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# UOPX ACC 206 - Chapter 19: Cost Volume-Profit Analysis

Course: Acc 206-
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Required Text Horngren, C., Harrison, Jr., W., & Oliver, M.S. (2012). Accounting (9th ed.). Upper Saddle River, NJ: Pearson Prentice Hall. ISBN: 9780132569057Week 4Required Readings 1. Chapter 18: Activity-Based Costing and Other Cost Management Tools 2. Chapter 19: Cost Volume-Profit AnalysisAssignments a. Chapter 19, E 19-19 b. Chapter 19, P 19-24A E19-19 Impact on breakeven point if sale price, variable costs, and fixed costs change [15 min]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.Requirements1. 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. Breakeven point with no change in information.b. Decrease sales price to \$220 per student.c. Decrease variable costs to \$50 per student.d. 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.(15 min.) E 19-19Req. 1a. 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. 2The contribution margin decreases when the sale pricedecreases. The contribution margin increases when variablecosts decrease. The contribution margin does not changewhen the fixed costs decrease.The breakeven point increases when the sales pricedecreases. The breakeven point decreases when thevariable costs decrease. The breakeven point decreaseswhen fixed costs decrease.P19-24A Analyzing CVP relationships [30–45 min]Kincaid Company sells flags with team logos. Kincaid has fixed costsof \$583,200 per year plus variable costs of \$4.80 per flag. Each flag sells for \$12.00.Requirements1. Use the income statement equation approach to compute the number of flags Kincaid must sell each year to break even.2. Use the contribution margin ratio CVP formula to compute the dollar sales Kincaid needs to earn \$33,000 in operating incomefor 2012. (Round the contribution margin to two decimal places.)3. Prepare Kincaid's contribution margin income statement 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 increasefixed costs by 21% and variable costs by \$0.60 per flag. Compute the new breakeven point in units and in dollars. Should Kincaidundertake the expansion? Give your reasoning. Round your final answers to the nearest whole number.(30-45 min.) P 19-24AReq. 1Sales Revenue − Variable costs − Fixed costs = Operating incomeSale Variableprice × Units sold − cost × Units sold − Fixed costs = Operating incomeperunitper unit(\$12.00 × Units sold) − (\$4.80 × Units sold)− \$583,200 = \$0 (\$12.00 − \$4.80) × Units sold = \$583,200 \$7.20 × Units sold = \$583,200 Units sold =\$583,200 \$7.20 Breakeven sales in units=81,000 flags Req. 2Contribution margin = \$12.00 − \$4.80= \$7.20Contribution margin ratio = \$7.20= \$12.00= 0.60Target sales in dollars =Fixed costs + Target operating incomeContribution margin ratioTarget sales in dollars=\$583,200 + \$33,0000.60=\$616,2000.60= \$1,027,000(continued) P 19-24AReq. 3Kincaid CompanyContribution Margin Income StatementYear Ended December 31, 2012Sales revenue (72,000 × \$12.00) \$864,000Variable costs:Cost of goods sold [72,000 × (\$4.80 × 0.70)]\$241,920Operating costs [(72,000 × (\$4.80 × 0.30)] 103,680 345,600 Contribution margin (72,000 x \$7.20) \$518,400Fixed costs 583,200 Operating loss \$(64,800 ) Req. 4New fixed costs = \$583,200 × 1.21= \$705,672New variable costs = \$4.80 + 0.60= \$5.40Sale Variableprice × Units sold − cost × Units sold − Fixed costs = Operating incomeperunit per unit(\$12.00 × Units sold) − (\$5.40 × Units sold) − \$705,672 = \$ 0 (\$12.00 − \$5.40) × Units sold = \$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= \$1,283,040Kincaid should only expand if expected profits with the expansion are greater than expected profits without the

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