Chapter 12, Problem 12.4ME

To determine

Concept Introduction:

Break-even point, Target profit, graphing CVP relationships:

CVP relationships:

The CVP relationships help the users to under the relationship of volume with the costs and profits. This explains how changes in the volume brings changes in the costs and the profits.

Break-even point:

The break-even point can be defined as the point where the total sales revenue is equal to the total costs involved. The break-even point is calculated as −

  $\begin{array}{l}\text{Breakeven point }\left(\text{in Units}\right)\text{ = }\frac{\left(\text{Fixed Costs}\right)}{\left(\text{Contribution margin per unit}\right)}\hfill \\ \text{Breakeven point }\left(\text{in dollars}\right)\text{ = }\frac{\left(\text{Fixed Costs}\right)}{\left(\text{Contribution margin ratio}\right)}\hfill \end{array}$

Target profit:

Target profit can be defined as the profit which a firm aims to earn. We need to calculate target sales to earn target profit. This can be calculated as under −

  $\text{Target Sales to earn target profit = }\frac{\left(\text{Fixed Costs + Target profit}\right)}{\text{Contribution margin per unit}}$

To calculate:

Bay Area Cycle's per unit variable cost and contribution margin

To determine

2.

Concept Introduction:

Break-even point, Target profit, graphing CVP relationships:

CVP relationships:

The CVP relationships help the users to under the relationship of volume with the costs and profits. This explains how changes in the volume brings changes in the costs and the profits.

Break-even point:

The break-even point can be defined as the point where the total sales revenue is equal to the total costs involved. The break-even point is calculated as −

  $\begin{array}{l}\text{Breakeven point }\left(\text{in Units}\right)\text{ = }\frac{\left(\text{Fixed Costs}\right)}{\left(\text{Contribution margin per unit}\right)}\hfill \\ \text{Breakeven point }\left(\text{in dollars}\right)\text{ = }\frac{\left(\text{Fixed Costs}\right)}{\left(\text{Contribution margin ratio}\right)}\hfill \end{array}$

Target profit:

Target profit can be defined as the profit which a firm aims to earn. We need to calculate target sales to earn target profit. This can be calculated as under −

  $\text{Target Sales to earn target profit = }\frac{\left(\text{Fixed Costs + Target profit}\right)}{\text{Contribution margin per unit}}$

To calculate:

To calculate how many units are currently being sold

To determine

Concept Introduction:

Break-even point, Target profit, graphing CVP relationships:

CVP relationships:

The CVP relationships help the users to under the relationship of volume with the costs and profits. This explains how changes in the volume brings changes in the costs and the profits.

Break-even point:

The break-even point can be defined as the point where the total sales revenue is equal to the total costs involved. The break-even point is calculated as −

  $\begin{array}{l}\text{Breakeven point }\left(\text{in Units}\right)\text{ = }\frac{\left(\text{Fixed Costs}\right)}{\left(\text{Contribution margin per unit}\right)}\hfill \\ \text{Breakeven point }\left(\text{in dollars}\right)\text{ = }\frac{\left(\text{Fixed Costs}\right)}{\left(\text{Contribution margin ratio}\right)}\hfill \end{array}$

Target profit:

Target profit can be defined as the profit which a firm aims to earn. We need to calculate target sales to earn target profit. This can be calculated as under −

  $\text{Target Sales to earn target profit = }\frac{\left(\text{Fixed Costs + Target profit}\right)}{\text{Contribution margin per unit}}$

To calculate:

Additional units to earn operating income of $ 105,000