# FINANCE

Exercise 5-8 |

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

(a) | Break-even point | lawns | |||

(b) | Break-even point | $ |

Exercise 5-13 |

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 |

**(a) **Compute the contribution margin per unit.

Contribution margin per unit |

**(b)** Prepare a CVP income statement that shows both total and per unit amounts.

CANNES COMPANY CVP Income Statement For the Month Ended September 30, 2014 |
||||

Total |
Per Unit |
|||

$ | $ | |||

$ | ||||

$ |

**(c)** Compute Cannes’ break-even point in units.

Break-even point in units | units |

**(d)** Prepare a CVP income statement for the break-even point that shows both total and per unit amounts.

CANNES COMPANY CVP Income Statement For the Month Ended September 30, 2014 |
||||

Total |
Per Unit |
|||

$ | $ | |||

$ | ||||

$ |

Exercise 5-14 |

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. |

(a)
Compute the number of units sold in 2013.
units |

(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?

Exercise 5-17 |

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 $16.00 per unit Fixed costs $19,500 |

(a)
What is the contribution margin ratio? 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?

Problem 5-1A |

Telly Savalas owns the Bonita Barber Shop. He employs 4 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. Other costs are as follows.
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 Telly currently charges $10 per haircut. |

(a)
Determine the variable cost per haircut and the total monthly fixed costs. Total variable cost per haircut $ Total fixed $ |

( 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.

Problem 5-5A |

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. |

(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.) (1) Contribution margin for current year $ Contribution margin for projected year $ (2) Fixed Costs |

(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?

Chapter 6 homework Chapter 6: Exercises 5, 10, 13, and 14; Problems 1 and 5