1. Naylor Company had $210,000 of net income in 2016 when the selling price per

unit was $150, the variable costs per unit were $90, and the fi xed costs were $570,000.

Management expects per unit data and total fi xed costs to remain the same in 2017. The

president of Naylor Company is under pressure from stockholders to increase net income

by $52,000 in 2017.

Instructions

(a) Compute the number of units sold in 2016.

(b) Compute the number of units that would have to be sold in 2017 to reach the stockholders'

desired profi t level.

(c) Assume that Naylor Company sells the same number of units in 2017 as it did in 2016.

What would the selling price have to be in order to reach the stockholders' desired

profi t level?

2.Mary Willis is the advertising manager for Bargain Shoe Store. She is currently

working on a major promotional campaign. Her ideas include the installation of a new

lighting system and increased display space that will add $24,000 in fi xed costs to the

$270,000 currently spent. In addition, Mary is proposing that a 5% price decrease ($40 to

$38) will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain

at $24 per pair of shoes. Management is impressed with Mary's ideas but concerned

about the effects that these changes will have on the break-even point and the margin of

safety.

Instructions

(a) Compute the current break-even point in units, and compare it to the break-even

point in units if Mary's ideas are used.

(b) Compute the margin of safety ratio for current operations and after Mary's changes

are introduced. (Round to nearest full percent.)

(c) Prepare CVP income statement for current operations and after Mary's changes

are introduced. (Show column for total amounts only.) Would you make the changes

suggested?

Current margin of safety ratio 16%

3.Cost-volume-profi t analysis can also be used in making personal fi nancial decisions.

For example, the purchase of a new car is one of your biggest personal expenditures.

It is important that you carefully analyze your options.

Suppose that you are considering the purchase of a hybrid vehicle. Let's assume the

following facts. The hybrid will initially cost an additional $4,500 above the cost of a traditional

vehicle. The hybrid will get 40 miles per gallon of gas, and the traditional car will

get 30 miles per gallon. Also, assume that the cost of gas is $3.60 per gallon.

Instructions

Using the facts above, answer the following questions.

(a) What is the variable gasoline cost of going one mile in the hybrid car? What is the variable

cost of going one mile in the traditional car?

(b) Using the information in part (a), if "miles" is your unit of measure, what is the "contribution

margin" of the hybrid vehicle relative to the traditional vehicle? That is,

express the variable cost savings on a per-mile basis.

(c) How many miles would you have to drive in order to break even on your investment in

the hybrid car?

(d) What other factors might you want to consider?