Exercise 18-16 |
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Glacial Company estimates that variable costs will be60% of sales, and fixed costs will total $926,000. The selling price of the product is $5.
Compute the break-even point in (1) units and (2) dollars.
(1) | | Break-even sales | | | units |
(2) | | Break-even sales | | $ | |
Compute the margin of safety in (1) dollars and (2) as a ratio, assuming actual sales are $2,930,380.
(Round ratio to 0 decimal places, e.g. 20%.)
(1) | | Margin of safety | | $ | |
(2) | | Margin of safety ratio | | | % |
Problem 18-1A | | Telly Savalas owns the Bonita Barber Shop. He employs6barbers and pays each a base rate of $1,300per month. One of the barbers serves as the manager and receives an extra $520per month. In addition to the base rate, each barber also receives a commission of $5.90per haircut. Other costs are as follows.
Advertising | | $260 | per month | Rent | | $960 | per month | Barber supplies | | $0.40 | per haircut | Utilities | | $170 | per month plus $0.20per haircut | Magazines | | $20 | per month |
Telly currently charges $11.70per haircut. |
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| Determine the variable cost per haircut and the total monthly fixed costs.(Round variable costs to 2 decimal places, e.g. 2.25.)
Total variable cost per haircut | | $ | Total fixed | | $ |
LINK TO TEXTLINK TO TEXT | LINK TO VIDEO |
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| Compute the break-even point in units and dollars.(Round answers to 0 decimal places, e.g. 1,225.)
Break-even point | | | haircuts | Break-even point | | $ | |
LINK TO TEXT | LINK TO VIDEO |
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| Determine net income, assuming2,370haircuts are given in a month.
Net income | | $ |
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Problem 18-3A |
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Dousmann Corp.’s sales slumped badly in 2014. For the first time in its history, it operated at a loss. The company’s income statement showed the following results from selling618,000units of product: sales $2,472,000; total costs and expenses $2,616,200; and net loss $144,200. Costs and expenses consisted of the amounts shown below.
| | Total | | Variable | | Fixed |
Cost of goods sold | | $2,163,000 | | $1,483,200 | | $679,800 |
Selling expenses | | 247,200 | | 74,160 | | 173,040 |
Administrative expenses | | 206,000 | | 49,440 | | 156,560 |
| | $2,616,200 | | $1,606,800 | | $1,009,400 |
Management is considering the following independent alternatives for 2015.
1. | | Increase unit selling price24% with no change in costs, expenses, and sales volume. |
2. | | Change the compensation of salespersons from fixed annual salaries totaling $154,500to total salaries of $61,800plus a6% commission on sales. |
(a)Compute the break-even point in dollars for 2014.
(Round final answer to 0 decimal places, e.g. 1,225.)
Break-even point | | $ |
(b)Compute the contribution margin under each of the alternative courses of action.
(Round final answer to 0 decimal places, e.g. 1,225.)Contribution margin for alternative 1 | | % |
Contribution margin for alternative 2 | | % |
Compute the break-even point in dollars under each of the alternative courses of action.
(Round selling price per unit to 2 decimal places, e.g. 5.25 and other calculations to 0 decimal places, e.g. 20% and also final answer to 0 decimal places, e.g. 1,225.)Break-even point for alternative 1 | | $ |
Break-even point for alternative 2 | | $ |
Which course of action do you recommend?
Alternative 1Alternative 2
Exercise 18-9 |
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The Green Acres Inn is trying to determine its break-even point. The inn has 50 rooms that it rents at $75a night. Operating costs are as follows.
Salaries | | $8,547 | per month |
Utilities | | $1,832 | per month |
Depreciation | | $1,221 | per month |
Maintenance | | $610 | per month |
Maid service | | $9 | per room |
Other costs | | $36 | per room |
Determine the inn’s break-even point in (1) number of rented rooms per month and (2) dollars.
(1) | | Break-even point | | | rooms |
(2) | | Break-even point | | $ | |
Exercise 18-11 |
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Kare Kars provides shuttle service between four hotels near a medical center and an international airport. Kare Kars uses two 10-passenger vans to offer 12 round trips per day. A recent month’s activity in the form of a cost-volume-profit income statement is shown below.
Fare revenues (1,400fares) | | | | $35,000 |
Variable costs | | | | |
Fuel | | $6,300 | | |
Tolls and parking | | 3,150 | | |
Maintenance | | 1,050 | | 10,500 |
Contribution margin | | | | 24,500 |
Fixed costs | | | | |
Salaries | | 12,495 | | |
Depreciation | | 1,176 | | |
Insurance | | 1,029 | | 14,700 |
Net income | | | | $9,800 |
(a)Calculate the break-even point in (1) dollars and (2) number of fares.
(1) | | Break-even point | | $ | |
(2) | | Break-even point | | | fares |
(b)Without calculations, determine the contribution margin at the break-even point.
Contribution margin at the break-even point | | $
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Solution: Glacial Company estimates that variable costs will be60% of sales, and fixed costs