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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 Summary

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

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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 ...

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