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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...