CVP PROBLEMS
1. CVP computations. Fill in the blanks for each of the following independent cases
Variable
Case Revenues Costs
a.
$______
$500
b.
2,000
______
c.
1,000
700
d.
1,500
______
Fixed
Costs
$_______
300
______
300
Total
Costs
$ 800
________
1,000
_______
Operating
Income
$1,200
200
_______
_______
Contribution
Margin
Percentage
_______
_________
_________
40%
2. CVP computations. Patel Manufacturing sold 180,000 units of its product for $25 per
unit in 2003. Variable cost per unit is $20 and total fixed costs are $800,000.
Required:
a.) Calculate contribution margin and operating income.
b.) Patels current manufacturing process is labor intensive. Patels production
manager has proposed investing in a new machine, which will increase total fixed
costs to $2,500,000 and decrease variable costs to $10 per unit. Patel expects to
maintain the same sales volume and selling price next year. If they purchase the
machine, what will contribution margin and operating income be?
c.) Should Patel invest in the new machine? Explain.
3. CVP analysis, changing revenues and costs. Sunshine Travel Agency specializes in
flights between Toronto and Jamaica. It books passengers on Canadian Air. Sunshines
fixed costs are $22,000 per month. Canadian Air charges passengers $1,000 per roundtrip ticket.
Required:
Calculate the number of tickets Sunshine must sell each month to (1) break even and (2)
make a target operating income of $10,000 per month in each of the following
independent cases:
a. Sunshines variable costs are $35 per tickets. Canadian Air pays Sunshine 8%
commission on ticket price.
b. Sunshines variable costs are $29 per ticket. Canadian Air pays Sunshine 8%
commission on ticket price.
c. Sunshines variable costs are $29 per ticket. Canadian Air pays $48 fixed
commission per ticket to Sunshine.
d. Sunshines variable costs are $29 per ticket. It receives $48 commission per
ticket from Canadian Air. It charges its customers a delivery fee of $5 per ticket.
4. CVP exercises. The Super Donut owns and operates six doughnut outlets in and
around Kansas City. You are given the following corporate budget data for next year.
Revenues
Fixed costs
Variable costs
$10,000,000
1,700,000
8,200,000
5. CVP exercises. The Doral Company manufactures and sells pens. Currently,
5,000,000 units are sold per year at $0.50 per unit. Fixed costs are $900,000 per year.
Variable costs are $0.30 per unit. Consider each case separately:
1a. What is the present operating income for a year?
1b. What is the present breakeven point in revenues?
Compute the new operating income for each of the following changes:
2. A $0.04 per unit increase in variable costs
3. A 10% increase in fixed costs and a 10% increase in units sold
4. A 20% decrease in fixed costs, a 20% decrease in selling price, a 10%
decrease in variable cost per units, and a 40% increase in units sold.
Compute the new breakeven point in units for each of the following changes:
5. A 10% increase in fixed costs
6. A 10% increase in selling price and a $20,000 increase in fixed costs
$100
75
25
$200
$2,000
300
300
2,500
500
$5,600