Problem 4. CVP Analysis (40%, 20% each part) Part 1. Blue Mountain produces snowboards. The prices charged affects the quantity sold. The following equation captures the relation between price and quantity each month (i.e., the demand curve) in the $200-$400 range of pricing: Quantity Sold = 2,650 (5 x Sales Price) In other words, if the price is set at $300, projected sales are 1,150 boards per month (2,650 (5 x 300)). Fixed costs of producing the boards are $70,000 per month and the variable costs per board are $90. REQUIRED: a. On your Excel file, prepare a table with sales prices ranging between $200 and $400 per board, in increments of $10, that calculates the unit sales, total revenue, total costs, and profits for each price-quantity in the range. Based on your table results, what is the profit-maximizing Sales Price Quantity combination? b. If fixed costs increase from $70,000 to $90,000 a month, should Blue Mountain change its pricing decision? c. Using the original information from (a), if variable costs fall from $90 to $75 per unit, should Blue Mountain change its pricing decision? d. If both (b) and (c) occur, i.e., fixed costs increase from $70,000 to $90,000 a month AND variable costs fall from $90 to $75 per unit, should Blue Mountain change its pricing decision? e. Consider your responses to (b) and (d) above, what can you say about the impact of fixed costs on the Sales Price Quantity decision?

1 Blue Mountain Snowboards 2 3 4 DEMAND FUNCTION: Quantity Sold = 2,650 - (5 x Sales Price) 5 6 Dr. Bob's suggestion - while you can set up this problem in a number of ways, you may find that a Data Table will be the most efficient. 7 300 Sales Price / unit Variable Cost / unit $ $ 8 90 9 10 Total Fixed Costs $ 70,000 11 12 Contribution Margin Income Statement @ $300 SP 13 14 15 Quantity (use the demand function) 16 17 18 19 20 21 Total Revenues Variable Costs Contribution Mgn Fixed Costs Operating Profit