In: Accounting
Question 1: CVP relation
Sales volume in units | 100 |
Revenue | $7,000 |
Variable costs | $4,000 |
Contribution margin | $3,000 |
Fixed costs | $1,800 |
Profit | $1,200 |
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 $2,100. 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? YES
/ NO
If sales decrease by 45%, will you lose money? YES
/ NO
g) When sales volume increases by 10 units (from any
initial level in the relevant range), profit increases
by:
price*10 = $700
unit VC*10 = $400
not enough informationunit
CM*10 = $300
a) How much is the price per unit, unit variable cost and unit contribution margin? price = revenue/volume = $7,000/100 = $70 per unit
unit VC = VC/volume = $4,000/100 = $40 per unit
unit CM = CM/volume =$3,000/100 = $30/unit (or use unit CM = price – unit VC)
___________________________
b) Write down the CVP relation:
profit as a function of sales volume in units.
Profit = unit CM * Volume - FC = $30*Volume - $1,800
_____________________________________________________
c)
If sales volume increases by 20% (from 100 to 120), how much is the $ change in profits?
at volume = 120, profit = $30*120 - $1,800 = $1,800 (vs original profit of $1,200 from the CM statement)
change in profit
= $1,800 - $1,200
= $600
– increase of $600 Alternatively, can compute as: change in profit
= unit CM * change in volume = $30*(120-100) = $600
_____________________________________________
d)
What is the sales volume required to achieve target profit of $2,100?
Profit = $30*Volume - $1,800 = $2,100 => volume = (2,100+1,800)/30 = 130 units
____________________________________________
e)
How much is the breakeven volume? Breakeven revenue?
Breakeven volume = FC/unit CM = $1,800/$30 = 60 units.
(or, solve for volume in:
Profit = $30*Volume - $1,800 = $0). Breakeven revenue = breakeven volume * price = 60*$50 = $3,000
___________________________________________
f)
How much is the margin of safety (at current sales volume of 100 units)?
Margin of safety = (current volume – breakeven volume) / current volume = (100-60)/100 = 40%
______________________________________________________
g)
When sales volume increases by 10 units (from any initial level in the relevant range), profit increases by:
Sales increase =70*10 = $700
unit VC increase 40*10 = $400
CM increase 3*10 = $300
Increase in FC =0
Increase in profit =300