Exam #1B

Q1

A.

V = variable cost per machine hour
F = fixed cost
31200 = 16000V + F     ----- 1
39600 = 23000V + F     ----- 2

Solve simultaneous eqtns
from 1, F = 31200 = 16000V
sub into 2
39600 = 7000V + 31200 - 16000V
=> V = $1.2 per hour
F = $12000

Validity:
assumes fixed cost is the same in both measurements, that all costs are either fixed or variable, that cost behaviour is linear, that costs have not changed between the two measurements, assume both measurements are in the relevant range.
 

B.

Variable cost per unit = 3 + 0.9 + 0.64 + 0.50 = 5.04
Margin per unit = 12.00 - 5.04 = 6.96
Fixed costs = 50000 * 0.70 + 45000 + 106876 = 186876

Break Even, equation method:
sales - variable costs - fixed costs = 0
sales = s
12s - 5.04s - 186876 = 0
=> s = 26850 units
     = $322200
Break Even, CM method
fixed cost/margin per unit = nbr of units at break even
186876/6.96 = 26850 units
            = $322200 sales
 

c.

profit% = income/sales
income = ((sales - BE)/12)*6.96
       = (sales - BE)* 0.58

0.20 = ((s - 322200)*0.58)/s
0.20s = (s - 322200)* 0.58
0.20s = 0.58s - 186876
s = $491779

check: units = 491779 / 12 = 40982 units
= 14132 units in excess of break even, = income of $98358
As a % of sales, = 20%
 

Exam #2A

Q5

a.

q1: Break even point: how many units to sell
q2. target income: how many units to sell
q3. at a level of sales, what is the income

q1. Formula: BE in units = fixed cost/CM per unit
q2. To earn income I, units = (FC + I)/CM
q3. at the level of sales S, I = [(S - FC)/SP]*CM per unit, SP = selling price
 

b.

skipped

c.

(i) Break even in equation format:
sales - vc - fc = 0
600n - 240n - 1,728,000 = 0
n = 4800 units, sales = $2,880,000

CM method:
1728000/360 = 4800 units

(ii)
sales = $7680000
method as in exam #1A above
0.25s = [(s - 2880000) * .4]/s
Wrong. This is correct:
0.25s = [(s - 2880000) * 0.6]/s
because the figure given in the exam question is the variable cost, not the CM
(iii)
CM = 7500*(600 - 240) = 2,700,000
income = 972000
sales = 7500 * 600
as a % of sales, 21.6%

Exam #3A

q4

b

(i) before remodelling
fixed cost = 4500
margin per meal: 3
BE = 4500/3 = 1500 units
= $6750

after remodelling
Fixed: 6300
margin: 3.50
BE = 1800 meals = $9450 sales

(ii) after tax $12000
income before tax * 0.6 = 12000
income before tax = 20000
(6300 + 20000)/3.50 = 7514 meals
 

c

(i) break even:
CM deluxe = 1.05
CM plain = 0.90
ratio 2:1

CM per unit = (1.05*2 + 0.90)/3 = 1
Break even: 6000 units ($20000 sales)

Sales: 4000 deluxe
       2000 plain

(ii) safety margin
selling price per unit    (7 + 3)/3 = 3.33
Actual sales in units = 9000
BE (units)    6000
SM (units) 3000
SM (sales) 3000 * 3.33 = $10000

(iii) 20% increase in sales = 36 000
increase is $6000 = 1800 units
CM per unit: $1
new income from operations: $4800

(iv) new BE: (6000 + 2400)/1 = 8400 units = $28000 sales
 
 

Exam #4A

q3

a)
1) average revenue per cruise = 2250
variable expenses per cruise 800 + 450  = 1250
margin per cruise = $1000

ii) Equation approach:
sales - variable - fixed = 0
50*45*n - 1250*n - 66000 = 0
n = 66

iii) (70000 - 66000)/1000 = 136 cruises
Not realistic given the budget number of days.
(iv)
Income

Cruise Revenue        180000
Variable costs        100000
Contribution Margin    80000
Fixed costs            66000
Operating Income       14000
 

(B)

Mountaineer margin: 36
margin for Pro mountaineer: x

total margin per unit of production =
(36*7 + 3x)/10
= (252 + 3x)/10

Fixed costs: 38000

Using CM approach: (fixed cost + income)/margin per unit = nbr of units
(38000 + 30000)/mpu = 2000
=> mpu = 34
34 = (252 + 3x)/10
x = 29.33

pro mountaineer margin = 29.33
 

 

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Tim Richardson, B.A., B. Sc., CPIM
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