Question

(on the following question please show the formula for the steps and from were you get the numbers)

Cost-volume-profit analysis
Di & Co. has the following budgeted information for a contract: -
Fixed costs $ 270,000
Variable cost per unit $         20
Selling price per unit   $         40

Budgeted output / sales units          15,000
Required:
(a) Compute the number of units that must be sold to breakeven.                             

(b) How many units must be sold to earn $80,000 target profit?                                    

(c) What selling price would have to be charged to give a profit of $80,000?
                                                                                                                           

(d) How many additional units must be sold to cover an extra fixed cost of $12,000? (assuming selling price and variable cost per unit are constant)
                                                                               
(e) What is the profit-volume ratio?                                                                          
(f) Referring to part (e) above, if total sales revenue is $550,000, what is the total contribution and hence what is the net profit?                                                      

(g) Referring to part (a), what is the margin of safety?                                             
(h) What does the term relevant range mean?            

Answer 1

(a) Compute the number of units that must be sold to breakeven.
	Break Even Formula:	Total fixed costs of production
		Selling Price per Unit - Variable Costs per Unit
	Units to be sold for Break Even	i.e. 270000/(40-20)
	Units to be sold for Break Even	13500
(b) How many units must be sold to earn $80,000 target profit?
	Unit Sales :	Fixed Costs + Target Profits
		Selling Price per Unit - Variable Costs per Unit
		i.e. (270000+80000)/(40-20)
	units must be sold to earn $80,000 target profit	17500
(c) What selling price would have to be charged to give a profit of $80,000?
	At Budgeted Output Selling Price would be :	((Fixed Costs+target Profits)/Budgeted output)+Variable Costs per Unit
		43.333
(d) How many additional units must be sold to cover an extra fixed cost of $12,000? (assuming selling price and variable cost per unit are constant)
	Break Even Formula:	Total fixed costs of production
		Selling Price per Unit - Variable Costs per Unit
	Units to be sold for Break Even	i.e. (270000+12000)/(40-20)
	Units to be sold for Break Even	14100
	Extra Units to be sold:	i.e. 14100-13500
		600
(e) What is the profit-volume ratio?
	profit-volume ratio:	Contribution/Sales
	Contribution	i.e. (Selling Price per Unit - Variable Costs per Unit)
		20
	Volume	Selling Price per Unit
		40
	profit-volume ratio:	50%