Cost-Volume-Profit Review Problems (For Exam 1)
QUESTION 1
Bridal Shoppe sells wedding dresses. The cost of each dress is comprised of
the following: Selling price of $1,000 and variable (flexible) costs of $400.
Total fixed (capacity-related) costs for Bridal Shoppe are $90,000.
A. What is the contribution margin per dress?
Revenues – Flexible Costs = CM
$1,000 - $400 = $600
B. What is the Bridal Shoppe’s total profit when 200 dresses are sold?
Revenues – Flexible Costs – Capacity-Related Costs = Total Profit
200 ($1,000) – 200($400) - $90,000 = $30,000
C. How many dresses must Bridal Shoppe sell to reach the breakeven point?
X = Capacity-Related Costs/Contribution Margin
X = $90,000/$600
X = 150 dresses
D. How many dresses must Bridal Shoppe sell to yield a profit of $60,000?
Total Revenues – Total Costs = Total Profit
$1,000X - $400X - $90,000 = $60,000
$600X = $150,000
X = $150,000/$600
X = 250 dresses
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QUESTION 2
Northenscold Company sells several products. Information of average revenue and costs
are as follows:
Selling price per unit
Variable costs per unit:
Direct materials
Direct manufacturing labor
Manufacturing overhead
Selling costs
Annual fixed costs
$20.00
$4.00
$1.60
$0.40
$2.00
$96,000
1. Calculate the contribution margin per unit.
$20 - $4 - $1.60 - $0.40 - $2 = $12
2. Calculate the number of units Northenscold’s must sell each year to break even.
20X - 8X - 96,000 = 0; X = 8,000 units
3. Calculate the number of units Northenscold’s must sell to yield a profit of
$144,000.
20X – 8X – 96,000 = $144,000; X = 20,000 units
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QUESTION 3
Berhannan’s Cellular sells phones for $100. The unit variable cost per phone is
$50 plus a selling commission of 10%. Fixed manufacturing costs total $1,250 per
month, while fixed selling and administrative costs total $2,500.
A. What is the contribution margin per phone?
CM per phone = $100 - $50 - 0.1($100) = $40
B. What is the breakeven point in phones?
N = Breakeven in phones
$100N - $50N - $10N - $1,250 - $2,500 = 0
$40N - $3,750 = 0
N = $3,750 / $40 = 93.75 phones
Breakeven Point = 94 phones
c. How many phones must be sold to earn a targeted profit of $7,500?
N = Phones to be sold
$100N - $50N - $10N - $1,250 - $2,500 = $7,500
$40N = $11,250
N = $11,250 / $40 = 281.25 phones
To achieve target profit: Must sell 282 phones
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