Practice Week 3

Week 3 - Practice Text Exercises

Question 2-48, CVP and Financial Statements for a Mega-Brand Company, on p. 82

The percentage increase in income differs from the percentage increase in sales because variable cost, which were the Costs of products sold, changed in direct proportion to changes in net sales. Therefore, the income increase is relative to the difference in Cost of products sold versus the Net sales.

2007 Operating Income for Procter & Gamble

Net sales $75,044.20

Costs of products sold 36,437.50

Selling, general, and administrative expense 21,848.00___

Operating income $16,758.70

Question 2-61, CVP in a Modern Manufacturing Company, on p. 87

1. Compute the budgeted profit at the expected volume of 600,000 units under both the old and the new production environments.

(600,000x$3.10=1,860,000) - (600,000x$2.10=1,260,000) = $600,000-$580,000 =

Old Production Operations Budgeted Profit of $20,000.00

(600,000x$3.10=1,860,000) - (600,000x$1.10=660,000) = $1,200,000-$1,140,000 =

New Production Operations Budgeted Profit of $60,000.00

2. Compute the budgeted break-even point under both the old and the new production environments.

Old Production Operations

Unit sales price $3.10

− Unit variable cost −2.10

= Unit contribution margin $ 1.00

$580,00.00/$1.00=580,000unitsx$3.10=$1,798,000 budgeted break-even point

New Production Operations

Unit sales price $3.10

− Unit variable cost −1.10

= Unit contribution margin $ 2.00

$1,140,000/$2.00=570,000unitsx$3.10=$1,767,000 budgeted break-even point

3. Discuss the effect on profits if volume falls to 500,000 units under both the old and the new production environments.

At 500,000 units the Hewlett-Packard Company will lose money. There is not enough revenue produced to cover their fixed expenses. There will be a profit loss of...