Cost-Volume-Profit Analysis - PowerPoint PPT Presentation

Cost-Volume-Profit Analysis

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Cost-Volume-Profit Analysis

Cost-Volume-Profit Analysis

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1. Cost-Volume-Profit Analysis Practice Problems With Solutions

2. 9.4 Solution

3. Another way to answer this question is to note that the contribution of this product = TR – Variable Cost (only) = \$100 - \$60 = \$40, is positive. This is also the difference between Fixed Costs (\$50) and operating loss (\$10) Question: Why would a business operate at a loss? Answer: Because if they don’t sell anything, they will lose their fixed costs of \$50, which is more than their operating loss of \$10!

4. Planned Output “Cost per Unit” implies variable cost! “capacity” = maximum amount!

5. Solution Procedure

6. Problem 9.5 Solution (cont.)

7. This implies that it takes skilled labor 6/12 = ½ hour to make product X. Equivalently, skilled labor can make 2 product X’s per hour.

8. * It only takes ½ hour for skilled labor to make one product X! Contribution per one unit of X 1/Units of X per hour Regular Salary + Overtime (OT)

9. Make or Buy Question * Note that it is cheaper to make products C and D than to buy them…… … but there may be limiting factors!

10. Problem 9.7 (cont.) Limiting Factor?