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Lecture

January 14 2014.docx

3 Pages
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Department
Business
Course Code
BU247
Professor
Esther Maier

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January 14, 2014 BU247 Profit = TR – TC (variable and fixed) Profit = (SP-VC) x Units - Fixed Cost *Contribution Margin x Units - Fixed Costs CVP assumption -selling price, variable cost would remain the same over all levels of production -fixed costs remain the same over all levels of production -sales equal production Problem 2 – 26 Klear Camera Company a) Compute Klear’s contribution margin per unit and contribution margin ratio b) Determine the number of units Klear must sell to break even c) Klear is considering a design modification that would reduce the variable costs of the camera by $50 per unit. Explain whether this change will cause Klear’s breakeven point to increase or decrease, compared to the initial plan. Selling price $1000 $1000 Less: Variable costs $500 $450 Variable selling $100 $100 Contribution margin $400 $450 CM Ratio 40% 45% Fixed costs/ CM per unit $3,500,000/$400=8750 units $3,500,000/$450=7778.78 units (breakeven point) *if the breakeven point was 7778.25 it would be rounded up Problem 2 -27 Morton Medical Institutes A) How much will the hospital need to charge per patient day to break even at this level of activity? b) Refer to the original data in the problem. How many patient days must Morton average each month to earn a target profit of $45 000 per month? Day Month Revenue day 2000 Variable costs day 500 Fixed costs month 2000000 Patient day/month 5400 a) Breakeven calculation Profit = Revenue x units – variable costs x units – fixed costs 0 = (5400*x) – (5400*500) – $2 000 000 0= 5400*x – $2 700 000 – $2 000 000 5400x –$ 4 700 000 = $4 700 000/5400= $870.37 b) Target Profit Calculation $45 000 = $2000x - $500x - $2 000 000 $45 000 = $1500x - $2 000 000 $2 045 000 = $1500x - $2 045 000/1500 = 1363.33 days or 1364 days *remember to round your answers for exam Problem 2- 49 Walt’s Woodwork Company Description Amount CM (units) Fixed A Units produced and sold 50 000 B Sales price/unit $70 $70 C Carpenter labour to make shelves($600 000/50 $600 000 $12 000) D $450 000 $9 Wood to make the shelves ($450 000/50 000) E Sales staff salaries $80 000 80 000 F Office and showroom rental expenses $150 000 150 000 G Depreciation on carpentry equipment $50 000 50 000 H Advertising $200 000 200 000 I Sales commissions based on number of units sold 180 000 3.60
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