Question
1. Multiple-Level Break-Even Analysis Nielsen Associates provides marketing services for a number of small manufacturing firms. Nielsen receives a commission of 10 percent of sales.
1. Multiple-Level Break-Even Analysis Nielsen Associates provides marketing services for a number of small manufacturing firms. Nielsen receives a commission of 10 percent of sales. Operating costs are as follows:
Unit-level costs | $0.02 per sales dollar |
Sales-level costs | $200 per sales order |
Customer-level costs | $800 per customer per year |
Facility-level costs | $60,000 per year |
(a) Determine the minimum order size in sales dollars for Nielsen to break even on an order. $
Answer
(b) Assuming an average customer places five orders per year, determine the minimum annual sales required to break even on a customer.
$
Answer
(c) What is the average order size in (b)?
$
Answer
(d) Assuming Nielsen currently serves 100 customers, with each placing an average of five orders per year, determine the minimum annual sales required to break even.
$
Answer
(e) What is the average order size in (d)?
$
Answer
2.
Profitability Analysis Assume a local Cost Cutters provides cuts, perms, and hairstyling services. Annual fixed costs are $120,000, and variable costs are 40 percent of sales revenue. Last year's revenues totaled $250,000. (a) Determine its break-even point in sales dollars. $Answer
(b) Determine last year's margin of safety in sales dollars.
$
Answer
(c) Determine the sales volume required for an annual profit of $80,000.
Round your answer to the nearest dollar. $
Answer
3.
CVP Analysis and Special Decisions Sweet Grove Citrus Company buys a variety of citrus fruit from growers and then processes the fruit into a product line of fresh fruit, juices, and fruit flavorings. The most recent year's sales revenue was $4,200,000. Variable costs were 60 percent of sales and fixed costs totaled $1,300,000. Sweet Grove is evaluating two alternatives designed to enhance profitability.
- One staff member has proposed that Sweet Grove purchase more automated processing equipment. This strategy would increase fixed costs by $300,000 but decrease variable costs to 54 percent of sales.
- Another staff member has suggested that Sweet Grove rely more on outsourcing for fruit processing. This would reduce fixed costs by $300,000 but increase variable costs to 65 percent of sales.
Round your answers to the nearest whole number.
(a) What is the current break-even point in sales dollars? $
(b) Assuming an income tax rate of 34 percent, what dollar sales volume is currently required to obtain an after-tax profit of $500,000?
$
Answer(c) In the absence of income taxes, at what sales volume will both alternatives (automation and outsourcing) provide the same profit?
$
Answer
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