Cost-Volume-Profit Review Problems

QUESTION 1

Bridal Shoppe sells wedding dresses. The cost of each dress is comprised of
the following: Selling price of $1,000 and variable (flexible) costs of $400.
Total fixed (capacity-related) costs for Bridal Shoppe are $90,000.

A. What is the contribution margin per dress?

Revenues – Flexible Costs = CM

$1,000 - $400 = $600

B. What is the Bridal Shoppe’s total profit when 200 dresses are sold?

Revenues – Flexible Costs – Capacity-Related Costs = Total Profit

200 ($1,000) – 200($400) - $90,000 = $30,000

C. How many dresses must Bridal Shoppe sell to reach the breakeven point?

X = Capacity-Related Costs/Contribution Margin

X = $90,000/$600
X = 150 dresses

D. How many dresses must Bridal Shoppe sell to yield a profit of $60,000?

Total Revenues – Total Costs = Total Profit

$1,000X - $400X - $90,000 = $60,000

$600X = $150,000
X = $150,000/$600
X = 250 dresses

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QUESTION 2
Northenscold Company sells several products. Information of average revenue and costs
are as follows:

Selling price per unit $20.00

Variable costs per unit:
Direct materials $4.00
Direct manufacturing labor $1.60
Manufacturing overhead $0.40
Selling costs $2.00
Annual fixed costs $96,000

1. Calculate the contribution margin per unit.

$20 - $4 - $1.60 - $0.40 - $2 = $12

2. Calculate the number of units Northenscold’s must sell each year to break even.

20X - 8X - 96,000 = 0; X = 8,000 units

3. Calculate the number of units Northenscold’s must sell to yield a profit of

$144,000.

20X – 8X – 96,000 = $144,000; X = 20,000 units

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QUESTION 3
Berhannan’s Cellular sells phones for $100. The unit variable cost per phone is
$50 plus a selling commission of 10%. Fixed manufacturing costs total $1,250
per month, while fixed selling and administrative costs total $2,500.

A. What is the contribution margin per phone?

CM per phone = $100 - $50 - 0.1($100) = $40

B. What is the breakeven point in phones?

N = Breakeven in phones
$100N - $50N - $10N - $1,250 - $2,500 = 0
$40N - $3,750 = 0
N = $3,750 / $40 = 93.75 phones
Breakeven Point = 94 phones

c. How many phones must be sold to earn a targeted profit of $7,500?

N = Phones to be sold
$100N - $50N - $10N - $1,250 - $2,500 = $7,500
$40N = $11,250
N = $11,250 / $40 = 281.25 phones
To achieve target profit: Must sell 282 phones