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Chapter 20: Q20-14RQ (page 1119)
What is the breakeven point?
Answer
The breakeven point is company at no profit or loss condition because contribution is equal to total fixed cost.
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What is cost-volume-profit analysis?
What is operating leverage? What does it mean if a company has a degree of operating leverage of 3?
Question: Determining fixed cost per unit
For each total fixed cost listed below, determine the fixed cost per unit when sales are 50, 100, and 200 units.
Store rent $ 5,000
Manager鈥檚 salary 3,000
Equipment lease 500
Depreciation on fixtures 250
Identifying variable, fixed, and mixed costs
Philadelphia Acoustics builds innovative speakers for music and home theater systems. Identify each cost as variable (V), fixed (F), or mixed (M), relative to number of speakers produced and sold.
1. Units of production depreciation on routers used to cut wood enclosures.
2. Wood for speaker enclosures.
3. Patents on crossover relays.
4. Total compensation to salesperson who receives a salary plus a commission based on meeting sales goals.
5. Crossover relays.
6. Straight-line depreciation on manufacturing plant.
7. Grill cloth.
8. Insurance on the corporate office.
9. Glue.
10. Quality inspector鈥檚 salary.
Analyzing a cost-volume-profit graph
Nolan Rouse is considering starting a Web-based educational business, e-Prep MBA. He plans to offer a short-course review of accounting for students entering MBA programs. The materials would be available on a password-protected Web site; students would complete the course through self-study. Rouse would have to grade the course assignments, but most of the work would be in developing the course materials, setting up the site, and marketing. Unfortunately, Rouse鈥檚 hard drive crashed before he finished his financial analysis. However, he did recover the following partial CVP chart:
Requirements
1. Label each axis, the sales revenue line, the total costs line, the fixed costs line, the operating income area, and the breakeven point.
2. If Rouse attracts 300 students to take the course, will the venture be profitable? Explain your answer.
3. What are the breakeven sales in students and dollars?
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