Cost Volume Profit Analyses
Not what you're looking for?
After reviewing its cost structure (variable costs of £7.50 per unit and monthly fixed costs of £60,000) and its potential market, the Forecast Company established what it considered to be a reasonable selling price. The company expected to sell 50,000 units per month, and planned its monthly results as follows:
£
Sales 500,000
Variable costs 375,000
Contribution margin 125,000
Fixed costs 60,000
Profit before tax 65,000
Income tax (at 40%) 26,000
Net profit 39,000
Required:
(a) What selling price did the company establish?
(b) What is the company's contribution margin per unit?
(c) What is the company's break-even point in units?
(d) If the company determined that a particular advertising campaign had a high probability of increasing sales by 4,000 units, how much could the company pay for such a campaign without reducing its planned profits?
(e) If the company wanted to make a before-tax profit of £50,000, how many units would it have to sell?
(f) If the company wanted to make a before-tax return-on-sales of 10%, what level of sales, in £, would be needed?
(g) If the company wanted to make an after-tax profit of £90,000, how many units would it have to sell?
Purchase this Solution
Solution Summary
Cost volume profit analyses given various scenarios, and calculating average costs, break-even point, and profit levels.
Solution Preview
Please see attached document; thank you.
Required:
(a) What selling price did the company establish?
Selling price = Sales / Units = 500,000 / 50,000 = 10 £/unit
(b) What is the company's contribution margin per unit?
Contribution margin / Units = 125,000 / 50,000 = 2.5 £/unit
Also, Selling price - Variable costs per unit = 10 - 7.50 = 2.5 £/unit
(c) What is the company's break-even point in units?
Break-even = Fixed costs / ...
Purchase this Solution
Free BrainMass Quizzes
Production and cost theory
Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.
Team Development Strategies
This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.
Learning Lean
This quiz will help you understand the basic concepts of Lean.
Marketing Research and Forecasting
The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.
Employee Orientation
Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.