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C-V-P analysis : key informaiton

Answer all of the following questions. Explain your answer briefly and clearly, showing any necessary calculations. Your answer should be submitted in an Excel file.

1. The County Historical Society and Museum is considering holding a picnic as a fundraiser. They plan to charge $15 per ticket. They can rent a facility at a state park for $300. The food would be catered by a local caterer at a cost of $4 per meal, plus $100 for setting up their equipment. A band would be hired to play for $200 plus 5% of the "gate" (gross ticket sales). The Society would like to net at least $3,000 from the event. How many tickets must be sold for them to achieve their goal? [Note: you cannot sell a fraction of a ticket!]

2. Acme Company currently leases a machine for making widgets. Lease expense is $16,000/month. Fixed costs of operation are $3,000/month, and variable cost per widget is $186. They are thinking of switching over to a lease on a more advanced model of machine, for which the lease expense would be $24,000/month. Fixed costs of operation would be unchanged, but because the new machine is more efficient, variable cost per widget would be $178. What is the monthly widget production volume at which the new machine would have no effect on Acme's profit [i.e., what is the breakeven point for this proposed acquisition]? 1000

3. Westminster Company has had the following experience over the past five quarters:

Units produced Electricity cost ($)
27,000 101,000
32,000 120,000
31,000 116,000
20,000 84,000
22,000 90,000

a) Using the high-low method, determine an equation for electricity cost (Y) as a function of units produced (X). Assume a linear function.
b) Using your equation, forecast electricity cost at a volume of 25,000 units produced.

4. Broomfield Company budgeted $6,000,000 of manufacturing overhead for the current year, and 50,000 hours of direct labor (cost of $60/hour). Production of Product X (100,000 units) consumed $200,000 of direct materials, and 8,000 direct labor hours.

a) If overhead is allocated on the basis of direct labor hours, compute the unit cost of Product X.
b) Assume instead that Broomfield uses an ABC system, with three cost drivers: machine hours, materials handling, and setups. Of the total overhead cost, 60% is in the machine hour pool (40,000 budgeted hours), 25% is in the materials pool (allocated based on $1,500,000 of total materials budgeted to be used), and 15% in the setup pool (100 budgeted setups). In addition to the materials and labor listed above, Product X used 6,000 machine hours and 12 setups. Compute the unit cost of Product X under the ABC system. Comment briefly.


Solution Summary

Excel file contains calculations of BEP , Sales to achieve targeted profit, cost per unit and determination of cost function.