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CVP Problem

1. Fast Buck Inc. sells a product at a unit price of $5.50, with a variable cost of $3.25 per unit. Total fixed costs are $360,000.

a. Calculate the breakeven point.

b. Calculate a 20% increase in volume above breakeven and determine its precise dollar impact on profits.

c. Calculate the effect of a $.50 drop in price and a $.25 rise in variable costs on the breakeven quantity with no change in fixed costs.

Solution Preview

1. Fast Buck Inc. sells a product at a unit price of $5.50, with a variable cost of $3.25 per unit. Total fixed costs are $360,000.

a. Calculate the breakeven point.

Breakeven point is when the total costs are equal to total revenues. we can write that for breakeven
Total Cost = Total Revenue
Variable Cost + Fixed Cost = Total Revenue
Variable Cost X No. of units + Fixed Cost = Selling price per unit X no. of units
Fixed cost = no. of units (selling price per unit - variable ...

Solution Summary

The solution explains the use of Cost Volume Profit relationship to solve to solve the questions.

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