Part 3 Cost-Volume-Profit Analysis (15 marks)

The ABC Ice Cream Shop sells ice cream cones.

The store's cost structure is as follows:

• Fixed costs per month are $2,000.
• Variable costs are $1.50 for a single scoop cone and $1.75 for a double scoop cone.
• Required:

1. (1)If ABC only sells double scoop cones, and sells them for $4.25 per cone, what is the break-even point in units? (2 marks)
2. (2)IfABConlysellssinglescoopcones,andcharges$3.50percone,howmanyicecreamconeswould Emerald Street have to sell to make a profit of $3,000 per month? (3 marks)
3. (3)Assume that ABC wants to sell only double scoop cones, and believes it can sell 8,000 cones per month at $4.25 per cone. What would the variable cost per cone have to be for ABC to make a profit of $8,000 per month? (3 marks)
4. (4)Ignore Part (C) and refer to the original information. If ABC only sells single scoop cones, and sells 5,000 cones per month for $3.50 per cone, what is the margin of safety? (2 marks)
5. (5)Discuss the limitations of CVP analysis. (5 marks)