Question

9. Oriole Company has the following information available for September 2020.

Unit selling price of video game consoles		$420
Unit variable costs		$252
Total fixed costs		$63,840
Units sold		600

Compute the unit contribution margin.

Unit contribution margin________

  Prepare a CVP income statement that shows both total and per unit amounts.

Compute Oriole’ break-even point in units.
Break-even point in units_______

Prepare a CVP income statement for the break-even point that shows both total and per unit amounts.

10. Carla Vista Company reports the following operating results for the month of August: sales $357,000 (units 5,100), variable costs $256,000, and fixed costs $99,000. Management is considering the following independent courses of action to increase net income.

1.		Increase selling price by 10% with no change in total variable costs or units sold.
2.		Reduce variable costs to 65% of sales.

Compute the net income to be earned under each alternative.

1.		Net Income		$__________
2.		Net Income		$_____________

Which course of action will produce the higher net income? select an option (Alternative1, Alternative2)

11. Carla Vista Diesel owns the Fredonia Barber Shop. He employs 4 barbers and pays each a base rate of $1,220 per month. One of the barbers serves as the manager and receives an extra $520 per month. In addition to the base rate, each barber also receives a commission of $6.40 per haircut.

Other costs are as follows.

Advertising		$240	per month
Rent		$900	per month
Barber supplies		$0.50	per haircut
Utilities		$165	per month plus $0.10 per haircut
Magazines		$15	per month

Carla Vista currently charges $14 per haircut.

Determine the variable costs per haircut and the total monthly fixed costs. (Round variable costs to 2 decimal places, e.g. 2.25.)

Total variable cost per haircut $_______ Total fixed $_________

Compute the break-even point in units and dollars.

Break-even point _______ haircuts

Break even sales $_______  

Determine net income, assuming 1,510 haircuts are given in a month.

Net income / (Loss) $______

Answer 1

9.

Unit Contribution Margin = Selling Price - Unit Variable Cost

= $420-$252

= $168

CVP Income Statement

CVP Income Statement

	Total	Per Unit
Sales	$252,000	$420
(-)Variable Costs	($151,200)	($252)
Contribution Margin	$100,800	$168
(-)Fixed Cost	($63,840)	($106.4)
Operating Profit	$36,960	$61.6

Break-even Point (Units) = Fixed Cost/ Contribution Margin Unit

= $63,840/$168

= 380 Units

CVP Break-even Income Statement

	Total	Per Unit
Sales	$159,600	$420
(-)Variable Cost	($ 95,760)	($252)
Contribution Margin	$63,840	$168
(-)Fixed Cost	($63,840)	($168)
Operating Income	$0	$0

10.

Income Under Current Scenario

Sales	$357,000
(-)Variable Cost	($256,000)
Contribution Margin	$101,000
(-)Fixed Cost	($ 99,000)
Operating Income	$ 2,000

Income Under Alternative 1

Sales ($357,000 + 10%)	$392,700
(-)Variable Costs	($256,000)
Contribution Margin	$136,700
(-)Fixed Cost	($ 99,000)
Operating Income	$37,700

Income Under Alternative 2

Sales	$357,000
(-)Variable Costs ($357,000*65%)	($232,050)
Contribution Margin	$124,950
(-)Fixed Cost	($ 99,000)
Operating Income	$ 25,950

Alternative 1 Will Produce Higher Net Income.

11.

Calculation of Variable Cost per unit.

Commission $6.4

Barber Supplies $ .50

Utilities(Variable) $ .10

Unit Variable Cost $ 7

Calculation Of Total Fixed Costs

Base Salary($1,220*4) $4,880

Manager Salary $ 520

Advertising $ 240

Rent $ 900

Utilities(Fixed) $ 165

Magazine $ 15

Total Fixed Costs $6,720

Break Even Point In Units

= Fixed Cost/Contribution Per Unit

Contribution = $14-$7  

= $7

Break Even Units = $6,720/$7

= 960 Haircuts

​ Break Even Points Sales

= Fixed Cost/Contribution Ratio

Contribution Margin = Contribution/Sales

= $7/$14

= .5

Break Even Sales = $6,720/.5

= $13,440

Net Income Calculation, If Sales is 1,510

Sales ($14*1,510)	$21,140
(-)Variable Costs ($7*1,510)	($10,570)
Contribution Margin	$10,570
(-)Fixed Costs	($ 6,720)
Operating Income	$ 3,850