Question

 

Warner Clothing is considering the introduction of a new baseball cap for sales by local vendors. The company has collected the following price and cost characteristics:

Sales price	$	16	per unit
Variable costs		4	per unit
Fixed costs		48,000	per month

2.

value:
1.00 points

Required information

Required:

a. What number must Warner sell per month to break even?

b. What number must Warner sell per month to make an operating profit of $36,000?

References

eBook & Resources

WorksheetDifficulty: 2 MediumLearning Objective: 03-01 Use cost-volume-profit (CVP) analysis to analyze decisions.

Check my work

 

3.

value:
1.00 points

Required information

Assume that the company plans to sell 5,000 units per month. Consider requirements (b), (c), and (d) independently of each other.

Required:

a. What will be the operating profit?

b. What is the impact on operating profit if the sales price decreases by 10 percent? Increases by 20 percent?

c. What is the impact on operating profit if variable costs per unit decrease by 10 percent? Increase by 20 percent?

d. Suppose that fixed costs for the year are 10 percent lower than projected, and variable costs per unit are 10 percent higher than projected. What impact will these cost changes have on operating profit for the year? Will profit go up? Down? By how much?

Answer 1

	Sales Price	16
	Variable Costs	4
	Contribution	12
	Fixed Costs	48000
Requirement a)	Break even sales	4000
	(Fixed Costs/Contribution Per unit)	(48000/12)
Requirement b)	Sales required to make profit of 36000	7000
	(Fixed Costs+36000/Contribution Per unit)	((48000+36000)/12)
	Now if company wants to sell 5000 Units.
Requirement a)	Operating Profit
	Sales Price	16
	Variable Costs	4
	Contribution	12
	Units	5000
	Total Contribution	60000
	Fixed Costs	48000
	Operating Profit	12000
Requirement b)	Change in Operating Profit	If Sales Price decrease by 10%	If Sales price increase by 20%
	Sales Price	14.4	19.2
	Variable Costs	4	4
	Contribution	10.4	15.2
	Units	5000	5000
	Total Contribution	52000	76000
	Fixed Costs	48000	48000
	Operating Profit	4000	28000
	Change in Operating Profit	Decrease by 8000	Increase by 16000
Requirement c)	Change in Operating Profit	If Variable Costs decrease by 10%	If Variable Costs increase by 20%
	Sales Price	16	16
	Variable Costs	3.6	4.8
	Contribution	12.4	11.2
	Units	5000	5000
	Total Contribution	62000	56000
	Fixed Costs	48000	48000
	Operating Profit	14000	8000
	Change in Operating Profit	Increase by 2000	Decrease by 4000
Requirement d)	Fixed Costs are 10% lower
	Variable costs per unit are 10% higher
	Sales Price	16
	Variable Costs	4.4
	Contribution	11.6
	Units	5000
	Total Contribution	58000
	Fixed Costs	43200
	Operating Profit	14800
	Operating Profit increase by	2800