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?