Question

I need just a and c

2-A3 Exercises in Cost-Volume-Profit Relationships Upcraft Moving Company specializes in hauling heavy goods over long distances. The company's revenues and expenses depend on revenue-miles, a measure that combines both weights and mileage. CHAPTER 2. INTRODUCTION TO COST BEHAVIOR AND COST-VOLUME-PROFIT RELATIONSHIPS 65 Summarized budget data for next year are based on predicted total revenue miles of 500.000. At that level of volume, and at any level of volume between 300,000 and 700,000 revenue miles, the company's fixed costs are $50,000. The selling price and variable costs are as follows: Per Revenue-Mile Average selling price (revenue) Average variable expenses $2.00 1.60 1. Compute the budgeted net income. Ignore income taxes. 2. Management is trying to decide how various possible conditions or decisions might affect net income. Compute the new net income for each of the following changes. Consider each case independently a. A 30% increase in sales price, b. A 30% increase in revenue miles. c. A 30% increase in variable expenses. CHAPTER 2

Answer 1

VOLUME 500000 BUDGETED NET INCOME ELEN PER UNIT < SALES REVENUE LESS: VARIABLE COST CONTRIBUTION MARGIN LESS:FIXED COST NET INCOME $2 $1.60 $0.40 TOTAL $1,000,000 $800,000 $200,000 $50,000 $150,000 0 0 W

CASE A - 30% INCREASE IN SALES PRICE NEW SALES PRICE = 2 + (30%+2) = 2.6 PER UNIT B SALES REVENUE LESS: VARIABLE COST CONTRIBUTION MARGIN LESS:FIXED COST NET INCOME $2.60 $1.60 $1.00 TOTAL $1,300,000 $800,000 $500,000 $50,000 $450,000 Ε

CASE B - 30% INCREASE IN REVENUE MILES (VOLUME) NEW REVENUE MILES 500000+(30%*500000)=650000 PER UNIT < ooow SALES REVENUE LESS: VARIABLE COST CONTRIBUTION MARGIN LESS:FIXED COST NET INCOME $2.00 $1.60 $0.40 TOTAL $1,300,000 $1,040,000 $260,000 $50,000 $210,000

CASE C - 30% INCREASE IN VARIABLE EXPENSES NEW VARIABLE COST = 1.6+(30%*1.6) = 2.08 PER UNIT mo SALES REVENUE LESS: VARIABLE COST CONTRIBUTION MARGIN LESS:FIXED COST NET INCOME/(LOSS) TOTAL $2.00 $1,000,000 $2.08 $1,040,000 ($0.08) ($40,000) $50,000 (590,000) E

SALES REVENUE = SALES PRICE PER UNIT *VOLUME OF SALES VARIABLE COST = VARIABLE COST PER UNIT* VOLUME OF SALES CONTRIBUTION = SALES REVENUE - VARIABLE COST NET INCOME = CONTRIBUTION MARGIN - FIXED COST