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COST-VOLUME-PROFIT
=Sales Costs
Sales (Variable Costs + Fixed
=
Costs)
Sales Variable Costs Fixed
=
Costs
Profit + Fixed =Sales Variable Costs
Costs
Profit + Fixed =Units Sold X (Unit Sales Price
Costs
Unit Variable Cost)
The Problem
Delgado Food Services Company operates
and services soft drink vending machines
located in:
Restaurants
Gas stations
Factories
The machines are rented from the
manufacturer.
Delgado also rent the space occupied by
The Problem
Fixed Monthly Expenses
Elements of Cost
Machine rental: 40 machines @ $
43.50
Space rental: 40 location @ $ 28.80
Part-time wages to service the
additional 40 machines
Other fixed costs
Total monthly fixed costs
Total
$ 1,740
1,152
1,908
200
$ 5,000
The Problem
Other Data
Elements of
Cost
Selling price
Cost of snack
Contribution
margin
$ 1.00
0.80
Per $ 100 of
Sales
100%
80%
$ 0.20
20%
Per Unit
The Problem
Requirement
1. What is the monthly break-even point in
number of units and in dollar sales?
2. If 36,000 units were sold, what would be
the companys net income?
3. If the space rental cost were doubled,
what would be the monthly break-even
point in number of units and in dollar
sales?
The Problem
Requirement
4. If, in addition to the fixed rent, Delgado
Food Services Company paid the vending
machine manufacturer 2 cent per unit sold,
what would be the monthly break-even
point in number of units and in dollar
sales? Refer to the original data.
5. If, in addition to the fixed rent, Delgado
paid the machine manufacturer 4 cent for
each unit sold in excess of the break-even
point, what would the new net income be if
The Solution
Contribution Margin (CM)
In the case of Delgado Food and Services Company, the
CM can be computed as follows:
Unit
CM
Sales
Variable
Expenses
$ 1.00 - $ 0.80
$ 0.20
The Solution
Contribution Margin (CM) Ratio
For, Delgado Food
computations are:
CM
Ratio
and
Services
Total CM
Total
Sales
$7,200
$36,000
20%
Company,
the
The Solution
If 36,000 units were sold, what would be
the companys net income?
Elements of Cost
Total
Per
Unit
Percent of
Sales
$
36,000.
00
$
1.00
100%
Variable
expenses
(cost of snack) @ $
0.80
28,800.
00
0.80
80%
CM
7,200.0
0
$
0.20
20%
The Solution
What is the monthly break-even point in
number of units in sales?
In the case of Delgado Food and Services Company, the
break-even point can be computed as follows:
Unit sales to break=
even
Fixed
expenses
Unit CM
$ 5,000.00
$ 0.20
The Solution
What is the monthly break-even point in
dollar sales?
In the case of Delgado Food and Services Company, the
break-even point can be computed as follows:
Dollar sales to
break-even
Fixed
expenses
CM Ratio
$ 5,000.00
=
0.20
= $ 25,000
The Solution
If the space rental cost were doubled,
what would be the monthly break-even
point in number of units in sales?
If the space rental cost were doubled, fixed monthly
expenses of Delgado Food and Services Company would
be as follows:
Elements of Cost
Machine rental: 40 machines @ $ 43.50
Total
$
1,740
The Solution
In that case the break-even point of Delgado Food and
Services Company can be computed as follows:
Unit sales to
break-even
Fixed
expenses
Unit CM
$ 6,152.00
=
$ 0.20
=
30,760
The Solution
If the space rental cost were doubled,
what would be the monthly break-even
in the
dollar
sales?
Inpoint
that case
break-even
point of Delgado Food and
Services Company can be computed as follows:
Dollar sales to
break-even
Fixed
expenses
CM Ratio
$ 6,152.00
=
0.20
= $ 30,760
The Solution
If, in addition to the fixed rent, Delgado Food
Services Company paid the vending machine
manufacturer 2 cent per unit sold, what would
be the monthly break-even point in number of
If,
Delgado
Food
Services
Company
paid the
units
in sales?
Refer
to the original
data.
vending machine manufacturer 2 cent per unit
sold, the new CM would be:
New Unit CM = Sales Variable Expenses
= Sales (Cost of Snacks @ $
0.80
+
Payment
to
Manufacturer @ $ 0.02)
= $ 1 - $ 0.82
The Solution
In that case the new break-even point of
Delgado Food and Services Company can be
computed as follows:
Unit sales to
break-even
Fixed
expenses
Unit CM
$ 5,000.00
=
$ 0.18
=
27,778
The Solution
If, in addition to the fixed rent, Delgado
Food Services Company paid the vending
machine manufacturer 2 cent per unit
sold, what would be the monthly breakpoint
dollarCompany
sales? paid
Refer
the
If,even
Delgado
FoodinServices
the to
vending
original
data.
machine
manufacturer
2 cent per unit sold, the new CM
Ratio would be:
CM
Ratio
Unit CM
= Unit selling
price
$0.18
=
$1
The Solution
In that case the break-even point of Delgado Food and
Services Company can be computed as follows:
Dollar sales to
break-even
Fixed
expenses
Unit CM
$ 5,000.00
=
0.18
= $ 27,778
The Solution
If, in addition to the fixed rent, Delgado paid the
machine manufacturer 4 cent for each unit sold in
excess of the break-even point, what would the new
net income be if 36,000 units were sold? Refer to
If, in addition to the fixed rent, Delgado paid the
the original data.
machine manufacturer 4 cent for each unit sold in
excess of the break-even point, the new variable
expenses would be:
Variable expenses
The Solution
Therefore the new contribution income statement of
Delgado Food and Services Company for selling 36,000
units of soft drinks would be:
Elements of Cost
Sales (36,000 units) @ $ 1.00
Variable expenses (cost of
snack @ $0.80 for 36,000 units
+ Payment to Manufacturer @ $
0.04 for 11,000 units)
CM
Fixed expenses
Net operating income
Total
$ 36,000.00
29,240.00
6,760.00
5,000.00
1,760.00
END