APPLY THE CONCEPTS: Effect of Changes to Sales Price, Variable Costs and Fixed CostsNow consider each of the following scenarios for Gordon Products. Calculate the contribution margin (CM) per unit, rounded to nearest dollar, and the new break-even point in units, rounded to the nearest whole unit, for each scenario separately.Scenario 1Scenario 2Scenario 3Gordon will dispose of a machine in the factory. The depreciation on that equipment is $500 per month.After some extensive market research, Gordon has determined that a sales price increase of $2 per unit will not affect the sales volume and will be effective immediately.Gordon has been experiencing quality problems with a materials supplier. Changing suppliers will improve the quality of the product but will cause direct materials costs to increase by $1 per unit.CM per unit: $fill in the blank e2f800fbc041002_1CM per unit: $fill in the blank e2f800fbc041002_2CM per unit: $fill in the blank e2f800fbc041002_3Break-even units: fill in the blank e2f800fbc041002_4 unitsBreak-even units: fill in the blank e2f800fbc041002_5 unitsBreak-even units: fill in the blank e2f800fbc041002_6 units PROFIT (Dollars)10000Oper. Profit Area75005000Oper. Loss Area2500Profit Line-2500-5000-7500-100002004006008001000UNITS OF SALESClear All HelpC.PROFIT (Dollars)10000Oper. Profit AreaA75005000Oper. Loss Area2500Profit Line-2500-5000-7500-100002004006008001000UNITS OF SALESClear All HelpD. A profit-volume graph helps managers to visualize the relationship between profits and units sold. The data for Gordon Products has been used to construct the profit-volume graph below. The purple points (diamond symbols) plot the profit line.The operating loss is the shaded area bordered by the red points (cross symbols). The operating profit is the area bounded by the green points (triangle symbols).Choose the correct profit-volume graph for Gordon Products APROFIT (Dollars)10000Oper. Profit Area75005000Oper. Loss Area2500Profit Line-2500-5000-7500-100002004006008001000UNITS OF SALESClear All HelpA.PROFIT (Dollars)10000Oper. Profit Area75005000Oper. Loss Area2500Profit Line04-2500-5000-7500-100002004006008001000UNITS OF SALESClear All Help

Answered: APPLY THE CONCEPTS: Effect of Changes…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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APPLY THE CONCEPTS: Effect of Changes to Sales Price, Variable Costs and Fixed Costs

Now consider each of the following scenarios for Gordon Products. Calculate the contribution margin (CM) per unit, rounded to nearest dollar, and the new break-even point in units, rounded to the nearest whole unit, for each scenario separately.

Scenario 1	Scenario 2	Scenario 3
Gordon will dispose of a machine in the factory. The depreciation on that equipment is $500 per month.	After some extensive market research, Gordon has determined that a sales price increase of $2 per unit will not affect the sales volume and will be effective immediately.	Gordon has been experiencing quality problems with a materials supplier. Changing suppliers will improve the quality of the product but will cause direct materials costs to increase by $1 per unit.
CM per unit: $fill in the blank e2f800fbc041002_1	CM per unit: $fill in the blank e2f800fbc041002_2	CM per unit: $fill in the blank e2f800fbc041002_3
Break-even units: fill in the blank e2f800fbc041002_4 units	Break-even units: fill in the blank e2f800fbc041002_5 units	Break-even units: fill in the blank e2f800fbc041002_6 units

PROFIT (Dollars)
10000
Oper. Profit Area
7500
5000
Oper. Loss Area
2500
Profit Line
-2500
-5000
-7500
-10000
200
400
600
800
1000
UNITS OF SALES
Clear All Help
C.
PROFIT (Dollars)
10000
Oper. Profit Area
A
7500
5000
Oper. Loss Area
2500
Profit Line
-2500
-5000
-7500
-10000
200
400
600
800
1000
UNITS OF SALES
Clear All Help
D.

A profit-volume graph helps managers to visualize the relationship between profits and units sold. The data for Gordon Products has been used to construct the profit-volume graph below. The purple points (diamond symbols) plot the profit line.
The operating loss is the shaded area bordered by the red points (cross symbols). The operating profit is the area bounded by the green points (triangle symbols).
Choose the correct profit-volume graph for Gordon Products A
PROFIT (Dollars)
10000
Oper. Profit Area
7500
5000
Oper. Loss Area
2500
Profit Line
-2500
-5000
-7500
-10000
200
400
600
800
1000
UNITS OF SALES
Clear All Help
A.
PROFIT (Dollars)
10000
Oper. Profit Area
7500
5000
Oper. Loss Area
2500
Profit Line
04
-2500
-5000
-7500
-10000
200
400
600
800
1000
UNITS OF SALES
Clear All Help

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