cost volume profit and break even

• Feb 15th 2010, 07:56 PM
diehardmath4
cost volume profit and break even
http://img202.imageshack.us/img202/5497/bep2.jpg

a) Sales = T R = 1,200,000 VC = TVC / TR = 50%
FC = 400,000
TVC = 600,000

N.I. ( S – VC ) x – FC > N.I.= ( 1 – 0.5 )x – 400,000

0 = 0.5x – 400,000

i'm stuck on part D.
400,000 = 0.5x

X = 800,000

Break Even would have occurred at 800,000

b) Present > N.I. = TR – TC or TR – VC – FC

N.I. = 1,200,000 – 600,000 – 400,000

N.I. = 200,000

200,000 = ( 1 – 0.50)x – 400,000

200,000 = 0.50x – 400,000

600,000 = 0.50x

X = 1,200,000

Next year, the Number of units increases by 15%

1,200,000 * 1.15 = 1,380,000

N.I. = (1-0.50) 1,380,000 – 400,000

N.I. = 290,000

Net Income = 290,000 – 200,000

Net Income = 90,000

If sales increased by 15% next year the net income will increase by $90,000 a) New Fixed Cost * 90% = 400,000 * 0.90 = 360,000 N.I. ( S- VC )x – FC = (1 -0.50)* 1,200,000 – 360,000 = 600,000 – 360,000 Net Income = 240,000 240,000 – 200,000 = 40,000 The Net Income increases by 40,000 b) IF variable costs are 10% higher in the year ahead (but sales and fixed costs remain the same as last year), how much (in$) will the net income decrease?
• Feb 17th 2010, 10:00 PM
jass10816
Quote:

Originally Posted by diehardmath4
http://img202.imageshack.us/img202/5497/bep2.jpg

a) Sales = T R = 1,200,000 VC = TVC / TR = 50%
FC = 400,000
TVC = 600,000

N.I. ( S – VC ) x – FC > N.I.= ( 1 – 0.5 )x – 400,000

0 = 0.5x – 400,000

i'm stuck on part D.
400,000 = 0.5x

X = 800,000

Break Even would have occurred at 800,000

b) Present > N.I. = TR – TC or TR – VC – FC

N.I. = 1,200,000 – 600,000 – 400,000

N.I. = 200,000

200,000 = ( 1 – 0.50)x – 400,000

200,000 = 0.50x – 400,000

600,000 = 0.50x

X = 1,200,000

Next year, the Number of units increases by 15%

1,200,000 * 1.15 = 1,380,000

N.I. = (1-0.50) 1,380,000 – 400,000

N.I. = 290,000

Net Income = 290,000 – 200,000

Net Income = 90,000

If sales increased by 15% next year the net income will increase by $90,000 a) New Fixed Cost * 90% = 400,000 * 0.90 = 360,000 N.I. ( S- VC )x – FC = (1 -0.50)* 1,200,000 – 360,000 = 600,000 – 360,000 Net Income = 240,000 240,000 – 200,000 = 40,000 The Net Income increases by 40,000 b) IF variable costs are 10% higher in the year ahead (but sales and fixed costs remain the same as last year), how much (in$) will the net income decrease?

Your work is very hard to follow. I am not even sure where your question is.

For part a, you'll notice that variable costs are half of sales or \$0.50 on the dollar. So, break even is $\frac{400000}{.5}=800000$

For part b, sales would increase by $1200000*.15=180000$ Half of this is lost to variable costs, so net income increase by 90000

For part c, fixed costs decrease by 10% and income will increase by the amount of this decrease because no other changes have occurred. Thus income increases $.1*400000=40000$

For part d, Instead of being 50% of sales they will increase to $50*(1+.1)=55$ and income will decrease by the amount of their increase. Thus income will decrease by 5% or $1200000*.05=60000$. Alternatively, income decreases by 10% of variable costs $600000*.1=60000$