O Services Agreement eam more B14 B A Question 3: CVP Analysis (12 marks) C D 2 Scarlett Jackson operates a puppy spa in Edmonton, mostly offering groomings. She estimates the following revenue and costs during the year: 3 Item 4 Annually Per Grooming (unit) 5 Unit Sales Price S 70.00 $12,000 $15,000 $ 8.00 $50,000 6 7 Advertising 8 Depreciation on the building and equipment 9 Miscellaneous operating costs (per unit) 10 Office manager's Annual Salary 11 Spa Technician's Commissions (per unit) 12 Spa Technicians' Annual Salaries 13 Spa Supplies (per unit) 14 Total (no marks allocated for yellow area) 15 16 Required: $ 9.00 $73,000 $ 3.00 a) How much is the contribution margin per grooming (unit)? (1 mark) 17 b) Using your answer to part a, explain what the contribution margin per grooming (unit) means. Make sure you are using language that Scarlett, a non-accountant, can understand. (1 mark) 18 19 Cover Sheet Q1 Q2 03 04 05 06 Formulas + 314 3.00 A 13 Spa Supplies (per unit) 14 Totating mallocated for yellow area) 16 Required a) How much is the contribution margin per grooming (unit)? (1 mark) b) Using your answer to part a, explain what the contribution margin per grooming (unit) means. Make sure you are using language that Scarlett, a non-accountant, can understand. (1 mark) c) How many groomings (units) must be sold in order to earn operating income of $100,000 (2 marks) Desired Operating Income $ 100,000 d) What will happen to income if they sell less units than calculated in part c? (1 mark) Cover Sheet Q1 Q2 Q3 Q4 05 Q6 Formulas + ulation Mode Automatic Workbook Statistics 14 ID 27 e) Assume a break-even point in units of 3,000 groomings (units) and the spa currently sells 2,800 groomings (units). What does this mean for the income of the spa? (1 mark) 28 29 30 f) Scarlett is considering increasing the average sales price of a grooming to $80. What is the break-even point in units (groomings sold)? The variable cost per unit and total fixed costs will not change. (2 marks) 31 32 New Selling Price $ 80 33 g) Considering the information in part e) and your answer in part f), should Scarlett implement the new sales price for groomings? (Yes or No) (1 mark) 34 35 h) Explain difference between Revenues, Contribution Margin, and Operating Income to Scarlett. (3 36 marks) = e Cover Sheet 01 02 03 04 05 06 Formulas + Calculation Mode, Automatic Workbook Statistics