Bus 630: Managerial Accounting

Basic CVP Analysis

Ashford University

BUS 630: Managerial Accounting

Instructor: Dana Leland

August 6, 2012

1. Calculate the annual break-even point in dollar sales and in unit sales for Shop 48.

In figuring out the breakeven point in dollars sales it is breakeven units = Fixed cost/unit contribution margin.

Unit Contribution margin - 12 (30.00 – 18.00)

Fixed cost - 150,000

Breakeven units – 12,500

Breakeven sales – 375,000 (12,500 * 30)

2. Prepare a CVP graph showing cost and revenue data for Shop 48 from zero shoes up to 17,000 pairs of shoes sold each year. Clearly indicate the break-even point on the graph.

3. If 12,000 pairs of shoes are sold in a year, what would be Shop 48's net operating income or loss?

Shoe sold – 12,000

Total revenue – 360,000 (12,000 * 30)

Total variable cost – 216,000 (12,000 * 18)

Contribution margin – 144,000 (360,000 – 216,000)

Fixed cost – 150,000

Operating income – (6,000) (144,000 – 150,000)

4. The company is considering paying the store manager of Shop 48 an incentive commission of Shop 48 an incentive commission of 75 cents per pair of shoes (in addition to the salesperson's commission). If this change is made, what will be the new break-even point in dollar sales and in unit sales?

Selling price – 30

New variable cost – 18.75

Contribution margin – 11.25 (30.00 – 18.75)

Fixed cost – 150,000

Breakeven units – 13,333.33 (150,000 / 11.25)

Breakeven sales – 400,000.00 (13,333.33 * 30)

5. Refer to the original data. As an alternative to (4) above, the company is considering paying the store manager 50 cents commission on each pair of shoes sold in excess of the break-even point. If this change is made, what will be the shop's net operating income or loss if 15,000 pairs of shoes are sold?

Shoe sold – 15,000

Total revenue – 450,000 (15,000 * 30)

Total variable cost – 271,250

Contribution margin – 178,750 (450,000 -271,250)

Fixed cost – 150,000

Operating...