Bhimani, Horngren,
Datar and Rajan,
Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012
5 USP
= €0.50
UVC = €0.30
UCM = €0.20
FC
=
€990,000 a year
Output = 5,000,000 units
FC
€990,000
Breakeven
=
USM
0.20
=
Q= 4,950,000 pens
6 USP
= €0.55
UVC = €0.30
UCM = €0.25
FC
=
€920,000 a year
Output = 5,000,000 units
FC
€920,000
Breakeven
=
USM
0.25
=
Q= 3,680,000 pens
8.15 CVP, changing cost inputs. (5–10 min)
1Variable Fixed
Target
Revenues
=
costs
costs operating income Let Q = number of units to yield target operating income. For target operating income of €0:
€15
Q − €6
Q − €450
= €0
€9
Q = €450
Q = 50 units
2 €15
Q − €
5Q − €450
= €0
€10
Q = €450
Q = 45 units
Bhimani, Horngren, Datar and Rajan,
Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012
8.16 CVP, international cost structure differences. (10 min)
1 Annual fixed costs (€) Selling price (€) Variable manuf. costs per sweater (€) Variable mark/dist. costs per sweater (€) Unit contrib. margin (€)
Breakeven point in units Cyprus
6,500,000 32 8.00 11.00 13 500,000 Turkey
4,500,000 32 5.50 11.50 15 300,000
Ireland 12,000,000 32 13.00 9.00 10 1,200,000 a) Breakeven point in units sold (b) Breakeven point in revenues (€) Cyprus
500,000 16,000,000 Turkey
300,000 9,600,000 Ireland 1,200,000 38,400,000
2 Revenues
(€) Variable costs (€) Fixed costs (€) Operating income (€) Cyprus 25,600,000 15,200,000 6,500,000 3,900,000 Turkey 25,600,000 13,600,000 4,500,000 7,500,000 Ireland 25,600,000 17,600,000 12,000,000
−4,000,000 Turkey has the lowest breakeven point – it has both the lowest fixed costs (€4,500,000) and the lowest variable cost per unit (€17.00). Hence,
fora given selling price, Turkey will always have a higher operating income (or a lower operating loss) than Cyprus or Ireland. The Ireland breakeven point is 1,200,000 units. Hence, with sales of 800,000 units, it has an operating loss of €4,000,000.
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