Cost managemnet Chapter 3
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Chapter 3 Belterra Tiles makes tiles for flooring and other applications. The CFO of the company provides you with the following information for the period October through December, the company's third quarter:
Belleterre Tile
Revenues and Costs
Third Quarter
Total quantity sold
126,100 tiles
Total revenues
$ 469,092
Total variable costs
360,646
Total fixed costs
103,200
Required:
a.
What is the average selling price per tile?
Note: Round your final answer to 2 decimal places.
b.
What is the average variable cost per tile?
Note: Round your final answer to 2 decimal places.
c.
What is the average contribution margin per tile?
Note: Do not round intermediate calculations. Round your final answer to 2 decimal places.
d.
What is the current operating profit for a quarter?
Note: Do not round intermediate calculations.
e.
What is the break-even point?
Note: Do not round intermediate calculations.
f.
The CFO tells you that the company owners have said that unless the quarterly operating profit exceeds $17,372, they will
liquidate the company. How many tiles would have to be sold in a quarter for Belleterre Tile to earn $17,372 in quarterly operating profit?
Note: Do not round intermediate calculations.
Explanation
a.
$469,092 ÷ 126,100 tiles = $3.72 per tile
b.
$360,646 ÷ 126,100 tiles = $2.86 per tile
c.
($3.72 − $2.86) = $0.86 per tile
d.
Profit = ($3.72 − $2.86) × 126,100 tiles − $103,200 = $5,246
e.
Profit = ($3.72 − $2.86) × 126,100 tiles − $103,200
Let Profit = 0
0 = ($3.72 − $2.86)X − $103,200
X = $103,200 / $0.86
X = 120,000 tiles
f.
Let Profit = $17,372
$15,000 = ($3.72 − $2.86)X − $103,200
X = ($103,200 + $17,372) / $0.86
X = 140,200 tiles
Waterman’s WaterWorld Tourist Park has collected the following data for operations for the year:
Total revenues
$ 2,900,000
Total fixed costs
$ 947,375
Total variable costs
$ 1,575,000
Total tickets sold
50,000
Required:
a.
What is the average selling price for a ticket?
b.
What is the average variable cost per ticket?
c.
What is the average contribution margin per ticket?
Note: Do not round intermediate calculations.
d.
What is the break-even point?
Note: Do not round intermediate calculations.
e.
Waterman's management has decided that unless the operation can earn at least $212,000 in operating profits, they will close it down. What number of tickets must be sold for Waterman's to make a $212,000 operating profit for the year on ticket sales?
Note: Do not round intermediate calculations.
Explanation
a.
$2,900,000 ÷ 50,000 tickets = $58.00 per ticket
b.
$1,575,000 ÷ 50,000 tickets = $31.50 per ticket
c.
($58.00 − $31.50) = $26.50 per ticket
d.
Profit = ($58.00 − $31.50) X − $947,375
Let Profit = 0
0 = ($58.00 − $31.50) X − $947,375
X = $947,375 / $26.50
X = 35,750 tickets
e.
Let Profit = $212,000
$212,000 = ($58.00 − $31.50)X − $947,375
X = ($947,375 + $212,000) / $26
X = 43,750 tickets
The manager of Gratiot Flooring estimates operating costs for the year will include $579,000 in fixed costs.
Required:
a.
Find the break-even point in sales dollars with a contribution margin ratio of 30 percent.
b.
Find the break-even point in sales dollars with a contribution margin ratio of 25 percent.
c.
Find the sales dollars required to generate a profit of $84,000 for the year assuming a contribution margin ratio of 20 percent.
Explanation
a.
Break-even point in sales dollars = Fixed costs ÷ Contribution margin ratio
= $579,000 ÷ 0.30 = $1,930,000
b.
Break-even point in sales dollars = Fixed costs ÷ Contribution margin ratio
= $579,000 ÷ 0.25 = $2,316,000
c.
Sales dollars required = (Fixed costs + Desired profit) ÷ Contribution margin ratio
= ($579,000 + $84,000) ÷ 0.20 = $3,315,000
Cruse Cleaning offers residential and small office cleaning services. An average cleaning service has the following price and costs.
Sales price
$ 132.00 per service
Variable costs
94.00 per service
Fixed costs
146,718 per year
Cruse Cleaning is subject to an income tax rate of 22 percent.
Required:
a.
How many cleaning services must Cruse Cleaning sell in a year to break even?
b.
How many cleaning services must Cruse Cleaning sell in a year to earn an annual operating profit of $40,014 after taxes?
Explanation
a.
Profit = (P − V)X − F
$0 = ($132.00 − $94.00)X − $146,718
X = $146,718 / $38.00
X = 3,861 cleaning services
b.
In order to achieve a profit of $40,014 after tax, Cruse Cleaning must earn:
$51,300 = [$40,014 ÷ (1.00 − 0.22)] before taxes.
The number of units to earn $40,014 in operating profits is:
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X = ($146,718 + $51,300) ÷ ($132.00 − $94.00) = 5,211 cleaning services.