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## Cost-Volume-Profit Analysis

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**Cost-Volume-Profit Analysis**Practice Problems With Solutions**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!**Planned Output**“Cost per Unit” implies variable cost! “capacity” = maximum amount!**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.*** 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)**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!**Problem 9.7 (cont.)**Limiting Factor?