Required Text Horngren C Harrison Jr W Oliver M S 2012 Accounting 9th ed Upper Saddle River NJ Pearson Prentice Hall ISBN 9780132569057 Week 4 Required Readings 1 Chapter 18 Activity Based Costing and Other Cost Management Tools 2 Chapter 19 Cost Volume Profit Analysis Assignments a Chapter 19 E 19 19 b Chapter 19 P 19 24A E19 19 variable costs and fixed costs change 15 min Impact on breakeven point if sale price Dependable Drivers Driving School charges 250 per student to prepare and administer written and driving tests Variable costs of 100 per student include trainers wages study materials and gasoline Annual fixed costs of 75 000 include the training facility and fleet of cars Requirements 1 For each of the following independent situations calculate the contribution margin per unit and the breakeven point in units by first referring to the original data provided a b c d Breakeven point with no change in information Decrease sales price to 220 per student Decrease variable costs to 50 per student Decrease fixed costs to 60 000 2 Compare the impact of changes in the sales price variable costs and fixed costs on the contribution margin per unit and the breakeven point in units Req 1 15 min E 19 19 a The contribution margin per unit is 150 250 100 The breakeven point in units is 500 75 000 0 150 b The contribution margin per unit when decreasing the sales price per student to 220 is 120 220 100 The breakeven point in units when decreasing the sales price is 625 75 000 0 120 c The contribution margin per unit when decreasing the variable costs per student to 50 is 200 250 50 The breakeven point in units when decreasing the variable cost is 375 75 000 0 200 d The contribution margin per unit when decreasing the fixed costs is 150 250 50 The breakeven point in units when decreasing the fixed costs is 400 60 000 0 150 Req 2 The contribution margin decreases when the sale price decreases The contribution margin increases when variable costs decrease The contribution margin does not change when the fixed costs decrease The breakeven point increases when the sales price decreases The breakeven point decreases when the variable costs decrease The breakeven point decreases when fixed costs decrease P19 24A 30 45 min Analyzing CVP relationships Kincaid Company sells flags with team logos Kincaid has fixed costs of 583 200 per year plus variable costs of 4 80 per flag Each flag sells for 12 00 Requirements 1 the number of flags Kincaid must sell each year to break even Use the income statement equation approach to compute Use the contribution margin ratio CVP formula to compute 2 the dollar sales Kincaid needs to earn 33 000 in operating income for 2012 Round the contribution margin to two decimal places Prepare Kincaid s contribution margin income statement 3 for the year ended December 31 2012 for sales of 72 000 flags Cost of goods sold is 70 of variable costs Operating costs make up the rest of variable costs and all of fixed costs Round your final answers to the nearest whole number 4 The company is considering an expansion that will increase fixed costs by 21 and variable costs by 0 60 per flag Compute the new breakeven point in units and in dollars Should Kincaid undertake the expansion Give your reasoning Round your final answers to the nearest whole number 30 45 min P 19 24A Req 1 Sale price Units sold per unit Variable cost per unit Sales Revenue Variable costs Fixed costs Operating income Units sold Fixed costs Operating income 12 00 Units sold 4 80 Units sold 583 200 12 00 4 80 Units sold 7 20 Units sold 0 583 200 583 200 Units sold 583 200 7 20 Breakeven sales in units 81 000 flags Req 2 Contribution margin 12 00 4 80 7 20 Contribution margin ratio 7 20 12 00 0 60 Target sales in dollars Fixed costs Target operating income Contribution margin ratio Target sales in dollars 583 200 33 000 0 60 616 200 0 60 1 027 000 continued P 19 24A Req 3 0 70 Req 4 Kincaid Company Contribution Margin Income Statement Year Ended December 31 2012 Sales revenue 72 000 12 00 Variable costs Cost of goods sold 72 000 4 80 241 920 Operating costs 72 000 4 80 0 30 103 680 Contribution margin 72 000 x 7 20 Fixed costs Operating loss 864 000 345 600 518 400 583 200 64 800 New fixed costs 583 200 1 21 705 672 New variable costs 4 80 0 60 5 40 Sale price Units sold per unit Variable cost per unit Units sold Fixed costs Operating income 12 00 Units sold 5 40 Units sold 12 00 5 40 Units sold 705 672 0 705 672 6 60 Units sold 705 672 Units sold 705 672 6 60 Breakeven sales in units 106 920 flags Breakeven sales in dollars 106 920 12 00 1 283 040 Kincaid should only expand if expected profits with the expansion are greater than expected profits without the expansion