Problem 4 CVP AnalysisGabby\'s Wedding Cakes creates elaborate wedding cakes. Ea

Question

Problem 4 CVP AnalysisGabby's Wedding Cakes creates elaborate wedding cakes. Eash cake sells for $ es. Eash cake sells for $500 The variable cost of making the cakes is $200 andd the fixed costs per month are $6,000 Required a. Calculate the break even point per month in units b. How many cakes must be sold to earn a monthly profit of $9,000? Clyde's Marina has estimated that fixed costs per month are $240,000 and variable cost per dollar of sales is $0.60 Required: a. What is the break even point per month in sales? b. What level of sales is needed for a monthly profit of $60,000? c. For the month of July, the marina anticipates sales of $1,200,000. What is the expected level of profit? Rhetorix, Inc. produces stereo speakers. Problem 6 Contribution margin The selling price per pair of speakers is $800. The variable cost of production is $300 and the fixed cost per month is $50,000. Required Calculate the contribution margin associated with a pair of speakers b. In August, the company sold five more pairs of speakers than planned. What is the expected effect on profit of selling the additional speakers? Calculate the contribution margin ratio for Rhetoric associated with a pair of speakers. In October, the company had sales that were $5,000 higher than planned. What is the the expected effect on profit related to the additional sales? c. d. Rhetorix, Inc. produces stereo speakers. The Problem 7-Margin of safety selling price per pair of speakers is $800. The variable cost of production is $300 and the fixed cost per month is $50,000 For November, the company expects to sell 120 pairs of speakers. Required a Calculate expected profit b Calculate the margin of safety in dollars

Explanation / Answer

Problem 4

(a) Fixed costs = $6,000

Sale price per unit = $500 and variable cost per unit = $200, Contribution Margin = 500-200 = $300

Break even point per month in units = Fixed costs / Contribution margin per unit = 6000 / 300 = 20 units

(b)In order to earn monthly profit of $9,000, we need additional units to be sold which can be calculated as:

No. of cakes to be sold for monthly profit of $9,000 = (Fixed costs + Profit) / Contribution margin per unit

                                                                                 = (6000+9000)/300 = 50 cakes

Problem 5

(a) Fixed cost per month = 240,000

Let sales per month = x then variable cost per month = 0.5x

Total cost = Variable cost + Fixed cost = 0.5x + 240,000

At break even, Sales = Total cost

So, the equation is : x = 0.5x + 240,000

x = 240,000 / 0.5 = 480,000

So sales of $480,000 per month is the break even point.

(b) In order to earn the profit of $60,000,

Sales = Total Cost + 60,000

x = 0.5x + 240,000 + 60,000

x = 300,000 / 0.5 = 600,000

So, level of sales needed for $60,000 monthly profit is $600,000.

(c) Expected sales in July = $1,200,000

Variable cost = 0.5 * sales = 0.5 * 1,200,000 = 600,000

Fixed cost given = 240,000

Expected profit = Sales - Total cost (Fixed cost + Variable cost)

                         = 1,200,000 - (240,000 + 600,000) = 1,200,000 - 840,000 = 360,000

So, expected profit for the month of July = $360,000

Problem 6

(a)

Selling price per pair of speakers = 800

Variable cost = 300

Contribution Margin = sale price - Variable cost = 800 - 300 = $500

(b) Profit on additional 5 speakers = 5 * Contribution margin = 5 * 500 = $2,500

(c) Contribution margin ratio = Contribution margin / Sales = 500 / 800 = 62.5%

(d) Expected profit related to additional sales of $5,000 = Additional sales * Contribution margin ratio = 5000 * 62.5% = $3,125

Problem 7

(a) Contribution margin per unit = Sales price per unit - Variable cost per unit = 800 - 300 = $500

Contribution margin = 500 * No. of units = 500 * 120 = $60,000

Expected profit = Contribution margin - fixed costs = 60,000 - 50,000 = $10,000

(b) Break even units = Fixed costs / Contribution margin per unit = 50,000 / 500 = 100

Expected sales = 120

Margin of safety = (Expected sales - Break even sales) * Selling price per unit = (120 - 100) * 800 = $16,000

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