Cost-Volume-Profit Problems



Cost-Volume-Profit Review Problems (For Exam 1)

QUESTION 1

Bridal Shoppe sells wedding dresses. The cost of each dress is comprised of the following: Selling price of $1,000 and variable (flexible) costs of $400. Total fixed (capacity-related) costs for Bridal Shoppe are $90,000.

A. What is the contribution margin per dress?

Revenues – Flexible Costs = CM

$1,000 - $400 = $600

B. What is the Bridal Shoppe’s total profit when 200 dresses are sold?

Revenues – Flexible Costs – Capacity-Related Costs = Total Profit

200 ($1,000) – 200($400) - $90,000 = $30,000

C. How many dresses must Bridal Shoppe sell to reach the breakeven point?

X = Capacity-Related Costs/Contribution Margin

X = $90,000/$600

X = 150 dresses

D. How many dresses must Bridal Shoppe sell to yield a profit of $60,000?

Total Revenues – Total Costs = Total Profit

$1,000X - $400X - $90,000 = $60,000

$600X = $150,000

X = $150,000/$600

X = 250 dresses

QUESTION 2

Northenscold Company sells several products. Information of average revenue and costs are as follows:

Selling price per unit $20.00

Variable costs per unit:

Direct materials $4.00

Direct manufacturing labor $1.60

Manufacturing overhead $0.40

Selling costs $2.00

Annual fixed costs $96,000

1. Calculate the contribution margin per unit.

$20 - $4 - $1.60 - $0.40 - $2 = $12

2. Calculate the number of units Northenscold’s must sell each year to break even.

20X - 8X - 96,000 = 0; X = 8,000 units

3. Calculate the number of units Northenscold’s must sell to yield a profit of $144,000.

20X – 8X – 96,000 = $144,000; X = 20,000 units

QUESTION 3

Berhannan’s Cellular sells phones for $100. The unit variable cost per phone is $50 plus a selling commission of 10%. Fixed manufacturing costs total $1,250 per month, while fixed selling and administrative costs total $2,500.

A. What is the contribution margin per phone?

CM per phone = $100 - $50 - 0.1($100) = $40

B. What is the breakeven point in phones?

N = Breakeven in phones

$100N - $50N - $10N - $1,250 - $2,500 = 0

$40N - $3,750 = 0

N = $3,750 / $40 = 93.75 phones

Breakeven Point = 94 phones

c. How many phones must be sold to earn a targeted profit of $7,500?

N = Phones to be sold

$100N - $50N - $10N - $1,250 - $2,500 = $7,500

$40N = $11,250

N = $11,250 / $40 = 281.25 phones

To achieve target profit: Must sell 282 phones

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