CVP Analysis: The Last Outpost
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C-V-P Analysis
The Last Outpost is a tourist stop in a western resort community. Kerry Yost, the owner of the shop, sells hand woven blankets for an average price of $30 per blanket. Kerry buys the blankets from weavers at an average cost of $21. In addition, has selling expenses of $3 per blanket. Kerry rents the building for $300 per month and pays one employee a fixed salary of $500 per month.
1. Determine the number of blankets Kerry must sell to break even
2. Determine the number of blankets Kerry must sell to generate
3. Assume that Kerry can produce and sell his own blankets at a total variable cost of $16 per blanket, but that he would need to hire one additional employee at a monthly salary of $600.
a. determine the number of blankets Kerry must sell to break even
b. determine the number of blankets Kerry must sell to generate a profit of $1000 per month.
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Solution Summary
The solution shows a CVP analysis for The Last Outpost, a tourist stop in a western resort community.
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1. Total Cost = FC + Q*VC = 300 + 500 + (21 + 3)Q = 800 + 24Q
Total Revenue = 30Q
For break-even, 30Q = 800 + 24Q, or 6Q = 800, which gives Q = 800/6 = 133.33 = 134 ...
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