Deck 6: Break-Even and Cost-Volume-Profit Analysis

Question 1

A local toolmaker makes the best hammers on the market. The head of the hammer costs $12.11 and the handle costs $4.37. It takes 1.4 minutes to assemble the hammer and the hourly cost is $90.00 for assembly time. The company has fixed operating costs of $22 310 per month. They sell the hammers for three times their total variable cost. The company wants to make a monthly profit of $5000. How many hammers must they sell?

A) 796
B) 735
C) 776
D) 766
E) 768

Answer 1

735

Question 2

The gas division of Power-U-Up plans to introduce a new gas delivery system based on the following accounting information.
Fixed costs per period are $4 236; variable cost per unit is $168;
selling price per unit is $211; and capacity per period is 450 units.
a) Draw a detailed break-even chart
b) Compute the break-even point
(i) in units;
(ii) as a percent of capacity;
(iii) in dollars.
c) Determine the break-even point as a percent of capacity
(i) if fixed costs are reduced to $3 788;
(ii) if fixed costs are increases to $5 577 and variable costs are reduced to 75% of the selling price;
(iii) if the selling price is reduced to $191.

Answer 2

a) Let the number of units be x. Then,
Total revenue: TR = 211x
Total cost: TC = 4236 + 168x b) i) To break even, TR=TC
211x = 168 x+4236
211x-168x=4236
43x= 4236
x = 98.51 units = 99 units (rounded up)
ii) Break-even volume as a percent of capacity
= = .22 = 22%
iii) Break-even volume in dollars = 99($211) = $20 889.
c) i) If fixed costs are $3 788, then
211x = 168x + 3788
211x - 168x = 3788
x = = 88.09
x=89 units
Output level = = 19.78%
ii) If fixed costs are $5 577 and VC is 75% of P, then
VC = 0.75($211) = $158.25 and
211x = 158.25x + 5577
211x - 158.25x = 5577
52.75x = 5577
x = 105.725 = 106 units
The break-even point as a percent of capacity = = 23.56%
iii) If P is $191, then
191x = 168x + 4236
x= = 184.17
x= 185 units
The break-even point as a percent of capacity = = 41.11%

Question 3

A company that makes cell phones has the following cost structure. The have fixed costs of $145 000 per period and manufacturing costs of $15.16 per cell phone. Advertising is expected to be $25 000 per period and a special promotional contest will involve providing a free case for a cost of $5.30 per cell phone. Each cell phone sells for $49.95. What is the break-even point in the number of phones?

A) 4886
B) 4917
C) 4168
D) 5765
E) 4240

Answer 3

5765

Question 4

A local restaurant has the best meals in town. The average variable cost per meal is $22.74 and the desserts are $5.24. Only half of the patrons order desserts. The restaurant has fixed operating costs of $112 714 per month. They sell the meals and desserts for four times their average variable cost per meal. The company wants to make a monthly profit of $75 000. How many meals must they sell?

A) 2 045
B) 2 236
C) 2 008
D) 2 803
E) 2 468

Question 5

A company that makes optical computer input devices has calculated their revenue and costs as follows for the most recent fiscal period: Sales $522 000
Costs:
Fixed Costs $145 000
Variable Costs 208 800
Total Costs 353 800
Net Income $168 200
What is the break-even point in sales dollars?

A) $362 500.00
B) $589 666.67
C) $241 666.67
D) $870 000.00
E) $280 333.33

Question 6

Last year a printing company had total sales of $37 500. The total of its variable costs was
$15 000, and fixed costs were $18 000.
Capacity is at sales maximum of $50 000.
a) Calculate the break-even point in
(i) dollars of sales
(ii) as a percent of capacity
b) Draw a detailed break-even chart

Question 7

A pen manufacturer makes luxury pens. The pen case costs $7.26 each, the ink holder costs $1.26 each, the spring costs $.07 each and the velvet pen case costs $0.91 each. The plant has general and administrative costs of $55 000 and fixed selling expenses of $37 500. The pens sell of $39.95 each. Plant capacity is 4 000 pens per period. At what percentage of capacity is the break-even point?

A) 75.95%
B) 73.74%
C) 75.77%
D) 61.32%
E) 30.79%

Question 8

Olfert Greenhouses has compiled the following estimates for operations.
Sales $150 000
Fixed cost $45 200
Variable costs 67 500 112 700
Net income $37 300
Capacity is a sales volume of $175 000.
Perform a break-even analysis showing
a) an algebraic statement of
(i) the revenue function;
(ii) the cost function;
b) a detailed break-even chart.

Question 9

A company that makes customized pens has calculated their revenue and costs as follows for the most recent fiscal period: Sales $100 000
Costs:
Fixed Costs $???????
Variable Costs 15 000
Total Costs ???????
Net Income (Loss) $(20 000)
What are the company's fixed costs per fiscal period?

A) $105 000
B) $115 000
C) $80 000
D) $85 000
E) $120 000

Question 10

The operating budget of the Omega Twelve Company contains the following information.
Sales at 92% of capacity $644 000
Fixed costs $215 000
Variable costs 373 520 588 520
Net income $55 480
a) Draw a detailed break-even chart.
b) Compute the break-even point as a percent of capacity.
c) Determine the break-even point in dollars if fixed costs are reduced by $11 200 while variable costs are changed to 62% of sales.

Question 11

The Excellent DVD Company sells DVDs for $62 each. Manufacturing cost is $22.70 per DVD; marketing costs are $7.75 per DVD; and royalty payments are 15% of the selling price. The fixed cost of preparing the DVDs is $227 300. Capacity is 20 000 DVDs.
a) Draw a detailed break-even chart.
b) Compute the break-even point
(i) in units;
(ii) in dollars;
(iii) as a percent of capacity.
c) Determine the break-even point in units if fixed costs are increased by $3300 while manufacturing cost is reduced $1.65 per DVD.
d) Determine the break-even point in units if the selling price is increased by 10% while fixed costs are increased by $2900.

Question 12

Elaine's business budget included sales of $350 000 and fixed costs of $52 600. If the total contribution margin for the business was $125 000, what are the sales needed to break even?

Question 13

A manufacturer plans to introduce a new type of shirt based on the following information.
The selling price is $57.00; variable cost per unit is $18.00; fixed costs are $7800.00; and capacity per period is 500 units.
a) Calculate the break-even point
(i) in units
(ii) in dollars
(iii) as a percent of capacity
b) Draw a detailed break-even chart.
c) Calculate the break-even point (in units) if fixed costs are reduced to $7020.00
d) Calculate the break-even point (in dollars) if the selling price is increased to $78.00

Question 14

Priest and Sons, a local manufacturer of a product that sells for $13.50 per unit. Variable cost per unit is $7.85 and fixed cost per period is $1 220. Capacity per period is 1100 units.
Perform a break-even analysis showing
a) an algebraic statement of
(i) the revenue function;
(ii) the cost function;
(iii) calculate the break-even point in units.
b) a detailed break-even chart.

Question 15

A company that makes basketballs has calculated their revenue and costs as follows for the most recent fiscal period: Sales $623 000
Costs:
Fixed Costs $???????
Variable Costs 404 880
Total Costs ???????
Net Income (Loss) $(26 880)
What are the company's fixed costs per fiscal period?

A) $245 000
B) $2 18120
C) $191 240
D) $1 054 760
E) $1 001000

Question 16

Victor plans to set up an on-line business selling software applications that he develops and supports. He believes that a price of $130 for his product including the technical support would be competitive. His monthly fixed expenses amount to $850. Victor would hire some college students to provide the technical support of the application paying them for 3 hours at $15 per hour for each client.
a) How many clients does Victor need to acquire to break even?
b) If he wants to achieve a target profit of $500 monthly, how many clients does he need?

Question 17

A local health care facility has fixed costs per month of $187 400. They also have patient costs of $4.15 per day per patient for linen and cleaning, medication costs are $23.32 per patient per day and lab tests cost $75.61 per patient per day. The government is considering allowing the health care facility to charge each patient and amount to recover his or her costs and to make a "profit" of $15 000 per month. The health care facility averages 690 patients per month. The VP- Finance for the facility wants you to calculate the daily rate charge per patient. Your answer is:

A) $462.92
B) $396.41
C) $345.73
D) $284.51
E) $455.21

Question 18

Trevor, the new owner of the vehicle accessory shop is considering buying sets of winter tires for $299 per set and selling them at $520 each. Fixed costs related to this operation amount to $3 250 per month. It is expected that 18 sets per month could be sold. How much profit will Trevor make each month?

Question 19

A company that makes audio computer input devices has calculated their revenue and costs as follows for the most recent fiscal period: Sales $723 000
Costs:
Fixed Costs $345 000
Variable Costs 404 880
Total Costs 749 880
Net Income (Loss) $(26 880)
The company has a target level of profitability of $35,000 per fiscal period. What sales dollar volume do they have to achieve in order to achieve their goal?

A) $840 909.09
B) $616 071.43
C) $784 090.91
D) $863 636.36
E) $678 571.43

Question 20

A company that makes environmental measuring devices has calculated their revenue and costs as follows for the most recent fiscal period: Sales $750 000
Costs:
Fixed Costs $200 000
Variable Costs 250 000
Total Costs 450 000
Net Income $300 000
What is the break-even point in sales dollars?

A) $100 000
B) $200 000
C) $300 000
D) $250 000
E) $450 000

Question 21

A company has variable costs that are 1/8 the value of their sales revenues. Total net income for the most recent period was a profit of $50 400 and sales were $500 000. The company has started a new marketing campaign that they hope will increase sales, but it will require additional advertising of $15 000. How many sales dollars does the company have to generate in order to remain at the same level of profitability as before the new ad campaign?

A) $517 142.86
B) $387 100.00
C) 392 100.00
D) $387 100.86
E) 392 100.86

Question 22

A company has variable costs that are 4/7 the value of their sales revenues. Total net income for the most recent period was a profit of $53 770 and sales were $420 000. The company has started a new marketing campaign that they hope will increase sales, but it will require additional advertising of $6 400. How many sales dollars does the company have to generate in order to remain at the same level of profitability as before the new ad campaign?

A) $434 933.33
B) $326 357.50
C) $420 210.00
D) $140 396.67
E) $105 297.50

Question 23

A company has variable costs that are 3/8 the value of their sales revenues. Total net income for the most recent period was a profit of $123 400 and sales were $400 000. The company has started a new marketing campaign that they hope will increase sales, but it will require additional advertising of $11 200. How many sales dollars does the company have to generate in order to remain at the same level of profitability as before the new ad campaign?

A) $358 933.33
B) $215 360.00
C) $400 000.00
D) $417 920.00
E) $696 533.33

Question 24

A local college hospitality restaurant has the best meals in town. The average variable cost per meal is $10.25 and the desserts are $1.25. The restaurant has fixed operating costs of $110 500 per month. They sell the meals and desserts for three times their average variable cost per meal. The college wants to make a monthly profit of $50 000. How many meals must they sell (Round up to nearest whole meal)?

A) 4805
B) 6979
C) 6500
D) 8405
E) 9769