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    CVP Analysis

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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, he 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 a profit of $1,000 per month.
    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 $1,000 per month.

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    Solution Preview

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    1. Determine the number of blankets Kerry must sell to break even.
    Selling Price $30
    Variable Cost 24
    Contribution Margin per unit 6
    Fixed Costs 800
    Breakeven units per month 800/6 = 133.33 = 134
    2. Determine the ...

    Solution Summary

    The solution explains the use of CVP analysis in calculating the breakeven units and the units needed for target net income

    $2.19

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