T5 Chapters 4 and 8 Solutions To The Essential Activities

Strategic Accounting for Management
Chapters 4 and 8 solutions to the essential

activities
Solutions to:
Questions 4.1, 4.2, 4.4, 8.2, 8.3
Exercises 4.16, 4.19, 4.22, 4.28, 4.32, 8.16, 8.19
Self-assessment Problem 4.35, 4.42 (1-3 only) 4.47, 8.29
Notation used in chapter 4 solutions
SP:
Selling price
VC:
Variable cost per unit
CMPU: Contribution margin per unit

FC:
Fixed costs
P:
Profit
TP:
Target profit
Question 4.1
Cost-volume-profit (CVP) analysis examines the
behaviour of total revenues, total costs, and profit as changes occur in the
units sold, selling price, variable cost per unit, or fixed costs of a product.
Question 4.2
in Chapter 4 are:
The assumptions underlying the CVP analysis outlined
1.
Changes in the level of revenues and costs arise only because of
changes in the number of product (or service) units sold.
2.
Total costs can be separated into a fixed component that does not
vary with the units sold and a component that is variable with respect to
the units sold.
3.
When represented graphically, the behaviour of total revenues and
total costs are linear (represented as a straight line) in relation to units sold
within a relevant range and time period.
4.
The selling price, variable cost per unit, and fixed costs are known
and constant.
Question 4.4
Contribution margin is the difference between total
revenues and total variable costs. Contribution margin per unit is the
difference between selling price and variable cost per unit. Contributionmargin percentage is the contribution margin per unit divided by selling
price per unit (or contribution margin divided by sales revenue).
Question 8.2
Relevant costs are expected future costs that differ
among the alternative courses of action being considered. Historical costs
are irrelevant because they are past costs and, therefore, cannot differ
among alternative future courses of action.
Question 8.3
No. Relevant costs are defined as those expected
future costs that differ among alternative courses of action being
considered. Thus, future costs that do not differ among the alternatives are
irrelevant to deciding which alternative to choose.
Exercise -4-16
Revenues
CVP Computations
Variable
Fixed
Total
Operating
Contribution
Contribution
Costs
Costs
Costs
Income
Margin
Margin %
a.
A$2000
A$ 500
A$300
A$ 800
A$1200
A$1500
A75.0%
b.
2000
1500
300
1800
200
500
25.0%
c.
1000
700
300
1000
300
30.0%
d.
1500
900
300
1200
300
600
40.0%
Revenues Variable Costs Fixed Costs = Operating Profit

Total costs = Variable costs + Fixed Costs
Contribution Margin = Revenues Variable Costs
Contribution Margin % = Contribution Margin Revenues
a.
Fixed costs = A$800 - A$500 = A$300
Revenues = A$500 + A$300 + A$1200 = A$2000

Contribution Margin = A$2000 - A$500 = A$1500
Contribution Margin % = A$1 500 A$2000 = 75%
b.
Variable costs = A$2000 - A$300 - A$200 = A$1500
Total costs = A$1500 + A$300

Contribution Margin % = A$500 A$2000 = 25%
c.
Fixed costs = A$1000 - A$700 = A$300
Operating Income = A$1000 - A$700 - A$300 = A$0

Contribution Margin % = A$300 A$1000 = 30%
d.
Contribution Margin % = CM A$1500 = 40%
CM = 40% x A$1500 = A$600

1
Variable Cost = A$1500 A$600 = A$900

Total costs = A$900 + A$300 = A$1200
Operating Income = A$1500 - A$1200 = A$300
Exercise 4-19 CVP analysis, changing revenues and costs
1.
(a)
SP = 6% A$1500 = A$90 per ticket
VC = A$43 per ticket

CMPU = A$90 A$43 = A$47 per ticket
FC = A$23 500 per month
FC
Q=
CMPU
A$23 500
A$47 per ticket
= 500 tickets
(b) Q =
FC + TP
CMPU
A$23 500 + A$17 000

A$47 per ticket
A$40 500
A$47 per ticket
= 862 tickets (rounded up)

2.
(a)
SP = A$90 per ticket

FC = A$23 500 a month
Q=
FC
CMPU
A$23500
A$50 per ticket
= 470 tickets
(b)
Q=
FC + TP
CMPU
A$23 500 + A$17 000

A$50 per ticket
A$40 500
A$50 per ticket
= 810 tickets
3.
(a)
SP = A$60 per ticket

Q=
FC
CMPU
A$23 500
A$20 per ticket
= 1175 tickets
2
(b)
Q=
FC + TP
=
CMPU
=
A$23 500 + A$17 000

A$20 per ticket
A$40 500
A$20 per ticket
= 2025 tickets
The reduced commission sizably increases the break-even point and the
number of tickets required to yield a target profit of A$17 000:
6%
Commission
Fixed
(Requirement 2)
Commission of A$60
Break-even point
470
1175
Attain P of A$17 000
810
2025
4.
(a)
The A$5 delivery fee can be treated as either an extra source of
revenue (as done below) or as a cost offset. Either approach increases CMPU by
A$5:
SP = A$65 (A$60 + A$5) per ticket
Q =
FC
CMPU
A$23 500
A$25 per ticket
= 940 tickets
(b) Q =
FC + TP
CMPU
A$23 500 + A$17 000

A$25 per ticket
A$40 500
A$25 per ticket
= 1620 tickets
The A$5 delivery fee results in a higher contribution margin which reduces
both the break-even point and the tickets sold to attain profit of A$17 000.
Exercise 4-22
CVP analysis, income taxes
Variable cost percentage is A$3.20 A$8.00 = 40%
1.
Let R = Revenues needed to obtain target net profit after tax

R 0.40R $450 000 =
A$105 000
1- 0.30
0.60R = A$450 000 + $150 000

R = A$600 000 0.60
R = A$1 000,000
OR,
Break-even revenues = Fixed cost +
Target net profit after tax

1 - tax rate
Contribution margin percentage
A$105 000
1 0.30
= A$450 000 +
0.60
=A$1 000 000
Proof:
Revenues
A$1 000 000
Variable costs (at 40%)
400 000
Contribution margin
600 000
Fixed costs
450 000
Profit
150 000
Income taxes (at 30%)
45 000
Net profit after tax
A$ 105 000
2.
a.
Customers needed to break even:

Contribution margin per customer = A$8.00 A$3.20 = A$4.80
Break-even number of = Fixed costs Contribution margin per customer
customers
= A$450 000 A$4.80 per customer
= 93 750 customers
b. Customers needed to earn net profit after tax of A$105 000:

Total revenues Sales check per customer
A$1 000 000 A$8 = 125 000 customers
3.
Using the shortcut approach:
Change in net profit after tax =
Unit
Change in
contribution (1 Tax rate)

number of customers
margin
= (150 000 125 000) A$4.80 (1 0.30)

= A$120,000 0.7 = A$84 000
4
New net profit after tax =
A$84 000 + A$105 000 = A$189 000
The alternative approach is:

Revenues, 150 000 A$8.00
A$1 200 000
Variable costs at 40%
480 000
Contribution margin
720 000
Fixed costs
450 000
Profit
270 000
Income tax at 30%
81 000
Net profit after tax
A$ 189 000
Exercise 4-28 Sales mix, new and upgrade customers

1.
New
Upgrade
Customers
Customers
SP
$420
$240
VC
180
80
CMPU
240
160
The 60%/40% sales mix implies that, 60% of products are sold to new
customers and 40% are sold to upgrade customers.
Weighted average contribution margin per unit
$160)
= (60% $240) + (40%
= $144 + $64 = $208

Break-even point in units =
$28,000,000
= 134,616 units (rounded up)
$208
Break-even point in units is:

Sales to new customers:
134,616 units 60%
Sales to upgrade
customers:
134,616 units 40%
80,770 units
53,846 units
Total number of units to break-even (rounded)
134,616 units
Check
Revenues ($420 80,770) + ($240 53,846)
Variable costs ($180 80,770) + ($80 53,846)
18,846,280
Contribution margin
28,000,160
Fixed costs
28,000,000
Profit (caused by rounding)

2.
$46,846,440
160
When 200,000 units are sold, mix is:

Units sold to new customers (60% 200,000)
5
120,000
Units sold to upgrade customers (40% 200,000)

Revenues ($420 120,000) + ($240 80,000)
80,000
$69,600,000
Variable costs ($180 120,000) + ($80 80,000)
28,000,000
Contribution margin
41,600,000
Fixed costs
28,000,000
Profit
$ 13,600,000
3.
a.
At New 50%/Upgrade 50% mix, 50% of products are sold to new
customers and 50% are sold to upgrade customer.
$160)
= (50% $240) + (50%
= $120 + $80 = $200

$28,000,000
= 140,000 units
$200

140,000 units 50%
70,000 units
Sales to upgrade customers:
140,000 units 50%
70,000 units
Total number of units to break-even
140,000 units
Check
Revenues ($420 70,000) + ($240 70,000)
$46,200,000
Variable costs ($180 70,000) + ($80 70,000)
18,200,000
Contribution margin
28,000,000
Fixed costs
28,000,000
Profit
b.
At New 90%/ Upgrade 10% mix, 90% of products are sold to new
customers and 10% are sold to upgrade customer.
$160)
= (90% $240) + (10%
= $216 + $16 = $232

$28,000,000
= 120,690 units (rounded up)
$232

120,690 units 90%
108,621 units
Sales to upgrade customers:
120,690 units 10%
12,069 units
120,690 units
Check
Revenues ($420 108,621) + ($240 12,069)
$48,517,380
Variable costs ($180 108,621) + ($80 12,069)
20,517,300
Contribution margin
28,000,080
Fixed costs
28,000,000
Profit (caused by rounding)
80
c.
As Ziggy increases its percentage of new customers, which have a
higher contribution margin per unit than upgrade customers, the number of
units required to break even decreases:
New
Customers
Upgrade
Customers
Break-even
Point
Requirement 3(a)
50%
50%
140,000
Requirement 1
60
40
134,616
Requirement 3(b)
90
10
120,690
Exercise 4-32 Contribution margin, decision making

1.
Revenues
A$600 000
Deduct variable costs:

Cost of goods sold
A$300 000
Sales commissions
60 000
Other operating costs
30 000
390 000
Contribution margin
2.
3.
A$210 000
Contribution margin percentage =
A$210 000
= 35%
A$600 000
Incremental revenue (15% A$600 000) =
A$90 000
Incremental contribution margin

(35% A$90 000)
A$31 500
Incremental fixed costs (advertising)

Incremental profit
13 000
A$18 500
If Mr. Cruze spends A$13 000 more on advertising, the profit will increase by
A$18 500, converting a loss of A$49 000 to a loss of A$30 500.
Exercise 8-16 Disposal of assets
1.
This is an unfortunate situation, yet the A$78 000 costs are irrelevant
regarding the decision to re-machine or sold as scrap. The only relevant
factors are the future revenues and future costs. By ignoring the accumulated
costs and deciding on the basis of expected future costs, operating income
will be maximised (or losses minimised). The difference in favour of remachining is A$2000:
7
(a)
(b)
Re-machine
Future revenues
sold as scrap
A$33 000
Deduct future costs
A$6 500
24 500
Operating income
A$8 500
Difference in favour of re-machining
A$6 500
A$2 000
2. This, too, is an unfortunate situation. But the A$101 000 original cost is
irrelevant to this decision. The difference in relevant costs in favour of
replacing is A$3500 as follows:
(a)
Replace
New truck
(b)
Rebuild
A$103 500
17 500
Deduct current disposal

price of existing truck
Rebuild existing truck
Difference in favour of replacing
A$89 500
A$86 000
A$89 500
A$3 500
Note, here, that the current disposal price of A$17 500 is relevant, but the
original cost (or carrying amount, if the truck were not brand new) is
irrelevant.
Exercise 8-19 Special order, activity-based costing.
Direct materials cost per unit (A$262 500 7 500 units) = A$35 per unit
Direct manufacturing labour cost per unit (A$300 000 7 500 units)
= A$40 per unit
Variable cost per batch = A$500 per batch
Award Plus profits under the alternatives of accepting/rejecting the special
order are:
Revenues
Without OneTime Only

Special Order
With OneTime Only

Special Order
7 500 Units
10 000 Units
A$1 125 000
Difference
2 500 Units
A$1 375 000
A$250 000
Variable costs:
1
87 500
Direct materials
262 500
350 000
Direct manufacturing labour
300 000
400 000
75 000
87 500
12 500
Fixed manufacturing costs
275 000
275 000
Fixed marketing costs
175 000
175 000
Batch manufacturing costs
100 000
Fixed costs:
Total costs
1 087 500
1 287 500
200 000
Profit
A$37 500
A$87 500
A$50 000
A$262 500 + (A$35 2 500 units)
$300 000 + (A$40 2 500 units)
A$75 000 + (A$500 25 batches)
Alternatively, we could calculate the incremental revenue and the

incremental costs of the additional 2500 units as follows:
Incremental revenue
A$100 2 500 units
A$250 000
Incremental direct manufacturing costs A$35 2 500 units
87 500
Incremental direct manufacturing costs A$40 2 500 units
100 000
Incremental batch manufacturing costs A$500 25 batches
12 500
Total incremental costs
200 000
Total incremental profit from

accepting the special order
A$50 000
Award Plus should accept the one-time-only special order if it has no longterm implications because accepting the order increases Award Plus profit by
A$50 000.
If, however, accepting the special order would cause the regular customers to
be dissatisfied or to demand lower prices, then Award Plus will have to trade
9
off the A$50 000 gain from accepting the special order against the profit it
might lose from regular customers.
Award Plus has a capacity of 9000 medals. Therefore, if it accepts the
special one-time order of 2500 medals, it can sell only 6500 medals instead of
the 7500 medals that it currently sells to existing customers. That is, by
accepting the special order, Award Plus must forgo sales of 1000 medals to its
regular customers. Alternatively, Award Plus can reject the special order and
continue to sell 7500 medals to its regular customers.
Award Plus profit from selling 6500 medals to regular customers and 2500
medals under one-time special order follow:
Revenues (6 500 A$150) + (2 500 A$100)
A$1 225 000
Direct materials (6 500 A$35) + (2 500 A$35)
315 000
Direct manufacturing labour (6 500 A$40) + (2 500 A$40)
360 000
Batch manufacturing costs (130 A$500) + (25 A$500)
77 500
Fixed manufacturing costs
275 000
Fixed marketing costs
175 000
Total costs
1 202 500
Profit
A$22 500
Award Plus makes regular medals in batch sizes of 50. To produce 6500 medals
requires 130 (6500 50) batches.
Accepting the special order will result in a decrease in profit of A$15 000
(A$37 500 A$22 500). The special order should, therefore, be rejected.
A more direct approach would be to focus on the incremental effectsthe
benefits of accepting the special order of 2500 units versus the costs of selling
1000 fewer units to regular customers. Increase in profit from the 2500-unit
special order equals A$50 000 (requirement 1). The loss in profit from selling
1000 fewer units to regular customers equal:
Lost revenue, A$150 1 000
A$(150 000)
Savings in direct materials costs, A$35 1 000
35 000
Savings in direct manufacturing labour costs, A$40 1 000
40 000
Savings in batch manufacturing costs, A$500 20
10 000
Profit lost
A$(65 000)
Accepting the special order will result in a decrease in profit of A$15 000
(A$50 000 A$65 000). The special order should, therefore, be rejected.
Even if profit had increased by accepting the special order, Award Plus should
consider the effect on its regular customers of accepting the special order.
For example, would selling 1000 fewer medals to its regular customers cause
these customers to find new suppliers that might adversely impact Award
Pluss business in the long run.
3.
Award Plus should not accept the special order.
Increase in profit by selling 2 500 units

10
under the special order (requirement 1)

Profit lost from existing customers (A$10 7 500)
Net effect on profit of accepting special order
The special order should, therefore, be rejected.
11
A$50 000
(75 000)
A$(25 000)
Self-assessment problem 4-35

1.
CVP analysis, service firm
Revenue per package
A$5 000
Variable cost per package
3 700
Contribution margin per package
A$1 300
Break-even (packages) = Fixed costs Contribution margin per package

=
2.
A$520 000
= 400 tour packages
A$2300 per package
Contribution margin ratio =

=
Selling price
A$2300
= 26%
A$6000
Revenue to achieve target income = (Fixed costs + target OI) Contribution
margin ratio
=
A$520 000 + A$91 000

= A$2 350 000, or
0.38
Number of tour packages to earn

A$520 000 + A$91 000
=
= 266 tour packages
A$91 000
operating income
A$2300
Revenues to earn A$91 000 OI = 470 tour packages A$5000 = A$2 350 000
3.
Fixed costs = A$520 000 + A$32 000 = A$552 000
Break-even (packages) =
Fixed costs
Contribution margin per package =

=
Fixed costs
Breakeven (packages)
A$552 000
= A$1 380 per tour package
226 tour packages
Desired variable cost per tour package = A$5000 $1380 = A$3620

Because the current variable cost per unit is A$3700, the unit variable cost
will need to be reduced by A$80 to achieve the break-even point calculated
in requirement 1.
Alternate Method: If fixed cost increases by A$32 000, then total variable
costs must be reduced by A$32 000 to keep the break-even point of 400
tour packages.
Therefore, the variable cost per unit reduction = A$32 000 400 = A$80 per
tour package.
12
Self-assessment problem 4-42 (Points 1 3 only)

structures, uncertainty, and sensitivity analysis
Alternative cost
1.
Contribution margin assuming fixed rental arrangement = $50 $30 =
$20 per bouquet
Fixed costs = $5,000
Break-even point = $5,000 $20 per bouquet = 250 bouquets
Contribution margin assuming $10 per arrangement rental agreement
= $50 $30 $10 = $10 per bouquet
Fixed costs = $0
Break-even point = $0 $10 per bouquet = 0
(i.e. EB makes a profit no matter how few bouquets it sells)
2.
Let x denote the number of bouquets EB must sell for it to be
indifferent between the fixed rent and royalty agreement.
To calculate x we solve the following equation.
$50 x $30 x $5,000 = $50 x $40 x
$20 x $5,000 = $10 x
$10 x = $5,000
x = $5,000 $10 = 500 bouquets

a.
For sales between 0 to 500 bouquets, EB prefers the royalty agreement
because in this range, $10 x > $20 x $5,000.
b.
For sales greater than 500 bouquets, EB prefers the fixed rent
agreement because in this range, $20 x $5,000 > $10 x .
3.
If we assume the $5 savings in variable costs applies to both options,
we solve the following equation for x .
$50 x $25 x $5,000 = $50 x $35 x
$25 x $5,000 = $15 x
$10 x = $5,000
x = $5,000 $10 per bouquet = 500 bouquets

The answer is the same as in Requirement 2, that is, for sales between 0 to
500 bouquets, EB prefers the royalty agreement because in this range, $15 x >
$25 x $5,000. For sales greater than 500 bouquets, EB prefers the fixed rent
agreement because in this range, $25 x $5,000 > $15 x .
13
Self-assessment problem 4-47 Multi-product CVP and decision making.

1.
Tap filter:
Selling price
$80
20
Contribution margin per unit
$60
Pitcher-cum-filter:
Selling price
$90
25
$65
= (40% $60) + (60% $65)
= $24 + $39 = $63
$945,000
= 15,000 units
$63
Break-even point in units of tap models and pitcher models is:

Tap models: 15,000 units 40%
6,000 units
Pitcher models: 15,000 units 60%
9,000 units
15,000 units
Break-even point in dollars for tap models and pitcher models is:
Tap models: 6,000 units $80 per unit
$480,000
Pitcher models: 9,000 units $90 per unit
810,000
Break-even revenues
2.
$ 1,290,000
Tap filter:
Selling price
$80
15
$65
Pitcher-cum-filter:
Selling price
$90
16
$74
= (40% $65) + (60% $74)
= $26 + $44.40 = $70.40

14
$945,000 + $181,400
= 16,000 units
$70.40
Break-even point in units of tap models and pitcher models is:

6,400 units
9,600 units
16,000 units
Break-even point in dollars for tap models and pitcher models is:
Tap models: 6,400 units $80 per unit
$512,000
Pitcher models: 9,600 units $90 per unit
864,000
Break-even revenues
$ 1,376,000
3.
Let x be the number of units for Pure Water Products to be indifferent
between the old and new production equipment.
Profit using old equipment = $63 x $945,000
Profit using new equipment = $70.40 x $945,000 $181,400
At point of indifference:
$63 x $945,000 = $70.40 x $1,126,400
$70.40 x $63 = $1,126,400 $945,000
$7.40 x = $181,400
x = $181,400 $7.40 = 24,513.5 units

= 24,514 units (rounded)
9,806 units
14,709 units
24,515 units
Let x be the number of units,

When total sales are less than 24,515 units, $63 x $945,000 > $70.40 x
$1,126,400, so Pure Water Products is better off with the old equipment.
When total sales are greater than 24,515 units, $70.40 x $1,126,400 > $63 x
$945,000, so Pure Water Products is better off buying the new equipment.
At total sales of 30,000 units, Pure Water Products should buy the new
production equipment.
Check
$70.40 30,000 $1,126,400 = $985,600 is greater than $63 30,000 $945,000
= $945,000.
4. Management should not perceive this decision lightly given the
implications of the decision to buy the new equipment. Given
calculations in part 3, the numbers suggest that it is a sound decision.
However, if there are consequences on the job security of current
workers, other qualitative factors need to be considered. For example,
management need to consider the impact of this decision on overall
employee morale after witnessing the retrenchment of two of their
fellow co-workers and potential damage to the companys reputation in
the local community which may impact on sales volume.
15
Self-assessment problem 8-29
Special order
1.
Revenues from special order (A$25 10 000
bats)
A$250 000
Variable manufacturing costs (A$161 10 000

bats)
(160 000)
Increase in operating profit if Woden order

accepted
A$90 000
Direct materials + Direct manufacturing labour + Variable manufacturing overhead =

A$12+ A$3 + A$1 = A$16
Kingston should accept Wodens special order because it increases operating

profit by A$90 000. Since no variable selling costs will be incurred on this
order, this cost is irrelevant. Similarly, fixed costs are irrelevant because they
will be incurred regardless of the decision.
2a.
Revenues from special
order
(A$25 10 000 bats)
A$250 000
Variable manufacturing
costs
(A$16 10 000 bats)
(160 000)
Contribution margin
foregone
([A$32-A$181] 10 000
bats)
(140 000)
Decrease in operating
profit
if Woden order accepted
A$(50 000)
Direct materials + Direct manufacturing labour + Variable manufacturing overhead. +

Variable selling expenses = A$12 + A$1 + A$3 + A$2 = A$18
Based strictly on financial considerations, Kingston should reject Wodens

special order because it results in a reduction of A$50 000 in operating profits.
2b.
Kingston will be indifferent between the special order and
continuing to sell to regular customers if the special order price is A$30. At
this price, Kingston recoups the variable manufacturing costs of A$160 000
and the contribution margin given up from regular customers of A$140 000
([A$160 000 + A$140 000] 10 000 units = A$30). That is, at the special order
price of A$30, Kingston recoups the variable cost per unit of A$16 and the
contribution margin per unit given up from regular customers of A$14 per
unit.
An alternative approach is to recognise that Kingston needs to earn A$50 000
more than the revenues of A$250 000 in requirement 2a, so that the decrease
16
in profit of A$50 000 becomes $0. Kingston will be indifferent between the
special order and continuing to sell to regular customers if revenues from the
special order = A$250 000 + A$50 000 = A$300 000 or A$30 per bat (A$300 000
10 000 bats).
Looked at a different way, Kingston expects the full price of A$32 less the
AUD two, saved on variable selling costs.
2c.
Kingston may be willing to accept a loss on this special order if the
possibility of future long-term sales seems likely at a higher price. However,
Kingston should also consider the negative long-term effect on customer
relationships of not selling to existing customers. Also, Kingston cannot afford
to sell bats to customers at the special order price for the long term because
the A$25 price is less than the full cost of the product of A$27. This means
that in the long term, the contribution margin earned will not cover the fixed
costs and result in a loss. Kingston will then be better off shutting down.
17

T5 Chapters 4 and 8 Solutions To The Essential Activities

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T5 Chapters 4 and 8 Solutions To The Essential Activities

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Strategic Accounting for Management

Chapters 4 and 8 solutions to the essential

Variable cost per unit

CMPU: Contribution margin per unit

The assumptions underlying the CVP analysis outlined

Revenues Variable Costs Fixed Costs = Operating Profit

Fixed costs = A$800 - A$500 = A$300

Revenues = A$500 + A$300 + A$1200 = A$2000

Variable costs = A$2000 - A$300 - A$200 = A$1500

Total costs = A$1500 + A$300

Fixed costs = A$1000 - A$700 = A$300

Operating Income = A$1000 - A$700 - A$300 = A$0

Contribution Margin % = CM A$1500 = 40%

CM = 40% x A$1500 = A$600

Variable Cost = A$1500 A$600 = A$900

SP = 6% A$1500 = A$90 per ticket

VC = A$43 per ticket

A$23 500 + A$17 000

A$47 per ticket

= 862 tickets (rounded up)

SP = A$90 per ticket

VC = A$40 per ticket

A$23 500 + A$17 000

SP = A$60 per ticket

VC = A$40 per ticket

A$23 500 + A$17 000

Attain P of A$17 000

A$23 500 + A$17 000

CVP analysis, income taxes

Variable cost percentage is A$3.20 A$8.00 = 40%

Let R = Revenues needed to obtain target net profit after tax

0.60R = A$450 000 + $150 000

Break-even revenues = Fixed cost +

Target net profit after tax

Contribution margin percentage

A$1 000 000

Variable costs (at 40%)

Income taxes (at 30%)

Net profit after tax

Customers needed to break even:

b. Customers needed to earn net profit after tax of A$105 000:

Using the shortcut approach:

Change in net profit after tax =

contribution (1 Tax rate)

= (150 000 125 000) A$4.80 (1 0.30)

New net profit after tax =

A$84 000 + A$105 000 = A$189 000

The alternative approach is:

A$1 200 000

Variable costs at 40%

Income tax at 30%

Net profit after tax

Exercise 4-28 Sales mix, new and upgrade customers

= (60% $240) + (40%

= $144 + $64 = $208

Break-even point in units is:

134,616 units 60%

134,616 units 40%

Total number of units to break-even (rounded)

Profit (caused by rounding)

When 200,000 units are sold, mix is:

Units sold to upgrade customers (40% 200,000)

Variable costs ($180 120,000) + ($80 80,000)