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UGA ACCT 2102 - Cost-Volume-Profit Analysis, Part II
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ACCT 2102 1st Edition Lecture 20 Outline of Last LectureI. Increasing Operating IncomeII. Contribution MarginIII. Calculating Break-Even and Target ProfitOutline of Current Lecture:IV. Practice Problem #1V. Practice Problem #2Current Lecture: Cost-Volume-Profit Analysis, Part II (Chapter 7)IV. Practice Problem #1Sadie 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) - $0x = 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 fora 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 #2Daisy 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 part-time 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 =


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UGA ACCT 2102 - Cost-Volume-Profit Analysis, Part II

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