Chapter 2
Introduction to cost behavior, Costs/ Volume/ Profit Relationship
2-A2
Vendmart Food Service Company operates and services snack vending machines for restaurants,
gas station and factories. The following information were provided:
Machine rental: 80 machines @ 22.10…………………..$1,768
Space rental: 80 location@ $20………………………….$1,600
Part time wages……………………………………………. 500
Other fixed costs…………………………………………… 132
Total monthly fixed costs…………………………………$4,000
Selling price…………$1
Cost of snack……..
0.68
Consider each case independently:
1.What is the break- even point in units(snack) & dollar sales?
2. If 45,000 were sold, what would be the company’s net income?
3. If the space rental cost was doubled, what would be the monthly break- even point
in units & dollars sales?
4.If, in addition to the fixed space rent, the company paid the vending machine
manufacturer$0.7 per unit sold. what would be the monthly break- even point in units &
dollar sales?
5. If in addition to the fixed rent, the company paid the machine manufacturer $0.11 for each unit
sold in excess of the break- even point, what would be the new net income if 45,000 units were
sold.
2-B2 Cost-Volume- Profit at a Day Care Facility
A day facility, its budget for November 2015.
Monthly fixed cost are as follows:
Rent……………………….$800
Salaries………………….$1,400
Other fixed costs…………..140
Total fixed costs
2,340
The cost driver for variable costs is (child-day), the variable cost is $12 per child-day.
There are 22 weekdays in November 2015.An average day has 8 children, the facility
care charges $30 per day per child.
1.What is the break –even point for November in child-days ?In revenue dollar?
2. Suppose attendance for November 2014 is equal to the average, resulting in 22x8=176
child-days. What will be left after paying all expenses?
3. Compute what will be left after paying all expenses in the following cases:
a. Average attendance is 19children per day instead of , generating 198 child-days.
b. Variable costs increase to 14 per child-day.
c. Rent increases by $220 per month.
d. The owner spends $300 on advertising, which increases average daily attendance
to 9.5 children.
e. the owner begins charging $33 per day on November, and average daily attendance
slips to 7 children.
2-42 Motel Rentals
Super 8, the world’s largest budget hotel chain, was founded in
1972. IT now has more than 120,000 rooms in more than2,000
locations( average is 61 rooms). Suppose a particular Super 8
has annual fixed costs of $900,000 for its 100- room motel,
average daily rooms rents of $54, and average variable costs of
$9 for each room rental .It operates 365 days per year.
1. How much net income on rooms will Super 8 generate (a)
if the motel is completely full through-out the entire year
and (b)if the motel is half full?
2. Compute the break-even point in number of rooms rented.
What percentage occupancy for the year is needed to breakeven.
2-44 Sales-Mix
Eames Farms produces strawberries and raspberries. Annual
fixed costs are $15,300. The cost driver for variable costs is
pints of fruit produced .The variable cost is$0.85 per pint of
strawberries and$0.9 per pint of raspberries. Strawberries sell
for $1.05 per pint, raspberries for $1.30 per pint. Five pints of
strawberries are produced for every two pints of raspberries.
1.Compute the number of pints of strawberries and the number
of pints of raspberries produced and sold at the break-even
point.
2. Suppose only strawberries are produced and sold. Compute
the break-even point in pints.
3. Suppose only raspberries are produced and sold. Compute the
break-even point in pints.
2-54 Basic CVP Relationship, Restaurant
Joann Swanson owns a restaurant .His fixed costs are$17,000 per month. The average
total bills is $18 per customer. The variable costs average $9.5 per meal.
1-How many meals must be served to achieve profit of $8,500 per month?
2-What is the Break-even point in number of meals served per month?
3-If the rent and other fixed costs rise to a total of $25,420 per month. If the variable
costs also rises to $11.4 per meal. If the average price increases to $22, how many
meals must be served to make $8,500 profit per month?
4-Assume the situation described in no. 3.If the accountant declares that 15% of the
customers will be lost in case of increasing the price. If this should happen ,What
would be the profit per month? Assume that the restaurant had been serving 3,000
customers per month.
5 -Assume the same situation described in no.4.To overcome the 15% loss of customers,
a pianist was hired to perform four hours each night for $2,300 per month. Assume
that this would increase the total monthly meals from 2,550 to 2,800. By how much
would the total profit change?
2-60 Government Organization
A social welfare agency has a government budget appropriation for
2014 $900,000. The agency supplements each person's income by
$5000 annually. Fixed cost $280,000.
Required:1- How many disabled persons were helped during 2014.
2- For 2015, if the budget is reduced by 15% same monetary
support. How many disabled persons' will be helped in 2015.
Compute the % decline in the number of persons' helped.
3- Assume a budget reduction of 15% as in requirement 2.
If the original number of persons helped remain unchanged.
What is the supplement that can be given to each person.
Compute the % decline in the annual supplement.
2-64
Colerado Catering Company prepares Mexican food.
The budget data For the products
Chicken Tacos
Beef
Selling price
4
5
Variable cost
3
3
No. of units
200,000
100,000
Fixed costs
680,000
1. Compute the planned net income for 2021
2.Compute BEP (units ) to maintain its planned sales mix.
3.Compute BEP (units) if the company produces Chicken Tacos
only, or it produces Beef only.
4.Suppose the company sells 225,000 units of Chicken Tacos &
75,000 of Beef.
Compute Net Income & the BEP for this new sales mix.
2-68
Hospital 20 nurses that receive an average annual salary each of $45,000
Total variable cost….$3,300,000
Total Fixed costs……$5,900,000
Management assigns nurses to departments on the basis of annual
patient.day as follows:
1000- 12000……30 nurse
12001-16000….. 35 nurse
During 20x5, the obstetrics department had a capacity of 60 beds, billed
each patient an average of $810/ day, its revenues 12.15 million.
1. Compute the volume of activity in patient. day
2. Compute the patient.day, that is necessary to recoup all fixed cost
except nursing costs.
3.Compute BEP in patient . day to reach break-even including
nurses salaries as fixed costs.
4.Suppose the department must pay $200 / patient.day for nursing
services,Compute the BEP in patient.day