Paschal’s Parasailing Enterprises has estimated that fixed costs per month are $115,600 and variable cost per dollar of sales is $0.38

Paschal’s Parasailing Enterprises has estimated that fixed costs per month are $115,600 and variable cost per dollar of sales is $0.38.

(a) What is the break-even point per month in sales?
(b) What level of sales is needed for a monthly profit of $67,000?
(c) For the month of August, Paschal’s anticipates sales of $585,000. What is the expected level of profit?

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ACC 561 Question 2-61, CVP in a Modern Manufacturing Company

ACC 561
4. Individual Assignment: Practice Text Exercises

• Complete the following problem sets from the Introduction to Management Accounting text:
Question 2-61, CVP in a Modern Manufacturing Company, on p. 87

A division of Hewlett-Packard Company changed its production operations from one where a large labor force assembled electronic components to an automated production facility dominated by computer-controlled robots. The change was necessary because of fierce competitive pressures. Improvements in quality, reliability, and flexibility of production schedules were necessary just to match competition. As a result of the change, variable costs fell and fixed costs increased, as shown in the following assumed budgets:

Old Production Operation Old Production Operation
Unit variable cost
Material $0.88 $0.88
Labor $1.22 0.22
Total per unit $2.10 $1.10
Monthly fixed costs
Rent and depreciation 450,000.00 $875,000.00
Supervisory labor 80,000.00 175,000.00
Other 50,000.00 90,000.00
Total per month $580,000.00 $1,140,000.00

Expected volume is 600,000 units per month, with each unit selling for $3.10 Capacity is 800,000 units.

1. Compute the budgeted profit as the expected volume of 600,000 units under both the old and the new production environments.
2. Compute the budgeted break-even point under both the old and the new production environments.
3 .Discuss the effect on profits if volume falls to 500,000 units under both the old and the new production environments.
4 .Discuss the effect on profits if volume increases to 700,000 units under both the old and the new production environments.
5 .Comment on the riskiness of the new operation versus the old operation.
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ACC 561 Question 2-48 CVP and Financial Statements for a Mega-Brand Company

ACC 561
Axia College of University of Phoenix (UoP)
Introduction to Management Accounting
Horngren, C. T., Sundem, G. L., Stratton, W. O., Burgstahler, D., & Schatzberg, J. (2008). Introduction to Management Accounting (14th ed.). Upper Saddle River, New Jersey: Pearson-Prentice Hall.

4. Individual Assignment: Practice Text Exercises
• Complete the following problem sets from the Introduction to Management Accounting text:
Question 2-48, CVP and Financial Statements for a Mega-Brand Company, on p. 82


Question 2-48 CVP and Financial Statements for a Mega-Brand Company, on p. 82
Procter & Gamble Company is a Cincinnati-based company that produces household products under brand names such as Gillette, Bounty, Crest, Folgers, and Tide. The company’s 2006 income statement showed the following (in millions):
Net sales $68,222
Costs of products sold 33,125
Selling, general, and administrative expense 21,848
Operating income $13,249
Suppose that the cost of products sold is the only variable cost; selling, general, and administrative expenses are fixed with respect to sales.
Assume that Procter & Gamble had a 10% increase in sales in 2007 and that there was no change in costs except for increases associated with the higher volume of sales. Compute the predicted 2007 operating income for Procter & Gamble and its percentage increase. Explain why the percentage increase in income differs from the percentage increase in sales.

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