ACC2354 Hand-In Assignment 4
QUESTION 1
Compute the Break-Even Point
Mackson Products distributes a single product, a woven basket; its selling price is $8
and its variable cost is $6 per unit. The company's monthly fixed expense is $5,500.
Required:
1. Solve for the company's break-even point in unit sales using the equation
method.
2. Solve for the company's break-even point in sales dollars using the equation
method and CM ratio.
3. Solve for the company's break-even point in unit sales using the contribution
margin method.
4. Solve for the company's break-even point in sales dollars using the contribution
margin met and the CM ratio.
QUESTION 2
Break-Even Analysis and CVP Graphing
Horace Society is planning its annual Western Fair Raceway Gala. The Gala committee
has assembled the following expected costs for the event:
Dinner (per person)
Gaming tokens and program (per person)
Prize payouts
Tickets and advertising
Private box suite rental
Lottery licences
$10
$2
$4,300
$800
$1,700
$200
The committee members would like to charge $40 per person for the evening's
activities.
Required:
1. Compute the break-even point for the Gala (in terms of the number of persons
that must attend.)
2. Assume only 200 persons attended the Gala last year. If the same number
attend this year, what price per ticket must be charged to break even?
3. Using the $40 ticket price per person amount, prepare a CVP graph for the Gala
from zero tickets up to 600 tickets sold.
QUESTION 3
Basic CVP Analysis
Klein Company distributes a high-quality bird feeder that sells for $30 per unit.
Variable costs are $12 per unit, and fixed costs total $270,000 annually.
Required:
Answer the following independent questions:
1. What is the product's CM ratio?
2. Use the CM ratio to determine the break-even point in sales dollars.
3. The company estimates that sales will increase by $60,000 during the coming
year due to increased demand. By how much should operating income increase?
4. Assume that the operating results for last year were as follows:
Sales
$600,000
Variable expenses
240,000
Contribution margin
360,000
Fixed expenses
270,000
Operating income
$90,000
a. Compute the degree of operating leverage at the current level of sales.
b. The president expects sales to increase by 16% next year. By how much
should operating income increase?
5. Refer to the original data. Assume that the company sold 23,000 units last year.
The sales manager is convinced that a 12% reduction in the selling price,
combined with a $40,000 increase in advertising expenditures, would cause
annual sales in units to increase 30%. Prepare two contribution-format income
statements, one showing the results of last year's operations and one showing
what the results of operations would be if these changes were made. Would you
recommend that the company do as the sales manager suggests?
6. Refer to the original data. Assume again that the company sold 23,000 units last
year. The president feels that it would be unwise to change the selling price.
Instead, he wants to increase the sales commission by $4 per unit. He thinks that
this move, combined with some increase in advertising, would increase annual
unit sales by 50%. By how much could advertising be increased with profits
remaining unchanged? Do not prepare an income statement; use the incremental
analysis approach.
ACC 2354 Brown
Assignments
Assignment 4 – Target Costing and Value Engineering
This is assignment is out of 45 points and is worth 3% of your final grade.
For this assignment, you are required to complete the attached problem, exhibiting your understanding
of the chapter material, and the ability to calculate all required elements of the assignment. You are
required to:
1. Solve for the company's break-even point in unit sales using the equation method.
2. Solve for the company's break-even point in sales dollars using the equation method and CM
ratio.
3. Solve for the company's break-even point in unit sales using the contribution margin method.
4. Solve for the company's break-even point in sales dollars using the contribution margin met and
the CM ratio.
5. Compute the break-even point for the Gala (in terms of the number of persons that must attend.)
6. Assume only 200 persons attended the Gala last year. If the same number attend this year, what
price per ticket must be charged to break even?
7. Using the $40 ticket price per person amount, prepare a CVP graph for the Gala from zero
tickets up to 600 tickets sold.
8. What is the product's CM ratio?
9. Use the CM ratio to determine the break-even point in sales dollars.
10. The company estimates that sales will increase by $60,000 during the coming year due to
increased demand. By how much should operating income increase?
11. Assume that the operating results for last year were as follows:
1. Sales
$600,000
2. Variable expenses
240,000
3. Contribution margin
360,000
4. Fixed expenses
270,000
5. Operating income
$90,000
6. Compute the degree of operating leverage at the current level of sales.
7. The president expects sales to increase by 16% next year. By how much should operating
income increase?
12. Refer to the original data. Assume that the company sold 23,000 units last year. The sales
manager is convinced that a 12% reduction in the selling price, combined with a $40,000
increase in advertising expenditures, would cause annual sales in units to increase 30%. Prepare
two contribution-format income statements, one showing the results of last year's operations
and one showing what the results of operations would be if these changes were made. Would
you recommend that the company do as the sales manager suggests?
Refer to the original data. Assume again that the company sold 23,000 units last year. The president
feels that it would be unwise to change the selling price. Instead, he wants to increase the sales
commission by $4 per unit. He thinks that this move, combined with some increase in advertising,
would increase annual unit sales by 50%. By how much could advertising be increased with profits
remaining unchanged? Do not prepare an income statement; use the incremental analysis approach.
This assignment must be submitted with a cover page, include headings, appendices and adhere to all
assignment policies and protocols.
SCORING RUBRIC
ACC 2354 Brown
Assignments
Section
Scoring Level
Requirements
Respond to all
requirements of
the assignment
18-20 excellent
15-17.9 good
10-14.9 satisfactory
0-9.9 poor
- clear, concise explanation of key points of the assignment
- providing responses relevant to the module
Linkages to
lesson(s)
18-20 excellent
15-17.9 good
10-14.9 satisfactory
0-9.9 poor
- demonstrating understanding of linkages from
assignment to lesson(s) when addressing the assignment
requirements
- referencing specific theories and concepts from
module(s)
8-10 excellent
6.1-7.9 good
5-6 satisfactory
0-4.9 poor
- word processed
- double spaced
- 12 point font for all sections
- paragraph form, essay style
- cover page
- section headings
- proper grammar, correct spelling (evidence of
proofreading)
- formatted as per policy
- complete bibliography referencing all work of other
individuals, including course notes, textbooks, journals,
websites, interviews, proprietary documents within APA
reference style
Overall
Structural
Quality
TOTAL
Points
/30
/20
/5
/45
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