@ 2012, cengage learning cost behavior and cost-volume-profit analysis lo 3b – analyzing the...
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@ 2012, Cengage Learning
Cost Behavior and Cost-Volume-Profit Analysis
LO 3b – Analyzing the Effects of Changes on the Cost-Volume-Profit Relationship
Effect of Changes in Fixed Costs
Bishop Co. is evaluating a proposal to budget an additional $100,000 for advertising. The data for Bishop Co. are as follows:
LO 3
Effect of Changes in Fixed Costs
LO 3
Break-Even Sales (units) =Fixed Costs
Unit Contribution Margin
Without additional advertising:
Break-Even Sales (units) = $600,000$20
=30,000 units
With additional advertising:
Break-Even Sales (units) =$700,000
$20=
35,000 units
Unit Variable
Cost
Unit Variable
CostIf Break-
Even
Break-Even
then
Unit Variable
Costs
Unit Variable
Costs
If then Break-Even
Break-Even
Effect of Changes in Unit Variable Costs
LO 3
Effect of Changes in Unit Variable Costs
LO 3
Park Co. is evaluating a proposal to pay an additional 2% commission on sales to its salespeople (a variable cost) as an incentive to increase sales. Fixed costs are estimated at $840,000. The other data for Park Co. are as follows:
Effect of Changes in Unit Variable Costs
LO 3
$250 – [$145 + ($250 x 2%)] = $100
Without additional 2% commission:
Break-Even Sales (units) = $840,000$105
= 8,000 units
Break-Even Sales (units) =Fixed Costs
Unit Contribution Margin
With additional 2% commission:
Break-Even Sales (units) =$840,000
$100= 8,400 units
Effect of Changes in Unit Selling Price
Unit Selling Price
Unit Selling Price
If
Unit Selling
Price
Unit Selling
PriceIf
Break-Even
Break-Even
then
thenBreak-Even
Break-Even
LO 3
Effect of Changes in Unit Selling Price
LO 3
Graham Co. is evaluating a proposal to increase the unit selling price of a product from $50 to $60. The estimated fixed costs are $600,000. The following additional data have been gathered:
Effect of Changes in Unit Selling Price
LO 3
Break-Even Sales (units) = Fixed CostsUnit Contribution Margin
Without price increase:
Break-Even Sales (units) =$600,000
$20= 30,000 units
With price increase:
Break-Even Sales (units) =$600,000
$30= 20,000 units
Summary of Effects of Changes on B/E Point
LO 3