Part 3 Cost-Volume-Profit Analysis

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) If ABC only sells double scoop cones, and sells them for $4.25 per cone, what is the break-even point in units?

(2) If ABC only sells single scoop cones, and charges $3.50 per cone, how many ice cream cones would Emerald Street have to sell to make a profit of $3,000 per month?

(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?

(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?

(5) Discuss the limitations of CVP analysis.