,000
Fixed Administrative Expenses $9,500
Variable Administrative Expenses $4,000
Required: The break-even point in dollars

Q.5: The following data of the Sandmeyer Co. are given for May:
Plant Capacity $2,000 Units Per Month
Fixed Cost $4,000 Per Month
Variable Cost $2.50 Per Unit
Sales Price $5 Per Unit

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BS Commerce (7th) Hailey College of Commerce Managerial Accounting

Required:
(1) The Break-even Point in Dollars.
Q.6: From the books and records of the Coe Company, the cost analyst determined that sales
were $10,000,000 and costs were as follows:
Variable Costs Fixed Costs Total
Direct Materials $3,000,000 --------- $3,000,000
Direct Labor $3,000,000 --------- $3,000,000
Factory Overhead $800,000 $500,000 $1,300,000
Marketing Expenses $700,000 $300,000 $1,000,000
Administrative Expenses $500,000 $200,000 $700,000

The Company is considering two alternative proposals that would change certain cost items.
Proposal 1 would increase fixed costs $100,000 with sales and variable costs remaining the
same.
Proposal 2 would modernize present equipment at an annual increase of fixed costs of $250,000
with the expectation of saving the same amount in each of the direct materials and the direct
labor costs.

Required:

(1) The current contribution margin ratio (C/M)

(2) The current break-even point.
(3) If Proposal 1 is adopted:
(a) The Break-even point.
(b) The Profit.
Proposal 2 but not Proposal 1 is adopted:
The contribution margin ratio (C/M)
The Break-even point
The Profit
Q.7: The budget of The Bond Co. Shows:

Sales (40,000 Units) $80,000

Fixed Production Cost $20,000
Fixed Marketing and administrative costs $26,200
Variable Production Costs $19,000
Variable Marketing and administrative costs $5,000
Total cost $70,200
Profit from operation $9,800

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BS Commerce (7th) Hailey College of Commerce Managerial Accounting

Required:
(1) The break- even point in sales dollars, using the figures given in the budget.
(2) The break-even point in units, using the figures given in the budget.
(3) The new break-even point in sales dollars, assuming that fixed costs increase $1,867 and
variable costs decrease $800 at the $80,000 sales level.
(4) The increase in sales needed to make the same $9,800 profit, assuming that fixed costs
increase by $2,167 and variable costs by $800 at the $80,000 sales level.
(5) The budgeted profit and the new break-even point in sales dollars assuming that the
company revises the annual budget by increasing the unit sales price by 5%, which is expected
to decrease volume by 15%, with variable costs bearing the same relationship to sales dollars as
in the original annual budget.

Q.8: During the year, Klos Company Produced and sold 100,000 units. The unit sales price
was $100. Standard and actual costs per unit, based on a production of 100,000 units, were:
Variable Cost $25
Fixed Cost $50
Total $75
Required:
(1) Operating income according to the direct costing method.
(2) Break-even point in dollars.
(3) Margin of safety ratio at the given sales level.

Q.9: The Ringo Ring Company has budgeted sales of $200,000 a profit of $60,000 and fixed
expense of $40,000.
Required: The C/M ratio

Q.10: The Rose Williams Company has a C/M ratio of 36%. Break-even sales are $160,000.
The company earned a profit of $28,800 during the year.
Required:
(1) Fixed Expense (2) Sales for the year
(3) Variable expense for the year (4) Margin of safety ratio.

Q.11: The Little Rock Company shows fixed expense of $12,150 an M/S ratio of 25%, and a
C/M ratio of 30% for one month’s operations.
Required:
(1) The Break-even point in dollars. (2) Actual sales (3) Profit for the month

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BS Commerce (7th) Hailey College of Commerce Managerial Accounting

Q.12: Last month the Henke Company had sales of $220,000 a C/M ratio of 40%, and an M/S
ratio of 30%. During the current month, a decrease in sales price and a decrease in fixed costs
have resulted in a C/M ratio of 36% and an M/S Ratio of 24%.

Required:
(1) The amount sales decreased. (2) New break-even point.
(3) Profit during the current month. (4) Decrease in fixed costs.

Q.13: The income statement for one of Manhattan Company’s products shows:
Sales (100 units at $100 a unit) $10,000
Cost of goods sold:
Direct labor $1,500
Direct Materials used $1,400
Variable factory overhead $1,000
Fixed Factory overhead $500
Total cost of goods sold $4,400
Gross Profit $5,600
Marketing expenses:
Variable $600
Fixed $1,000
Administrative expenses:
Variable $500
Fixed $1,000
Total marketing and Administrative $3,100
expenses
Operating Income $2,500

Required:
(1) Break-even point in units. (2) Operating income if sales increase by 25%.
(3) Break-even point in dollars if fixed factory overhead increase by $1,700.
Q.14: The Lublock Specialty Products Company manufactures a product which sells for $5.At
Present the company produces and sells 50,000 units per year. Unit variable manufacturing and
marketing expenses are $2.50 and $.50, respectively. Fixed expenses are $70,000 for factory
overhead and $30,000 for marketing and administration.
The sales manager has proposed that the price be increased to $6. To maintain the present sales
volume, advertising must be increased. The company’s profit objective is 10% of sales.

Required:
(1) The additional expenditure the company can afford for advertising.
(2) The new break-even point in units and dollars, using the $6 sales price and the additional
advertising expenditure, from requirement (1).

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