Question

i Cost-Volume-Profit Analysis CVP exercises The Dell-Sub Shop owns and operates six stores in and around Minneapolis. You are given the following corporate budget data for next year: Revenues Fixed costs Variable costs $11,000,000 $3,000,000 $7,500,000 10 Variable costs change based on the number of subs sold. 12 Use the blue shaded areas on the ENTERANSWERS tab for inputs. Always use cell references and formulas where appropriate to receive full credit. Cell references and formulas should be based on the original data. If you copy/paste from the instructions tab you will be 13 marked wrong. 15 Requirements Compute the budgeted operating income for each of the following deviations from the original budget data. 16 (Consider each case independently.) a. Enter all amounts as positive values. Do NOT use parentheses or a minus sign for amounts to be subtracted. b. Refer to the budgeted operating income based on the original budget data in all calculations 1 Determine the budgeted operating income based on the original budget data. 20 2 A 10% increase in contribution margin, holding revenues constant 3 A 10% decrease in contribution margin, holding revenues constant 22 4 A 5% increase in fixed costs 23 5 A 5% decrease in fixed costs 24 6 A 5% increase in units sold 25 7 A 5% decrease in units sold 8 A 10% increase in fixed costs and a 10% increase in units sold 27 9 A 5% increase in fixed costs and a 5% decrease in variable costs 28 10 Which of these alternatives yields the highest budgeted operating income? 26

Answer 1

Solution:

Original Data
	$
Revenue	11,000,000
Fixed costs	3,000,000
Variable costs	7,500,000
1. Determine the budgeted operating income based on the original budget data
Revenue	11,000,000
Variable costs	7,500,000
Contribution margin	3,500,000
Fixed costs	3,000,000
Budgeted operating income	500,000
2. A 10% increase in contribution margin, holding revenues constant
Revenue	11,000,000
Variable costs	7,150,000
Contribution margin	3,850,000
Fixed costs	3,000,000
Budgeted operating income	850,000
3. A 10% Decrease in contribution margin, holding revenues constant
Revenue	11,000,000
Variable costs	7,850,000
Contribution margin	3,150,000
Fixed costs	3,000,000
Budgeted operating income	150,000
4. A 5% increase in fixed costs
Revenue	11,000,000
Variable costs	7,500,000
Contribution margin	3,500,000
Fixed costs	3,150,000
Budgeted operating income	350,000
5. A 5% Decrease in fixed costs
Revenue	11,000,000
Variable costs	7,500,000
Contribution margin	3,500,000
Fixed costs	2,850,000
Budgeted operating income	650,000
6. A 5% increase in units sold
Revenue	11,550,000
Variable costs	7,875,000
Contribution margin	3,675,000
Fixed costs	3,000,000
Budgeted operating income	675,000
7. A 5% decrease in units sold
Revenue	10,450,000
Variable costs	7,125,000
Contribution margin	3,325,000
Fixed costs	3,000,000
Budgeted operating income	325,000
8. A 10% increase in fixed costs and a 10% increase in units sold
Revenue	12,100,000
Variable costs	8,250,000
Contribution margin	3,850,000
Fixed costs	3,300,000
Budgeted operating income	550,000
9. A 5% increase in fixed costs and a 5% decrease in variable costs
Revenue	11,000,000
Variable costs	7,125,000
Contribution margin	3,875,000
Fixed costs	3,150,000
Budgeted operating income	725,000
10. Which of these alternatives yields the highest budgeted operating income?
Alternative with highest budgeted operating income	Alternative 1, as its budgeted operating income is $850,000