Preparing Cost-Volume-Profit and Profit- Volume Graphs (LO3)

Hometown Dog Company is a hot dog concession business operating at five baseball stadiums. It sells hot dogs, with all the fixings, for $5.00 each. Variable costs are $3.50 per hot dog, and fixed operating costs are $750,000 per year.

Required

a. Determine the annual break-even point in hot dogs.

b. Prepare a cost-volume-profit graph for the company. Use a format that emphasizes the contribution margin. The vertical axis should vary between $0 and $5,000,000 in increments of $1,000,000. The horizontal axis should vary between 0 hot dogs and 1,000,000 hot dogs, in increments of 250,000 hot dogs. Label the graph in thousands.

c. Prepare a profit-volume graph for the company. The vertical axis should vary between $(750,000)

and $750,000 in increments of $150,000. The horizontal axis should vary as described in requirement (b). Label the graph in thousands.

d. Evaluate the profit-volume graph. In what ways is it superior and in what ways is it inferior to the traditional cost-volume-profit graph? (p. 79)