FAFNA Cost Vol Profit Assignement 6

FAFNA – Profit-Cost-Volume Problem

SHOW YOUR WORK FOR CALCULATION PROBLEMS

Based on the following information, complete the problems listed below on the Airwolf Helicopters Company.
[In $ Dollars 000]
Sales……………$75,000
Gross Margin…60%
Op. Expenses..$12,000
# Units shipped…15

Operating Profit?

Gross Profit (GP)= Gross Margin x Sales = 75,000 x 0.60 =45,000

Operating Profit (OP)= GP-Operating Exp (OE) OP= 45,000-12,000 OP= 33,000

The remaining questions are based on the following assumptions: (1) Cost of Sales & Operating Expenses are Fixed Costs; (2) Contribution Margin =60%.

Break Even level in Units?

Break Even (BE)= Fixed Cost (FC)/Contribution Margin (CM)

Cost of Sales = Sales – GP
= 75,000 – 45,000
= 30,000

Since Cost of Sales & OE are Fixed Costs, this implies
FC =30,000 + 12,000 = 42,000

Contribution Margin per unit = Average Selling Price (ASP) – Variable Cost (VC)
ASP = Sales / units = 75,000/15 = 5,000

CM value basis = (CM %) x ASP
=(0.60) x 5,000 = 3,000

Calculations:
CM = ASP – VC
CM = 5,000 – VC
3,000 = 5000 – VC

This implies VC = 2,000, which yields CM of 3,000 which is 60% of ASP.
Break-even units = FC / ASP – VC = 42,000/ (5,000-2,000) = 42,000/3,000 = 14

Break Even sales Level?

Break-even sales = (Break-even units) x ASP = 14 x 5,000 = 70,000

Calculation:
Break-even sales = Total Costs (TC) = FC + VC
FC = 42,000 [as above]
VC = (# units) x (VC per unit) = 14 x 2,000 = 28,000

Therefore;
TC = FC + VC = 42,000 + 28,000 = 70,000
And hence
TC = 70,000 = Break-even Sales

Total cost & breakdown between fixed and variable costs?
Total Cost (TC) = FC + VC
= 42,000 + 28,000
= 70,000

Calculation:
FC = 42,000 [see above]
VC = (# units) x (VC per unit)
= 14 x 2,000
= 28,000