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Cost-Volume-Profit Analysis

Exercise 1:
The capacity of an electronic firm is restricted to 8,000 units per month. Overall costs given
that capacity is fully used are $ 820,000 If production is 6,000 units, overall costs are $
660,000. The products are sold for $ 140,- per unit.

Required:
1. The firm aims at achieving a sales profitability (profit/revenue) of 25%. How many
units are to be sold to achieve this result?
2. Competitors in the market force the firm to lower prices. Only 85% of overall capacity
is available. What sales price is needed if the firm wants to break even?
3. Demand for the firm’s product is 10,000 units per month. The management considers
an increase in capacity by 25%. Fixed costs would rise by 50% per month. Variable
costs, however would decrease by 10%. What are the unit costs in this setting?
Calculate profit it products are sold for $ 130 per unit.
4. What price per unit is to be charged if 10,000 units are produced and the firm wishes
to achieve a sales profitability of 25%?

Exercise 2:

Ballpark Concessions currently sells hot dogs. During a typical month, the stand reports a
profit of $9,000 with sales of $50,000, fixed costs of $21,000, and variable costs of $0.64 per
hot dog.
Next year, the company plans to start selling nachos for $3 per unit. Nachos will have a
variable cost of $0.72 and new equipment and personnel to produce nachos will increase
monthly fixed costs by $8,808. Initial sales of nachos should total 5,000 units. Most of the
nacho sales are anticipated to come from current hot dog purchasers, therefore, monthly sales
of hot dogs are expected to decline to $20,000.
After the first year of nacho sales, the company president believes that hot dog sales will
increase to $33,750 a month and nacho sales will increase to 7,500 units a month.

Required:
a. Determine the monthly breakeven sales in dollars before adding nachos.
b. Determine the monthly breakeven sales during the first year of nachos sales, assuming
a constant sales mix of 1 hotdog and 2 units of nachos.

Exercise 3:
Paul Louis plans to operate a booth selling beverages at his little brother’s graduation
ceremony. Paul decides to sell a drink called “Eskimo-Flip” ( water and ice) and expects to
sell 75 to 83 units with equal probability. Fixed costs are $ 12. The selling price per unit is $
0.27, variable costs are 0.12.
Required:
1. Calculate the probability for Paul reach at least the break-even –point.
2. 2. Once Paul has figured out how many people are going to come, he expects to sell
82 units. Calculate the degree of operating leverage.
3. Paul thinks his plans over and considers to operate a larger booth for different
beverages to be sold. For that alternative he expects the following sales numbers:
Eskimo-Flip Kir Royal Bloody Mary Heinecken Beer
Price 0.27 9 4 7
Variable Cost 0.12 5 2 5
Sales Units 82 30 50 39

Calculate break-even-sales for the sales mix given if fixed costs are $ 150.