Nokia's managers rely on reports of variable costs. How canvariable costing reports, prepared using the contribution marginformat, help managers in computing break-even volume in units?Would you recommend a different method?

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Hubert KochLv2

28 Sep 2019

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Related questions

Break-Even Sales Under Present and Proposed Conditions

Battonkill Company, operating at full capacity, sold 131,600 units at a price of $75 per unit during 2014. Its income statement for 2014 is as follows:

Sales		$9,870,000
Cost of goods sold		3,500,000
Gross profit		$6,370,000
Expenses:
Selling expenses	$1,750,000
Administrative expenses	1,050,000
Total expenses		2,800,000
Income from operations		$3,570,000

The division of costs between fixed and variable is as follows:

	Fixed	Variable
Cost of goods sold	40%	60%
Selling expenses	50%	50%
Administrative expenses	70%	30%

Management is considering a plant expansion program that will permit an increase of $900,000 in yearly sales. The expansion will increase fixed costs by $120,000, but will not affect the relationship between sales and variable costs.

Required:

1. Determine for 2014 the total fixed costs and the total variable costs.

Total fixed costs	$
Total variable costs	$

2. Determine for 2014 (a) the unit variable cost and (b) the unit contribution margin.

Unit variable cost	$
Unit contribution margin	$

3. Compute the break-even sales (units) for 2014.
units

4. Compute the break-even sales (units) under the proposed program.
units

5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $3,570,000 of income from operations that was earned in 2014.
units

6. Determine the maximum income from operations possible with the expanded plant.
$

7. If the proposal is accepted and sales remain at the 2014 level, what will the income or loss from operations be for 2015?
$ SelectIncomeLossItem 10

8. Based on the data given, would you recommend accepting the proposal?

In favor of the proposal because of the reduction in break-even point.

In favor of the proposal because of the possibility of increasing income from operations.

In favor of the proposal because of the increase in break-even point.

Reject the proposal because if future sales remain at the 2014 level, the income from operations of will increase.

Reject the proposal because the sales necessary to maintain the current income from operations would be below 2014 sales.

Choose the correct answer.

2. The group product manager for ointments at American TherapeuticCorporation was reviewing price and promotion alternatives for twoproducts: Rash-Away and Red-Away. Both products were designed toreduce skin irritation, but Red-Away as primarily a cosmetictreatment whereas Rash-Away also included a compound thateliminated the rash.

The price and promotion alternatives recommended for the twoproducts by their respective brand managers included thepossibility of using additional promotion or a price reduction tostimulate sales volume. A volume, price, and cost summary for thetwo products follows:

Rash-Away Red-Away
Unit price $2.00 $1.00
Unit variable costs $1.40 $0.25
Unit contribution $0.60 $0.75
Unit volume 1,250,000 units 1,500,000 units

Both brand managers included a recommendation to either reduceprice by 10% or invest an incremental 150,000 in advertising.

a) What absolute increase in unit sales and dollar sales will benecessary to recoup the incremental increase in advertisingexpenditures for Rash-Away? For Red-Away?

b) How many additional sales dollars must be produced to cover each$1.00 of incremental advertising for Rash-Away? For Red-Away?

c) What absolute increase in unit sales and dollar sales will benecessary to maintain the level of total contribution dollars ifthe price of each product is reduced by 10%?

pearwoodchuck107

Break-even and conditional format
Question 1:
Ensco Lighting Company has fixed costs of $100,000, sells its units for $28, and has variable costs of $15.50 per unit.
a. Compute the break-even point.
b. Create a break-even graph in Excel
Units of: 6,000 7,000 8,000 9,000 and 10,000, and 11,000
Hint: calculate the total sales, and the total cost. The intersection should be your break-even in units.
c. Ms. Watts comes up with a new plan to cut fixed costs to $75,000. However, more labor will now be required, which will increase variable costs per unit to $17. The sales price will remain at $28. What is the new break-even point?
d. Under the new plan, what is likely to happen to profitability at very high volume levels (compared to the old plan)?
Question 2: Your manager provided you with the following information in a pivot-table.

Summarize how conditional format might be used in Excel to alert a user when actual dollars spent exceed the budget. Feel free to duplicate an example in Excel.

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