Acc 711 Chapter 05 Handouts Cvp Exs

ACC 711

Chapter 5: Cost Volume Profit Relationships

In-Class Example 1: C-V-P Analysis - Break Even

Heat Corporation estimated sales of its product priced at $30 per unit to be 60,000 units. Variable costs include manufacturing costs of $21 per unit and selling and administrative costs of $3 per unit. Fixed costs are $240,000 per year.

Requirements:

1. Estimated annual profit before tax.

2. Annual break-even volume in units sold.

3. Annual break-even in sales dollars.

4. Unit contribution margin.

5. Estimated total contribution margin.

ACC 711

Chapter 5: Cost Volume Profit Relationships

In-Class Example 2: C-V-P Analysis - Target Profit

Flame Corporation sells a product with a unit selling price of $200 and a unit variable cost of $150. Annual fixed costs are $300,000 and the corporation is subject to an income tax rate of 30%.

Requirements:

1. Break-even unit sales volume.

2. Unit sales volume needed to provide a before-tax profit of $175,000.

3. Unit sales volume needed to provide an after-tax profit of $140,000.

ACC 711

Chapter 5: Cost Volume Profit Relationships

In-Class Example 3: C-V-P Analysis – Indifference Point

Barta Corporation wants to produce and market a new product. They are trying to decide whether they should invest in the high-tech machinery to produce the product (i.e., capital intensive), or produce the product using a more traditional method (i.e., labor intensive). The following is unit data relating to the two alternative methods of manufacturing.

Capital Intensive Method Labor Intensive Method

Direct Materials $10.00 $11.00

Direct Labor 0.2 hrs. @ $15.00 = 3.00 0.6 hrs. @ $10.00 = 6.00

Variable Overhead 0.2 hrs. @ 5.00 = 1.00 0.6 hrs. @ 5.00 = 3.00

Fixed Overhead $2,200,000 $800,000

Projected selling price is $25 per unit.

Requirements:

1. What would be the break-even volume in...