Hilton Chap7

Published on January 2017 | Categories: Documents | Downloads: 38 | Comments: 0 | Views: 466
of 2
Download PDF   Embed   Report

Comments

Content

CHAPTER 7
Cost-Volume-Profit Analysis
ANSWERS TO REVIEW QUESTIONS
7-1

a. In the contribution-margin approach, the break-even point in units is calculated
using the following formula:

Break-evenpoint 

fixed expenses
unit contribution margin

b. In the equation approach, the following profit equation is used:
sales volume  unit variable
sales volume
 unit
fixed

  
 


expenses  0
in units   expense
in units 
 salesprice

This equation is solved for the sales volume in units.

c. In the graphical approach, sales revenue and total expenses are graphed. The
break-even point occurs at the intersection of the total revenue and total expense
lines.

McGraw-Hill/Irwin
Managerial Accounting, 8/e

 2009 The McGraw-Hill Companies, Inc.
7-1

7-7

The president is correct. A price increase results in a higher unit contribution
margin. An increase in the unit contribution margin causes the break-even point to
decline.
The financial vice president's reasoning is flawed. Even though the break-even
point will be lower, the price increase will not necessarily reduce the likelihood of a
loss. Customers will probably be less likely to buy the product at a higher price.
Thus, the firm may be less likely to meet the lower break-even point (at a high price)
than the higher break-even point (at a low price).

7-8

When the sales price and unit variable cost increase by the same amount, the unit
contribution margin remains unchanged. Therefore, the firm's break-even point
remains the same.

7-9

The fixed annual donation will offset some of the museum's fixed expenses. The
reduction in net fixed expenses will reduce the museum's break-even point.

7-10

A profit-volume graph shows the profit to be earned at each level of sales volume.

McGraw-Hill/Irwin
7-2

 2009 The McGraw-Hill Companies, Inc.
Solutions Manual

Sponsor Documents

Or use your account on DocShare.tips

Hide

Forgot your password?

Or register your new account on DocShare.tips

Hide

Lost your password? Please enter your email address. You will receive a link to create a new password.

Back to log-in

Close