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CHAPTER 3
COST-VOLUME-PROFIT ANALYSIS
NOTATION USED IN CHAPTER 3 SOLUTIONS
SP: Selling price VCU: Variable cost per unit CMU: Contribution margin per unit FC: Fixed costs TOI: Target operating income
3-16 (10 min.) CVP computations.
| | |Variable |Fixed |Total |Operating |Contribution |Contribution |
| |Revenues |Costs |Costs |Costs |Income |Margin |Margin % |
|a. |$2,000 |$ 500 |$300 |$ 800 |$1,200 |$1,500 |75.0% |
|b. |2,000 |1,500 |300 |1,800 |200 |500 |25.0% |
|c. |1,000 |700 |300 |1,000 |0 |300 |30.0% |
|d. |1,500 |900 |300 |1,200 |300 |600 |40.0% |
3-17 (10–15 min.) CVP computations.
1a. Sales ($68 per unit × 410,000 units) $27,880,000 Variable costs ($60 per unit × 410,000 units) 24,600,000 Contribution margin $ 3,280,000
1b. Contribution margin (from above) $3,280,000 Fixed costs 1,640,000 Operating income $1,640,000
2a. Sales (from above) $27,880,000 Variable costs ($54 per unit × 410,000 units) 22,140,000 Contribution margin $ 5,740,000
2b. Contribution margin $5,740,000 Fixed costs 5,330,000 Operating income $ 410,000
3. Operating income is expected to decrease by $1,230,000 ($1,640,000 − $410,000) if Ms. Schoenen’s proposal is accepted. The management would consider other factors before making the final decision. It is likely that product quality would improve as a result of using state of the art equipment. Due to increased
COST-VOLUME-PROFIT ANALYSIS
NOTATION USED IN CHAPTER 3 SOLUTIONS
SP: Selling price VCU: Variable cost per unit CMU: Contribution margin per unit FC: Fixed costs TOI: Target operating income
3-16 (10 min.) CVP computations.
| | |Variable |Fixed |Total |Operating |Contribution |Contribution |
| |Revenues |Costs |Costs |Costs |Income |Margin |Margin % |
|a. |$2,000 |$ 500 |$300 |$ 800 |$1,200 |$1,500 |75.0% |
|b. |2,000 |1,500 |300 |1,800 |200 |500 |25.0% |
|c. |1,000 |700 |300 |1,000 |0 |300 |30.0% |
|d. |1,500 |900 |300 |1,200 |300 |600 |40.0% |
3-17 (10–15 min.) CVP computations.
1a. Sales ($68 per unit × 410,000 units) $27,880,000 Variable costs ($60 per unit × 410,000 units) 24,600,000 Contribution margin $ 3,280,000
1b. Contribution margin (from above) $3,280,000 Fixed costs 1,640,000 Operating income $1,640,000
2a. Sales (from above) $27,880,000 Variable costs ($54 per unit × 410,000 units) 22,140,000 Contribution margin $ 5,740,000
2b. Contribution margin $5,740,000 Fixed costs 5,330,000 Operating income $ 410,000
3. Operating income is expected to decrease by $1,230,000 ($1,640,000 − $410,000) if Ms. Schoenen’s proposal is accepted. The management would consider other factors before making the final decision. It is likely that product quality would improve as a result of using state of the art equipment. Due to increased