Management

CHAPTER 19 ALTERNATE PROBLEMS

Problem 19.1A

Using Cost-Volume Profit Formulas

Jumble writes and manufactures spelling games that it sells to retail stores. The following is per-unit information relating to the manufacture and sale of this product:

Unit sale price $ 30

Variable cost per unit 6

Fixed costs per year 280,000

Instructions

Determine the following, showing as part of your answer the formula that you used in your computation. For example, the formula used to determine the contribution margin ratio (part a) is:

|Contribution Margin Ratio |= |Unit Sales Price – Variable Costs per Unit |

| | |Unit Sales Price |

a. Contribution margin ratio.

b. Sales volume (in dollars) required to break even.

c. Sales volume (in dollars) required to earn an annual operating income of $50,000.

d. The margin of safety sales volume if annual sales total 50,000 units.

e. Operating income if annual sales total 50,000 units.

Problem 19.2A

Using Cost-Volume-Profit Formulas

Spear Products typically earns a contribution margin ration on 30% and has current fixed costs of $90,000. Spear’s general manager is considering spending an additional $25,000 to do one of the following:

1. Start a new ad campaign that is expected to increase sales revenue by 8%.

2. License a new computerized ordering system that is expected to increase Arrow’s contribution margin ratio to 35%.

Sales revenue for the coming year was initially forecast to equal $1,500,000 (that is, without implementing either of the above options).

Instructions

a. For each option, how much will projected operating income increase or decrease relative to initial predictions?

b. By what percentage would sales revenue need to increase to make the ad campaign as attractive as the ordering system?

Problem 19.3A

Setting...