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Math Help - cost volume profit and break even

  1. #1
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    cost volume profit and break even




    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?
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  2. #2
    Junior Member
    Joined
    Jan 2010
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    Quote Originally Posted by diehardmath4 View Post



    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
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