Question

Question 1: CVP relation Sales volume in units 100 Revenue $8,000 Variable costs $7,000 Contribution margin $1,000 Fixed costs $600 Profit $400 a) Compute the following items: price= unit VC= unit CM= b) Write down the CVP relation. Profit = * volume- (e.g., if Profit=4*volume-1000, enter 4 in the first box and 1000 in the second box). c) Predict profit at sales volume of 120 units: d) Your boss gave you a profit target of $700. How many units do you need to sell to meet this target? e) Compute the breakeven point: breakeven volume = breakeven revenue = f) Compute the margin of safety at current sales volume of 100 units: (e.g., if your answer is 20%, enter 20 without the % sign) If sales decrease by 35%, will you lose money? O YES ONO If sales decrease by 45%, will you lose money? O YES O NO

Answer 1

$ = 80 Solution a) Price unit vc unit CM $ $ $ = 70 = 10 Solution b) Proft $ II $ 10 volume - $ 600 Solution c) Profit at Sales of 120 units : Profit $ 10 * 120 units - $ $ 1,200 $ $ 600 = 600 600 = 700 Solution d) Target Profit add: Fixed Cost Target Contribution $ $ $ 600 1,300 Target Sales (units) = Target Contribution / Contribution per unit $ 1,300 / $ 10 130 units 11 Solution e) Breakeven Volume Fixed Cost /Contribution per unit $ 600 / $ 10 60 units = Breakeven Revenue Break even Volume x Price 60 x $ 80 $ 4,800

Solution f) Margin of Saftey at 100 units = $ 80 x 100 units - Break even Revenue $ 8,000 - $ 4,800 $ 3,200 $ 3,200 / $ 8000 40% Margin of Safety (%) NO If Sales decrease by 35%, will you lose money If Sales decrease by 45%, will you lose money YES

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