Question

Use the graphical approach to CVP analysis to solve the following problem. Valley Peat Ltd, sells peat moss for $10 per bag. Variable costs are $7.50 per bag and annual fixed costs are $100,000 a. How many bags of peat must be sold per year to break even? Number of bags bags/year b. What will be the net income for a year in which 60,000 bags of peat are sold? (Round your answer to the nearest whole number.) Net income c. How many bags must be sold for a net income of $60,000 in a year? Number of bags bags/year d. What volume of sales would produce a loss of $10,000 in a year? Number of bags bags/year Prepare a Cost-Volume-Profit graph. 1. Use the line tool (Total revenue, plot 2 points) to draw the total revenue line. 2. Use the line tool (Total cost, plot 2 points) to draw the total cost line. 3. Use the drop-line tool (Break-Even Point) to select the break-even point. 4. Use the span tool (Profit) to show the net income for part (b) of this question. This will place a line with arrows on the graph. Click and drag each of the end points of the arrow until the line highlights the desired region. 5. Once all points have been plotted, click on the line (not individual points) and a tool icon will pop up. You can use this to enter exact co-ordinates for your points as needed. Total TRTC($) Revenue 600000 Total Cost 550000- 500000 Break Even Point 450000- Profit 400000 350000- 300000 250000 200000 20000 25000 30000 35000 40000 45000 50000 55000 60000 Bags per Year

Answer 1

Given,

Selling Price = S = $10 per bag

Variable costs = VC = $7.50 per bag

Annual fixed costs = FC = $100,000

Profit = P

Per Contribution per mit = C = Selling Price per dag - Variable Cost svc. = 10- 7.5 = $2.5 per bag Contribution Ratio. & c . 2.5.25%. = 0.25.

a. Number of bags =

a). Break even points (in units) = F. C. C. = 100,000 2.5. = 40,000 dragefyr.

b.Net income

b) = - Sales Revenue (s) 10x60060 - V.C. 7.5x60000 - Contribution (c) - Fixed Cost Net Income 600,000 450,000 150,000 100,000 $50,000

c.Number of bags =

mom (e) Number of bags to be sold for a net income of $60,000 for a year... - Fixed Cort (FC) + Profits (P) S-VC. 100,000 + 60,000 z 160,000 10 - 7.5 2.5 - 64,000 bags/yr

d. Number of bags =

(d) Number of lages would produce a loss of ($10.000) in a year. = 100,000 + (10,000). 10- 7.5. 90,000 - 36.000 logs / ye 205.

Note: I am unable to plot and prepare the lines in the CVP Graph. I have computed the values for the questions given.