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Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher
Edition 3ISBN: 0073527114Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher
Edition 3ISBN: 0073527114Basic Decision Analysis Using CVP
Refer to the data for Cambridge, Inc., in Exercise 3-24. Assume that the projected number of units sold for the year is 7,000. Consider requirements (b), (c), and (d) independently of each other.
Required
a. What will the operating profit be?
b. What is the impact on operating profit if the sales price decreases by 10 percent? Increases by 20 percent?
c. What is the impact on operating profit if variable costs per unit decrease by 10 percent? Increase by 20 percent?
d. Suppose that fixed costs for the year are 10 percent lower than projected, and variable costs per unit are 10 percent higher than projected. What impact will these cost changes have on operating profit for the year? Will profit go up? Down? By how much?
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a.
Calculate operating profit
Operating profit is the profit that a company earns after meeting its variable and fixed costs.
The number of units sold by the company is 7,000 units for the year. Sales price is $18 per unit and variable cost is $10 per unit. Fixed costs are given as $20,000.
Calculate the operating profit using the above data, as below:
| C Inc Income Statement | |
| Particulars | Amount |
| Sales Revenue (7,000 units × $18 per unit) | $126,000 |
| Less: Variable costs (7,000 units × $10 per unit) | $70,000 |
| Contribution margin | $56,000 |
| Less: Fixed costs | $20,000 |
| Operating profit | $36,000 |
The company earns an operating profit of 
if the projected number of units sold is 7,000 units.
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