Posted: February 26th, 2023

Exercise A – Chapter 3 – Cost-Volume-Profit Analysis

EA1.

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LO 3.1 Calculate the per-unit contribution margin of a product that has a sale price of $200 if the

variable costs per unit are $65.

EA2.

LO 3.1 Calculate the per-unit contribution margin of a product that has a sale price of $400 if the

variable costs per unit are $165.

EA3.

LO 3.1 A product has a sales price of $150 and a per-unit contribution margin of $50. What is

the contribution margin ratio?

EA4.

LO 3.1 A product has a sales price of $250 and a per-unit contribution margin of $75. What is

the contribution margin ratio?

EA5.

LO 3.2 Maple Enterprises sells a single product with a selling price of $75 and variable costs per

unit of $30. The company’s monthly fixed expenses are $22,500.

A. What is the company’s break-even point in units?

B. What is the company’s break-even point in dollars?

C. Construct a contribution margin income statement for the month of September when they

will sell 900 units.

D. How many units will Maple need to sell in order to reach a target profit of $45,000?

E. What dollar sales will Maple need in order to reach a target profit of $45,000?

F. Construct a contribution margin income statement for Maple that reflects $150,000 in

sales volume.

EA6.

LO 3.2 Marlin Motors sells a single product with a selling price of $400 with variable costs per

unit of $160. The company’s monthly fixed expenses are $36,000.

A. What is the company’s break-even point in units?

B. What is the company’s break-even point in dollars?

C. Prepare a contribution margin income statement for the month of November when they

will sell 130 units.

D. How many units will Marlin need to sell in order to realize a target profit of $48,000?

E. What dollar sales will Marlin need to generate in order to realize a target profit of

$48,000?

Exercise A – Chapter 3 – Cost-Volume-Profit Analysis

F. Construct a contribution margin income statement for the month of February that reflects

$200,000 in sales revenue for Marlin Motors.

EA7.

LO 3.3 Flanders Manufacturing is considering purchasing a new machine that will reduce

variable costs per part produced by $0.15. The machine will increase fixed costs by $18,250 per

year. The information they will use to consider these changes is shown here.

EA8.

LO 3.3 Marchete Company produces a single product. They have recently received the results of

a market survey that indicates that they can increase the retail price of their product by 8%

without losing customers or market share. All other costs will remain unchanged. Their most

recent CVP analysis is shown. If they enact the 8% price increase, what will be their new break-

even point in units and dollars?

Exercise A – Chapter 3 – Cost-Volume-Profit Analysis

EA9.

LO 3.3 Brahma Industries sells vinyl replacement windows to home improvement retailers

nationwide. The national sales manager believes that if they invest an additional $25,000 in

advertising, they would increase sales volume by 10,000 units. Prepare a forecasted contribution

margin income statement for Brahma if they incur the additional advertising costs, using this

information:

EA10.

LO 3.4 Salvador Manufacturing builds and sells snowboards, skis and poles. The sales price and

variable cost for each are shown:

Exercise A – Chapter 3 – Cost-Volume-Profit Analysis

Their sales mix is reflected in the ratio 7:3:2. What is the overall unit contribution margin for

Salvador with their current product mix?

EA11.

LO 3.4 Salvador Manufacturing builds and sells snowboards, skis and poles. The sales price and

variable cost for each follows:

Their sales mix is reflected in the ratio 7:3:2. If annual fixed costs shared by the three products

are $196,200, how many units of each product will need to be sold in order for Salvador to break

even?

EA12.

LO 3.4 Use the information from the previous exercises involving Salvador Manufacturing to

determine their break-even point in sales dollars.

EA13.

LO 3.5 Company A has current sales of $10,000,000 and a 45% contribution margin. Its fixed

costs are $3,000,000. Company B is a service firm with current service revenue of $5,000,000

and a 20% contribution margin. Company B’s fixed costs are $500,000. Compute the degree of

operating leverage for both companies. Which company will benefit most from a 25% increase

in sales? Explain why.

Exercise A – Chapter 3 – Cost-Volume-Profit Analysis

EA14.

LO 3.5 Marshall & Company produces a single product and recently calculated their break-even

point as shown.

What would Marshall’s target margin of safety be in units and dollars if they required a $14,000

margin of safety?

SOLUTION

EA1.

The per-unit contribution margin is calculated as the sale price per unit minus the variable costs per unit. Thus, for a product with a sale price of $200 and variable costs per unit of $65, the per-unit contribution margin is:

$200 – $65 = $135

Therefore, the per-unit contribution margin is $135.

EA2.

Similar to EA1, the per-unit contribution margin can be calculated by subtracting the variable costs per unit from the sale price per unit. For a product with a sale price of $400 and variable costs per unit of $165, the per-unit contribution margin is:

$400 – $165 = $235

Therefore, the per-unit contribution margin is $235.

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