Practice Calculations
P.355 #1a) the breakeven point is determined by the number of units that the company needs to sell in order to cover fixed costs. The contribution margin is the amount to which each unit sold contributes to the coverage of fixed costs. In this case: $25 - $10 = $15 contribution margin. Then divided FC/CM; so $30,000 / $15 = 2000 units.
b) the break even revenue is 2000 * $25 = $50,000
c) the profit was as follows: (3000 * 15) -- 30,000 = 45,000 -- 30,000 = $15,000
d) the break even quantity next year will be: $37,500 / 15 = 2500 units
e) the company earned $15,000 in profit last year. To sell 2500 units and make $15,000 in profit, the calculation works as follows:
( (2500 units * Price) -- (2500*15) ) - $37,500 = 15,000
2500P -- 37,500 -- 37,500 = 15,000
2500P = $90,000
P = $36 per unit
P.356 #7 a) the same formula as above is applied: ($20-$8) = $
Then $840,000 / 12 = 70,000 units is the breakeven point.
b) 1) ($20-$5) = $15; $1,200,000 / 15 = 80,000 units
2) if the company wants to sell just 70,000 units, then the price needs to be calculated again using the same formula as was used above:
70,000P -- (70,000*5) -- 1,200,000 = 0
70,000P = 1,550,000
P = $22.15
c) 1) This question is a bit silly. The formula would have one variable, x, to represent both the old and new sides:
19x -- 5x -- 1,200,000 = 20x -- 8x -- 840,000
14x -1,200,000 = 12 x -- 840,000
2x = 360,000
x = 180,000 units should give the same level of profit for either plant. The profit at this level would be:
19(180,000) -- (5)(180,000) -- 1,200,000 = $1,320,000
2) the formula for the degree of operating leverage is: % in EBIT / % in sales. The best to calculate this is to start by computing the profit for the plant at another level. We already know that for the first plant EBIT = 0 where'd = 70,000 so 1,320,000 / (180,000 -- 70,000) = 12
For the new plant, EBIT = 0 where'd = 80,000 so 1,320,000 / (100,000) = 13.2
3) if sales are projected to increase to 150,000 I would recommended against purchasing the new plant. The point at which the two plants have the same profit is 180,000 units. This implies that the old plant is more economically viable than the new plant below that point. To test this, calculate the profit at S = 150,000 for each of the plants:
Old: (150,000 * 12) -- 840,000 = $960,000
New: (150,000 * 14) -- 1,200,000 = $900,000
Problem 12-34-1. Gross margin is calculated as gross profit / revenue. Product a Product B Product C Product D Gross Margin 12,000 / 32,000 = 37.5% 17,600 / 88,000 = 20% 56,000 / 280,000 = 20% 63,000 / 144,000 = 43.75% The product that is the most profitable is Product D. 2. The best way to start this question is to figure out the price and COGS per unit for each product. For Product a, the price was $32,000 / 2900
33% 400000 53.33% 480000 53.33% FM 125,000 125,000 125,000 FSA 25,000 25,000 25,000 Net Income 170,000 28.33% 250,000 33.33% 330,000 36.67% 2. The manager's tabulation is incorrect because the manager has set $2 as the fixed cost per unit. This is only true at the 200,000 unit level. At the other levels, the fixed cost per unit will be lower, as fixed costs do not increase with production volume. 6-47. 1. In order to make this assessment, Dana needs to calculate which method is cheaper. The accounting for producing the parts
So for the 70,000 units completed in July: (70,000)(15 + 10.65) = $1,795,500 2. The ending works in progress is 20,000. The total cost should be (20,000)(25.65) = 513,000 Note: These figures represent the total cost of the goods, not the total cost in July of the goods. The question is worded a little bit funny so I wasn't sure which one it was intended to be. Problem 14-21. Problem 14-21 1 2 3 4 DM Inv, 2010 8 8 5 2 Purchased 5 9 10 8 Used 7 11 7 3 DM Inv,
The passenger miles would be (1,500,000 * 1.1) = 1,650,000. The revenue per passenger mile would be $0.20 -- (.08*.2) = $0.184 So the actual revenue was (.184)*(1,650,000) = $303,600. Now we can calculate Flex for Actual Level, the third column. This is based on the flex budget figures, which were $0.20 in revenue per passenger mile. Variable expenses were 195,000 / 1,500, 000 = $0.13 per passenger mile in the
4) Consider a firm that has just built a plant, which cost $20,000. Each worker earns $5.00 per hour. a) Based on this information, fill in the table below. Number of Worker Hours Output Marginal Product Fixed Cost Variable Cost Total Cost Marginal Cost Average Variable Cost Average Total Cost 0 0 20,000 50 8 20000 20,250 5 5 10 20000 20,500 5 5 8 20000 20,750 5 5 6 20000 21,000 5 5 4 20000 21,250 5 5 85 1900 2 20000 21,500 5 5 71.67 1950 1 20000 21,750 5 5 62.14 b) In the example above, what price must the firm receive in order to keep producing in the short run? The price the firm must receive in the short run is the price that covers the variable cost, so the firm
Under the first scenario, the ideal price point is only the maximum profit point for children, but it not for adults. Chapter 11, p. 449, Q2. An adverse selection problem is defined in the textbook as "a situation resulting from asymmetric information in which parties may not come to an agreement on a transaction because of distrust on the part of the party with incomplete market information…" in the scenario presented,
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