# CVP Analysis

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