Gotcha Covered manufactures and sells leather cases for cell phones. Each case sells for $80. Variable manufacturing costs are $30 per case. We pay a sales commission of 10% of the selling price to our salespeople. Fixed manufacturing costs are $200,000 and fixed operating costs are $35,000. Calculate the following amounts: Prob 3-38 a. b. C. V (variable cost per unit) and VC% (variable cost percentage) 1. CM (contribution margin per unit) and CM% (contribution margin perc.) ii. 111. F (total fixed costs) IV. Breakeven quantity V. Target quantity if we want to generate Operating Income = $100,000 Neatly draw a CVP Chart. Be sure to label everything relevant. We currently produce and sell 10,000 cases. 1. 11. 111. iv. V. vi. What is our expected Operating Income? How much is our Margin of Safety in units and dollars? Prepare an Income Statement (through Oper Inc) using the GM format. Prepare an Income Statement (through Oper Inc) using the CM format. Our plant manager suggested we purchase a new machine which will lower our labor costs. This change will increase Fixed Costs by $30,000 and reduce Variable Cost per Unit by $5. Calculate the new Breakeven Quantity and new expected Operating Income. Should we make the change? Why or why not? Draw a graph (Total Costs as a function of #Units) of the original cost function and the proposed cost function. Be sure to label everything relevant. What does the number of units at the intersection point of these two lines indicate?
Gotcha Covered manufactures and sells leather cases for cell phones. Each case sells for $80. Variable manufacturing costs are $30 per case. We pay a sales commission of 10% of the selling price to our salespeople. Fixed manufacturing costs are $200,000 and fixed operating costs are $35,000. Calculate the following amounts: Prob 3-38 a. b. C. V (variable cost per unit) and VC% (variable cost percentage) 1. CM (contribution margin per unit) and CM% (contribution margin perc.) ii. 111. F (total fixed costs) IV. Breakeven quantity V. Target quantity if we want to generate Operating Income = $100,000 Neatly draw a CVP Chart. Be sure to label everything relevant. We currently produce and sell 10,000 cases. 1. 11. 111. iv. V. vi. What is our expected Operating Income? How much is our Margin of Safety in units and dollars? Prepare an Income Statement (through Oper Inc) using the GM format. Prepare an Income Statement (through Oper Inc) using the CM format. Our plant manager suggested we purchase a new machine which will lower our labor costs. This change will increase Fixed Costs by $30,000 and reduce Variable Cost per Unit by $5. Calculate the new Breakeven Quantity and new expected Operating Income. Should we make the change? Why or why not? Draw a graph (Total Costs as a function of #Units) of the original cost function and the proposed cost function. Be sure to label everything relevant. What does the number of units at the intersection point of these two lines indicate?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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b. And c. Please
Transcribed Image Text:r
3.
4.
Gotcha Covered manufactures and sells leather cases for cell phones. Each case sells for
$80. Variable manufacturing costs are $30 per case. We pay a sales commission of 10%
of the selling price to our salespeople. Fixed manufacturing costs are $200,000 and fixed
operating costs are $35,000.
Calculate the following amounts:
Prob 3-38
a.
b.
C.
i.
11.
iii.
iv.
V.
Target quantity if we want to generate Operating Income = $100,000
Neatly draw a CVP Chart. Be sure to label everything relevant.
We currently produce and sell 10,000 cases.
What is our expected Operating Income?
How much is our Margin of Safety in units and dollars?
ii.
111.
IV.
V.
V (variable cost per unit) and VC% (variable cost percentage)
CM (contribution margin per unit) and CM% (contribution margin perc.)
F (total fixed costs)
Breakeven quantity
vi.
Prepare an Income Statement (through Oper Inc) using the GM format.
Prepare an Income Statement (through Oper Inc) using the CM format.
Our plant manager suggested we purchase a new machine which will
lower our labor costs. This change will increase Fixed Costs by $30,000
and reduce Variable Cost per Unit by $5. Calculate the new Breakeven
Quantity and new expected Operating Income. Should we make the
change? Why or why not?
Draw a graph (Total Costs as a function of #Units) of the original cost
function and the proposed cost function. Be sure to label everything
relevant. What does the number of units at the intersection point of these
two lines indicate?
Expert Solution
Step 1
CVP Analysis - Cost-Volume-profit analysis is a way to find out changes in variable and fixed costs how affect the firm's Profitability. It is also known as Break-Even Analysis.
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