Question

Topic: Cost-Volume-Profit Analysis

General Instructions

Assess each of the following situations and provide the appropriate answers including the details of all calculations required for each problem.

Problem #1

Brancati Inc. produces and sells two products. Data concerning those products for the most recent month appear below:

	Product W07C			Product B29Z
Sales	$	25,000			$	27,000
Variable expenses	$	7,000			$	8,600

Fixed expenses for the entire company were $32,860.

Required:

a. Determine the overall break-even point for the company in total sales dollars.

b. If the sales mix shifts toward Product W07C with no change in total sales, what will happen to the break-even point for the company?

Problem #2

Hawver Corporation produces and sells a single product. Data concerning that product appear below:

Selling price per unit	$	180.00
Variable expense per unit	$	81.00
Fixed expense per month	$	594,000

Required:

Assume the company's monthly target profit is $19,800. Determine the unit sales to attain that target profit.

Problem #3

Brihon Corporation produces and sells a single product. Data concerning that product appear below:

Selling price per unit	$	230.00
Variable expense per unit	$	103.50
Fixed expense per month	$	518,650

Required:

a. Assume the company's monthly target profit is $12,650. Determine the unit sales to attain that target profit.

b. Assume the company's monthly target profit is $63,250. Determine the dollar sales to attain that target profit.

Answer 1

Problem # 1

	Product W07C	Product B29Z	Total
Sales	25,000	27,000	52,000
Variable expenses	7,000	8,600	15,600
Contribution margin	18,000	18,400	36,400
Contribution margin percentage	72%	68.15%	70%

a. Breakeven even point = Fixed costs / Contribution margin percentrage

= 32,860 / 70%

= 46,943

b. The breakeven point decreases as Product W07C has high contribution margin compared to Product B29Z

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Problem # 2

Contribution margin per unit = Selling price per unit - Variable cost per unit

= 180 - 81 = 99

Unit sales to attain target profit = (target profit + Fixed costs) / Contribution margin per unit

= (19,800 + 594,000) / 99

= 6,200

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Problem # 3

Contribution margin per unit = Selling price per unit - Variable expenses per unit

= 230 - 103.5 = 126.5

Contribution margin percentage = Contribution margin per unit / Selling price per unit

= 126.5 / 230 = 55%

a. Unit sales to attain target profit = (target profit + fixed costs) / contribution margin per unit

= (12,650 + 518,650) / 126.5

= 4,200

b. Dollar sales to attain target profit = (target profit + fixed costs) / contribution margin percentage

= (63,250 + 518,650) / 55%

= 1,058,000