ACCT 2102 1st Edition Lecture 20 Outline of Last Lecture I Increasing Operating Income II Contribution Margin III Calculating Break Even and Target Profit Outline of Current Lecture IV Practice Problem 1 V Practice Problem 2 Current Lecture Cost Volume Profit Analysis Part II Chapter 7 IV Practice Problem 1 Sadie owns a hair salon She gives her hairdressers two options for using her facility equipment and salon products either 1 they can pay Sadie a flat chair rental of 1 000 per month or 2 they can pay Sadie 5 per haircut plus 20 of their revenue The hairdressers charge their customers 30 per haircut The hairdressers incur no other expenses At what point number of haircuts per month will the hairdressers be indifferent between the two payment options These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute op y op y 30 x 1 000 19 x 0 x 91 haircuts rounded Because of the poor economic outlook the hairdressers expect that people will wait longer between haircuts and start cutting their kids hair rather than bringing them in for a trim If volume is expected to drop below the indifference point which payment option will the hairdressers prefer Option 2 because lower FC V Practice Problem 2 Daisy Childs has decided to start an e tail business which will sell doggie treat dispensers Daisy will sell each unit for 60 and will purchase the units from a foreign supplier for 20 each Import duties are 10 the amount paid to the foreign supplier and freight in is expected to be 4 per unit Packaging and shipping the units to customers will cost another 6 per unit Daisy has contracted out the web page design and maintenance for 1 200 per month Daisy expects no other costs as long as she doesn t sell more than 1 000 units per month If volume exceeds 1 000 per month she will get a volume discount from her supplier but have to hire some parttime help What will Daisy s monthly sales revenue need to be for her business to breakeven How many treat dispensers will Daisy have to sell each month to earn her target operating income of 4 800 per month What would Daisy expect her operating income to be if she sold 400 units the first month op y 400 28 1 200 10 000 What would Daisy expect her operating income to be if she had sales revenue of 70 000 the second month op y 70 000 28 60 1 200 31 467
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