Break-Even Point: Break-even point is a point of sales where company can cover all its variable and fixed costs. It is a point of sales where revenue generated is equal to the total costs. Thus, profit is zero at this level of sales. Contribution Margin: Contribution margin is the excess of selling price over the variable costs of a product. It is a tool to evaluate the capability of the company to generate sufficient revenue so as to cover its variable cost. Margin of Safety: Margin of safety is applied in break-even analysis, which represents the amount which surpasses the break-even point. To compute: Break-even point and margin of safety in units.

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Answer 1

Question

Chapter 3, Problem 3.35P

1.

To determine

Break-Even Point:

Break-even point is a point of sales where company can cover all its variable and fixed costs. It is a point of sales where revenue generated is equal to the total costs. Thus, profit is zero at this level of sales.

Contribution Margin:

Contribution margin is the excess of selling price over the variable costs of a product. It is a tool to evaluate the capability of the company to generate sufficient revenue so as to cover its variable cost.

Margin of Safety:

Margin of safety is applied in break-even analysis, which represents the amount which surpasses the break-even point.

To compute: Break-even point and margin of safety in units.

2.

a.

To determine

To compute: Change in average revenue per customer to help A Company achieve its desired margin of safety.

b.

To determine

To compute: Change in planned number of marketing plans to help A Company achieve its desired margin of safety.

c.

To determine

To compute: 5% increase in fixed cost and $2 reduction in variable cost to help A Company achieve its desired margin of safety.

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Coronado Fire, Inc. manufactures steel cylinders and nozzles for two models of fire extinguishers: (1) a home fire extinguisher and (2) a commercial fire extinguisher. The home model is a high-volume (54,000 units), half-gallon cylinder that holds 2 1/2 pounds of multi- purpose dry chemical at 480 PSI. The commercial model is a low-volume (10,200 units), two-gallon cylinder that holds 10 pounds of multi-purpose dry chemical at 390 PSI. Both products require 1.5 hours of direct labor for completion. Therefore, total annual direct labor hours are 96,300 or [1.5 hours x (54,000+10,200)]. Estimated annual manufacturing overhead is $1,566,090. Thus, the predetermined overhead rate is $16.26 or ($1,566,090 ÷ 96,300) per direct labor hour. The direct materials cost per unit is $18.50 for the home model and $26.50 for the commercial model. The direct labor cost is $19 per unit for both the home and the commercial models. The company's managers identified six activity cost pools and related…

Coronado Fire, Inc. manufactures steel cylinders and nozzles for two models of fire extinguishers: (1) a home fire extinguisher and (2) a commercial fire extinguisher. The home model is a high-volume (54,000 units), half-gallon cylinder that holds 2 1/2 pounds of multi- purpose dry chemical at 480 PSI. The commercial model is a low-volume (10,200 units), two-gallon cylinder that holds 10 pounds of multi-purpose dry chemical at 390 PSI. Both products require 1.5 hours of direct labor for completion. Therefore, total annual direct labor hours are 96,300 or [1.5 hours x (54,000+ 10,200)]. Estimated annual manufacturing overhead is $1,566,090. Thus, the predetermined overhead rate is $16.26 or ($1,566,090 ÷ 96,300) per direct labor hour. The direct materials cost per unit is $18.50 for the home model and $26.50 for the commercial model. The direct labor cost is $19 per unit for both the home and the commercial models. The company's managers identified six activity cost pools and related…

Answer 2

Question

Chapter 3, Problem 3.35P

1.

To determine

Break-Even Point:

Break-even point is a point of sales where company can cover all its variable and fixed costs. It is a point of sales where revenue generated is equal to the total costs. Thus, profit is zero at this level of sales.

Contribution Margin:

Contribution margin is the excess of selling price over the variable costs of a product. It is a tool to evaluate the capability of the company to generate sufficient revenue so as to cover its variable cost.

Margin of Safety:

Margin of safety is applied in break-even analysis, which represents the amount which surpasses the break-even point.

To compute: Break-even point and margin of safety in units.

2.

a.

To determine

To compute: Change in average revenue per customer to help A Company achieve its desired margin of safety.

b.

To determine

To compute: Change in planned number of marketing plans to help A Company achieve its desired margin of safety.

c.

To determine

To compute: 5% increase in fixed cost and $2 reduction in variable cost to help A Company achieve its desired margin of safety.

Expert Solution & Answer

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Answer 3

Question

Chapter 3, Problem 3.35P

1.

To determine

Break-Even Point:

Break-even point is a point of sales where company can cover all its variable and fixed costs. It is a point of sales where revenue generated is equal to the total costs. Thus, profit is zero at this level of sales.

Contribution Margin:

Contribution margin is the excess of selling price over the variable costs of a product. It is a tool to evaluate the capability of the company to generate sufficient revenue so as to cover its variable cost.

Margin of Safety:

Margin of safety is applied in break-even analysis, which represents the amount which surpasses the break-even point.

To compute: Break-even point and margin of safety in units.

2.

a.

To determine

To compute: Change in average revenue per customer to help A Company achieve its desired margin of safety.

b.

To determine

To compute: Change in planned number of marketing plans to help A Company achieve its desired margin of safety.

c.

To determine

To compute: 5% increase in fixed cost and $2 reduction in variable cost to help A Company achieve its desired margin of safety.

Expert Solution & Answer

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Answer 4

Question

Chapter 3, Problem 3.35P

1.

To determine

Break-Even Point:

Break-even point is a point of sales where company can cover all its variable and fixed costs. It is a point of sales where revenue generated is equal to the total costs. Thus, profit is zero at this level of sales.

Contribution Margin:

Contribution margin is the excess of selling price over the variable costs of a product. It is a tool to evaluate the capability of the company to generate sufficient revenue so as to cover its variable cost.

Margin of Safety:

Margin of safety is applied in break-even analysis, which represents the amount which surpasses the break-even point.

To compute: Break-even point and margin of safety in units.

2.

a.

To determine

To compute: Change in average revenue per customer to help A Company achieve its desired margin of safety.

b.

To determine

To compute: Change in planned number of marketing plans to help A Company achieve its desired margin of safety.

c.

To determine

To compute: 5% increase in fixed cost and $2 reduction in variable cost to help A Company achieve its desired margin of safety.

Expert Solution & Answer

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Answer 5

Chapter 3, Problem 3.35P

1.

To determine

Break-Even Point:

Break-even point is a point of sales where company can cover all its variable and fixed costs. It is a point of sales where revenue generated is equal to the total costs. Thus, profit is zero at this level of sales.

Contribution Margin:

Contribution margin is the excess of selling price over the variable costs of a product. It is a tool to evaluate the capability of the company to generate sufficient revenue so as to cover its variable cost.

Margin of Safety:

Margin of safety is applied in break-even analysis, which represents the amount which surpasses the break-even point.

To compute: Break-even point and margin of safety in units.

2.

a.

To determine

To compute: Change in average revenue per customer to help A Company achieve its desired margin of safety.

b.

To determine

To compute: Change in planned number of marketing plans to help A Company achieve its desired margin of safety.

c.

To determine

To compute: 5% increase in fixed cost and $2 reduction in variable cost to help A Company achieve its desired margin of safety.

Answer 6

Chapter 3, Problem 3.35P

1.

To determine

Break-Even Point:

Break-even point is a point of sales where company can cover all its variable and fixed costs. It is a point of sales where revenue generated is equal to the total costs. Thus, profit is zero at this level of sales.

Contribution Margin:

Contribution margin is the excess of selling price over the variable costs of a product. It is a tool to evaluate the capability of the company to generate sufficient revenue so as to cover its variable cost.

Margin of Safety:

Margin of safety is applied in break-even analysis, which represents the amount which surpasses the break-even point.

To compute: Break-even point and margin of safety in units.

Answer 7

Chapter 3, Problem 3.35P

1.

To determine

Break-Even Point:

Break-even point is a point of sales where company can cover all its variable and fixed costs. It is a point of sales where revenue generated is equal to the total costs. Thus, profit is zero at this level of sales.

Contribution Margin:

Contribution margin is the excess of selling price over the variable costs of a product. It is a tool to evaluate the capability of the company to generate sufficient revenue so as to cover its variable cost.

Margin of Safety:

Margin of safety is applied in break-even analysis, which represents the amount which surpasses the break-even point.

To compute: Break-even point and margin of safety in units.

Answer 8

2.

a.

To determine

To compute: Change in average revenue per customer to help A Company achieve its desired margin of safety.

Answer 9

2.

a.

To determine

To compute: Change in average revenue per customer to help A Company achieve its desired margin of safety.

Answer 10

b.

To determine

To compute: Change in planned number of marketing plans to help A Company achieve its desired margin of safety.

Answer 11

b.

To determine

To compute: Change in planned number of marketing plans to help A Company achieve its desired margin of safety.

Answer 12

c.

To determine

To compute: 5% increase in fixed cost and $2 reduction in variable cost to help A Company achieve its desired margin of safety.

Answer 13

c.

To determine

To compute: 5% increase in fixed cost and $2 reduction in variable cost to help A Company achieve its desired margin of safety.

Answer 14

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Answer 15

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Answer 16

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Answer 17

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To compute: Change in average revenue per customer to help A Company achieve its desired margin of safety.

To compute: Change in planned number of marketing plans to help A Company achieve its desired margin of safety.

To compute: 5% increase in fixed cost and $2 reduction in variable cost to help A Company achieve its desired margin of safety.

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Chapter 3 Solutions