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    Handout 7.2 ACC 312 Sample Questions

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    Shivam Gupta
    This document provides sample questions and solutions related to break-even analysis for a company called Deere John Corp. It examines Deere John's current costs, revenues, and break-even point. It then considers the impact of an investment in automation that would decrease variable costs, increase fixed costs, and decrease sales volume. Several questions are asked and solved regarding Deere John's expected costs, revenues, break-even point, and profit if it makes this investment. Additional sample questions are provided relating to other companies' cost and revenue structures, break-even analyses, and calculations of unit variable costs.

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    Handout 7.2 ACC 312 Sample Questions

    Uploaded by

    Shivam Gupta
    86 views3 pages
    This document provides sample questions and solutions related to break-even analysis for a company called Deere John Corp. It examines Deere John's current costs, revenues, and break-even point. It then considers the impact of an investment in automation that would decrease variable costs, increase fixed costs, and decrease sales volume. Several questions are asked and solved regarding Deere John's expected costs, revenues, break-even point, and profit if it makes this investment. Additional sample questions are provided relating to other companies' cost and revenue structures, break-even analyses, and calculations of unit variable costs.

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    Handout7.2Solutions

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    This document provides sample questions and solutions related to break-even analysis for a company called Deere John Corp. It examines Deere John's current costs, revenues, and break-even point. It then considers the impact of an investment in automation that would decrease variable costs, increase fixed costs, and decrease sales volume. Several questions are asked and solved regarding Deere John's expected costs, revenues, break-even point, and profit if it makes this investment. Additional sample questions are provided relating to other companies' cost and revenue structures, break-even analyses, and calculations of unit variable costs.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    86 views3 pages

    Handout 7.2 ACC 312 Sample Questions

    Uploaded by

    Shivam Gupta
    This document provides sample questions and solutions related to break-even analysis for a company called Deere John Corp. It examines Deere John's current costs, revenues, and break-even point. It then considers the impact of an investment in automation that would decrease variable costs, increase fixed costs, and decrease sales volume. Several questions are asked and solved regarding Deere John's expected costs, revenues, break-even point, and profit if it makes this investment. Additional sample questions are provided relating to other companies' cost and revenue structures, break-even analyses, and calculations of unit variable costs.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    Handout 7.

    2 ACC 312

    Sample Questions

    1. 6.

    DeereJohnCorpcurrentlysellsTractorsfor$200andincursvariablecostsof$150atractorandtotal
    fixedcostsof$8,000.Currently,itsellsexactlythenumberofunitstobreakeven.
    Attheendofthecurrentyear,DeereJohnCorplearnsthatforthenextyearithasanopportunityto
    automateitsproductionprocess:thischoicemeansthatthefollowingthreethingswillallhappen
    simultaneously:
    A.)Addadditionalfixedcostsof$12,000;
    B.)Decreasecurrentvariablecostsby$110perunit;and
    C.)Decreasesalesby20%fromitscurrentlevel
    1.WhatisDeereJohnscurrentUnitContributionMargin?
    200150=50

    __________

    2.WhatisDeereJohnscurrentBreakEvenVolumeintractors?
    8,000/50=160thisisalsothenumbertheycurrentlyareselling

    _________

    WhatareDeereJohnsexpectedtotalFixedandVariableCostsifitmakestheautomatingchoice?
    3.Fixed___________ 4.Variable________
    8k+12k=20k 150110=40(totalvarcosts$40times128(160less20%)tractors=$5,120

    5.WhatisDeereJohnsexpectedBreakevenRevenueifitmakestheautomatingchoice?
    $_________________
    $20,000/(20040)=125tractorstimes$200=$25,000

    6.WhatisDeereJohnsexpectedprofitifitmakestheautomatingchoice?$___________
    $160UCMtimes128tractors(160tractorsless20%)lessfixedcostsof$20,000=480

    7.

    AssumeUniversityTShirtShophasasellingpriceof$25andunitvariablecostof$10foritslong
    sleevecottonshirts.Fixedcoststotal$1,000.Universitybelievesincreasingitspriceto$27willnot
    causeareductioninthenumberofshirtsitwillsell.IfUniversity'ssalesvolumeforthemonthis300
    shirts,howwillnetprofitbeaffectedbythechangeinsellingprice?
    $_______________
    300shirtstime$2(2725)=$600

    Handout7.2

    8.

    9.

    ABCCorporationscontributionmarginiscurrentlypositive.Ifboththeirsellingpriceperunitand
    unitvariablecostincreaseby5%andfixedcostremainthesame,whichCVPrelationiscorrect?
    ContributionMarginper
    BreakEveninUnits
    OverallProfit
    Unit
    A.)
    Decrease
    Increase
    Decrease
    B.)
    Increase
    Decrease
    Decrease
    C.)
    Increase
    Increase
    Increase
    D.)
    Increase
    Decrease
    Increase
    E.)
    Noneoftheabove
    ThebreakevenpointinsalesforRiceCompanyis$360,000andthecompany'scontributionmargin
    ratiois30%.
    IfRiceCompanydesirespretaxprofitof$84,000,totalrevenuewouldhavetototal
    A.
    $108,000
    B.
    $444,000
    C.
    $480,000.
    D.
    $560,000.
    E.
    $640,000.
    IfB/EveninRevenue=FixedCosts/ContributionMarginRatio
    $360,000=FixedCosts/30%
    SolvingFixedCostsmustbe$108,000
    Nowwecansolve($108,000+$84,000)/.3%=$640,000

    10.

    TheBruggs&StruttonCompanymanufacturesanengineforcarpetcleanerscalledthe"Snooper."
    Budgetedcostandrevenuedataforthe"Snooper"aregivenbelow,basedonsalesof40,000units.
    Sales
    $1,600,000
    Less:Costofgoodssold
    1,120,000
    Grossmargin
    $480,000
    Less:SG&Aexpenses
    100,000
    Netincome
    $380,000
    Costofgoodssoldconsistsof$800,000ofvariablecostsand$320,000offixedcosts.SG&A
    expensesconsistof$40,000ofvariablecostsand$60,000offixedcosts.
    Required
    A. Calculatethebreakevenpointinunitsandsalesdollars.
    20,000$800,000
    B. CalculatethebreakevenpointinunitsandsalesdollarsifanAFTERTAXPROFITOF$50,000is
    required.Thetaxrateis20%.
    23,289.5units$931,578.95

    Handout7.2

    11.

    LimonInc.isamailordercandycompany.Theyoffertwotypesofexecutivegiftbaskets:Premium
    andAverage.ThePremiumhasasellingpriceof$200andunitvariablecostof$100.TheAverage
    onlysellsfor$100andhasunitvariablecostof$50.Inthecurrentyeartheysold2,400totalgift
    basketsofwhich600werePremiums.Fixedcostsforthissameperiodtotaled$75,000.
    Required:Atthecurrentmix,howmanyPremiumbasketsmustbesoldtobreakeven?Howmany
    Averagebaskets?
    300/900

    12

    Youaregiventhefollowinginformation:SalesPrice=$22andtheContributionMarginRatio=60%.
    FromthisinformationdeterminetheUnitVariableCost.8.80

    Handout7.2

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