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ACC560 Chapter 5

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E5-8 E5-13 E5-14 E5-17 P5-1A P5-5A

E5-8 All That Blooms provides environmentally friendly lawn services for homeowners.
Its operating costs are as follows.

Depreciation  $1,400 per month 
Advertising  $200 per month 
Insurance  $2,000 per month 
Weed and feed materials  $12 per lawn 
Direct labor  $10 per lawn 
Fuel  $2 per lawn 

All That Blooms charges $60 per treatment for the average single-family lawn.

Instructions
Determine the company’s break-even point in (a) number of lawns serviced per month and
(b) dollars.

E5-13 Cannes Company has the following information available for September 2014.

Unit selling price of video game consoles   400
Unit variable costs   275
Total fixed costs   52,000
Units sold   600

Instructions
(a) Compute the contribution margin per unit.
(b) Prepare a CVP income statement that shows both total and per unit amounts.
(c) Compute Cannes’ break-even point in units.
(d) Prepare a CVP income statement for the break-even point that shows both total and
per unit amounts.

E5-14 Naylor Company had $210,000 of net income in 2013 when the selling price per
unit was $150, the variable costs per unit were $90, and the fixed costs were $570,000.
Management expects per unit data and total fixed costs to remain the same in 2014. The
president of Naylor Company is under pressure from stockholders to increase net income
by $52,000 in 2014.

Instructions
(a) Compute the number of units sold in 2013.
(b) Compute the number of units that would have to be sold in 2014 to reach the stockholders’
desired profit level.
(c) Assume that Naylor Company sells the same number of units in 2014 as it did in 2013.
What would the selling price have to be in order to reach the stockholders’ desired
profit level?

E5-17 Oak Bucket Co., a manufacturer of wood buckets, had the following data for 2013:


Sales  2,600 units 
Sales price  $40 per unit 
Variable costs  $16 per unit 
Fixed costs  $19,500

Instructions
(a) What is the contribution margin ratio?
(b) What is the break-even point in dollars?
(c) What is the margin of safety in dollars and as a ratio?
(d) If the company wishes to increase its total dollar contribution margin by 30% in 2014,
by how much will it need to increase its sales if all other factors remain constant?

P5-1A Telly Savalas owns the Bonita Barber Shop. He employs four barbers and pays
each a base rate of $1,000 per month. One of the barbers serves as the manager and receives
an extra $500 per month. In addition to the base rate, each barber also receives a commission
of $4.50 per haircut.

Advertising $200 per month 
Rent $1,100 per month 
Barber supplies $0.30 per haircut 
Utilities $175 per month plus $0.20 per haircut 
Magazines $25 per month 

Instructions
(a) Determine the variable costs per haircut and the total monthly fixed costs.
(b) Compute the break-even point in units and dollars.
(c) Prepare a CVP graph, assuming a maximum of 1,800 haircuts in a month. Use increments
of 300 haircuts on the horizontal axis and $3,000 on the vertical axis.
(d) Determine net income, assuming 1,700 haircuts are given in a month.

P5-5A Mozena Corporation has collected the following information after its first year of
sales. Sales were $1,500,000 on 100,000 units; selling expenses $250,000 (40% variable
and 60% fixed); direct materials $511,000; direct labor $290,000; administrative expenses
$270,000 (20% variable and 80% fixed); manufacturing overhead $350,000 (70% variable
and 30% fixed). Top management has asked you to do a CVP analysis so that it can make
plans for the coming year. It has projected that unit sales will increase by 10% next year.

Instructions
(a) Compute (1) the contribution margin for the current year and the projected year, and
(2) the fixed costs for the current year. (Assume that fixed costs will remain the same
in the projected year.)
(b) Compute the break-even point in units and sales dollars for the current year.
(c) The company has a target net income of $200,000. What is the required sales in dollars
for the company to meet its target?
(d) If the company meets its target net income number, by what percentage could its sales
fall before it is operating at a loss? That is, what is its margin of safety ratio?

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