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# Cost-Volume-Profit Analysis for Companies

CVP Analysis

Single-Product:
Ellson Electronics Company

Ellson Electronics Company manufactures video cassette recorders, which it sells for \$300 per unit. Variable costs are \$210 per unit, and fixed costs are \$630,000 a year. The tax rate is 40%.

Required:
a. How many VCRs must be sold each year for the firm to break even?
b. Determine the number of VCRs that must be sold if the firm desires an after-tax profit of \$270,000.
c. In an effort to increase sales, the firm may reduce the price to \$270 per unit. Calculate the number of units that must be sold to achieve an after-tax profit of \$270,000.

Multiple-Products:
Lovely Linen Company

Lovely Linen Company sells a number of linen products, including sheets, towels, and tablecloths. The firm's fixed costs are \$800,000 per year, and its variable costs for all products average 65% of sales. Its tax rate is 40%.

Required:
a. Calculate the firm's break-even point.
b. Determine total sales required for the firm to earn an after-tax profit of: \$300,000 per year
c. Management is considering an increase in advertising of \$200,000 per year. Determine total sales required for the firm to earn an after-tax profit of \$500,000 per year if advertising costs are increased.

#### Solution Summary

The following posting helps with questions regarding cost-volume-profit analysis.

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