The ABC Ice Cream Shop sells ice cream cones.

The stores cost structure is as follows:

Fixed costs per month are $5,000.

Variable costs are $3.50 for a single scoop cone and $4.5 for a double scoop cone.

Required:

(1) If ABC only sells double scoop cones, and sells them for $6.50 per cone, what is the break-even point in units? (2 marks)

(2) If ABC only sells single scoop cones, and charges $5.50 per cone, how many ice cream cones would ABC have to sell to make a profit of $3,000 per month? (3 marks)

(3) Assume that ABC wants to sell only double scoop cones, and believes it can sell 5,000 cones per month at $6 per cone. What would the variable cost per cone have to be for ABC to make a profit of $13,000 per month? (3 marks)

(4) Ignore Question (2) and refer to the original information. If ABC only sells single scoop cones, and sells 7,000 cones per month for $6 per cone, what is the margin of safety? (2 marks)

(5) Discuss the limitations of CVP analysis. (5 marks)