Problem 3 - CVP Analysis and Decision Making

Ballpark Concessions currently sells hot dogs. During a typical month, the stand reports a profit of $9,000 with sales of $50,000, fixed costs of $21,000, and variable costs of $0.64 per hot dog.

Next year, the company plans to start selling nachos for $3 per unit.Nachos will have a variable cost of $0.72 and new equipment and personnel to produce nachos will increase monthly fixed costs by $8,808. Initial sales of nachos should total 5,000 units. Most of the nacho sales are anticipated to come from current hot dog purchasers, therefore, monthly sales of hot dogs are expected to decline to $20,000.

After the first year of nacho sales, the company president believes that hot dog sales will increase to $33,750 a month and nacho sales will increase to 7,500 units a month.

Required:

a. Determine the monthly breakeven sales in dollars before adding nachos.

b. Determine the monthly breakeven sales during the first year of nachos sales, assuming a constant sales mix of 1 hotdog and 2 units of nachos.

Problem 9: Relevant Costing Analysis

Taylor Boat Yard produces and sells a line of small boats for recreational use.Three products are currently offered: Cruiser, Boater, and Canoe Star. Production is a machine-intensive process, with the parts for each boat being manufactured on a series of machines run by highly skilled operators.Annual capacity is 60,000 machine hours, which is limited by the availability of machines. It takes 3 machine hours to make each unit of "Cruiser", 2.5 hours to make each unit of "Boater", and one hour to make each unit of "Canoe Star".

Analysis reveals the following expected sales price and cost for each product:

Cruiser Boater Canoe Star

Selling price $3,000 $2,100 $800

Variable manufacturing cost 1,500 1,125 350

Variable marketing cost 10% of 5% of 5% of

selling price selling price selling price

Total fixed costs are $8,750,000 if the company is operating within the capacity of 60,000 machine hours. The company has a policy of devoting no more than 50% of its available machine capacity to any one product and at least 20% to every product.

Required:

To maximize the company's operating income, how many units of each product should be produced? What is the total operating income for your selection?