Exam 19: Cost-Volume-Profit Analysis

Juan Martinez played classical guitar professionally until his motorcycle accident left him disabled. After long months of therapy, he hired an experienced luthier (maker of stringed instruments) and opened a small shop that makes and sells Spanish guitars. The guitars sell for $600, and the fixed monthly operating costs are as follows: Rent and utilities \ 960 Wages and benefits of luthier \ 1,500 Other \ 900 -Juan got confused when his accountant told him about contribution margin ratios, but he understood clearly that for every dollar of sales, $0.70 went to cover his fixed costs, and that anything past that point was pure profit. Juan wishes to make $2,500 of operating profit each month. If so, how much sales revenue will Juan have to make?

McDaniel, Inc. sells two products-J and B. McDaniel predicts that it will sell 7,200 units of J and 5,600 units of B in the next period. The unit contribution margins are $2.85 and $6.30, respectively. What is the weighted-average unit contribution margin?

Taizhong Semiconductor Company mass produces several common computer chips. Type A sells for $1.20 per unit. Variable cost is $0.95 per unit and the fixed costs are $32,000 per month. Taizhong currently sells 140,000 units per month. Under intense pressure to boost profits, the production manager has a plan which will reduce fixed costs by 10%. How will this affect the breakeven point in terms of sales revenue?