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I need a project done that is very similar to the one you did for this previous customer.

the only thing is I get the assignment at 6pm CST and I only have until 8:30pm CST to complete it. So 2 and a half hours…

90% of the class finishes their test within a hour and it frustrates me lol so if you are an expert this should only take you 30 minutes at most.

The assignment is 30 something questions long.

All Multiple Choice. No major Calculations.

attached are two powerpoints that is the material that will be covered.

Cost-Volume-Profit
Relationships
Chapter 05

PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
McGraw-Hill/Irwin

Learning Objective 1
Explain how changes in
activity affect
contribution margin and
net operating income.

5-2

Basics of Cost-Volume-Profit
Analysis income statement is helpful to managers
The contribution

The contribution income statement is helpful to managers
in judging the impact on profits of changes in selling price,
in judging the impact on profits of changes in selling price,
cost, or volume. The emphasis is on cost behavior.
cost, or volume. The emphasis is on cost behavior.

Contribution Margin (CM) is the amount remaining from
Contribution Margin (CM) is the amount remaining from
sales revenue after variable expenses have been deducted.
sales revenue after variable expenses have been deducted.
5-3

Basics of Cost-Volume-Profit
Analysis

CM is used first to cover fixed expenses. Any
remaining CM contributes to net operating income.
5-4

The Contribution Approach
Sales, variable expenses, and contribution margin can
also be expressed on a per unit basis. If Racing sells
generated to cover fixed expenses and profit.

5-5

The Contribution Approach
Each month, RBC must generate at least
\$80,000 in total contribution margin to break-even
(which is the level of sales at which profit is zero).

5-6

The Contribution Approach
If RBC sells 400 units in a month, it will be
operating at the break-even point.

5-7

The Contribution Approach
If RBC sells one more bike (401 bikes), net
operating income will increase by \$200.

5-8

The Contribution Approach
We do not need to prepare an income statement to
estimate profits at a particular sales volume. Simply
multiply the number of units sold above break-even
by the contribution margin per unit.
If Racing sells
If Racing sells
430 bikes, its net
430 bikes, its net
operating income
operating income
will be \$6,000.
will be \$6,000.

5-9

CVP Relationships in Equation
Form

The contribution format income statement can
be expressed in the following equation:

Profit = (Sales ? Variable expenses) ? Fixed expenses

5-10

CVP Relationships in Equation
Form

This equation can be used to show the profit
RBC earns if it sells 401. Notice, the answer of
\$200 mirrors our earlier solution.

Profit = (Sales ? Variable expenses) ? Fixed expenses
\$80,000
\$80,000

401 units ? \$500
401 units ? \$500
401 units ? \$300
401 units ? \$300

Profit = (\$200,500 ? \$120,300) ? \$80,000
\$200 = (\$200,500 ? \$120,300) ? \$80,000
5-11

CVP Relationships in Equation
Form
When a company has only one product, we can
further refine this equation as shown on this slide.
Profit = (Sales ? Variable expenses) ? Fixed expenses

Profit = (P ? Q ? V ? Q) ? Fixed expenses
5-12

CVP Relationships in Equation
Form

This equation can also be used to show the
\$200 profit RBC earns if it sells 401 bikes.

Profit = (Sales ? Variable expenses) ? Fixed expenses

Profit = (P ? Q ? V ? Q) ? Fixed expenses
Profit = (\$500 ? 401 ? \$300 ? 401) ? \$80,000
Profit = (\$500 ? 401 ? \$300 ? 401) ? \$80,000
\$200 = (\$500 ? 401 ? \$300 ? 401) ? \$80,000
\$200 = (\$500 ? 401 ? \$300 ? 401) ? \$80,000

5-13

CVP Relationships in Equation
Form useful to express the simple profit equation in
It is often
terms of the unit contribution margin (Unit CM) as follows:
Unit CM = Selling price per unit ? Variable expenses per unit
Unit CM = P ? V

Profit = (P ? Q ? V ? Q) ? Fixed expenses
Profit = (P ? V) ? Q ? Fixed expenses
Profit = Unit CM ? Q ? Fixed expenses

5-14

CVP Relationships in Equation
Form

Profit = (P ? Q ? V ? Q) ? Fixed expenses
Profit = (P ? V) ? Q ? Fixed expenses
Profit = Unit CM ? Q ? Fixed expenses

Profit = (\$500 ? \$300) ? 401 ? \$80,000
Profit = \$200 ? 401 ? \$80,000
This equation
Profit = \$80,200 ? \$80,000
can also be used
Profit = \$200
to compute
RBC?s \$200 profit
if it sells 401
bikes.
5-15

Learning Objective 3
Use the contribution
margin ratio (CM ratio) to
compute changes in
contribution margin and
net operating income
resulting from changes
in sales volume.
5-16

Contribution Margin Ratio (CM
Ratio)CM ratio is calculated by dividing the total
The
contribution margin by total sales.

\$100,000 ? \$250,000 = 40%
5-17

Contribution Margin Ratio (CM
Ratio)

The contribution margin ratio at Racing Bicycle is:
CM per unit
=
CM Ratio =
SP per unit

\$200
\$500

= 40%

The CM ratio can also be calculated by
dividing the contribution margin per unit by
the selling price per unit.

5-18

Contribution Margin Ratio (CM
Ratio)
If Racing Bicycle increases sales from 400 to 500 bikes (\$50,000),
contribution margin will increase by \$20,000 (\$50,000 ? 40%).
Here is the proof:

A \$50,000 increase in sales revenue results in a \$20,000
increase in CM (\$50,000 ? 40% = \$20,000).
5-19

Quick Check
Coffee Klatch is an espresso stand in a downtown
office building. The average selling price of a cup of
coffee is \$1.49 and the average variable expense per
cup is \$0.36. The average fixed expense per month is
\$1,300. An average of 2,100 cups are sold each
month. What is the CM Ratio for Coffee Klatch?
a. 1.319
b. 0.758
c. 0.242
d. 4.139

5-20

Quick Check
Coffee Klatch is an espresso stand in a downtown
office building. The average selling price of a cup of
coffee is \$1.49 and the average variable expense per
cup is \$0.36. The average fixed expense per month is
\$1,300. An average of 2,100 cups are sold each
month. What is the CM Ratio for Coffee Klatch?
a. 1.319
Unit contribution margin
CM Ratio =
Unit selling price
b. 0.758
(\$1.49 – \$0.36)
c. 0.242
=
\$1.49
d. 4.139
\$1.13
=
= 0.758
\$1.49
5-21

Contribution Margin Ratio (CM
Ratio)

The relationship between profit and the CM ratio
can be expressed using the following equation:

Profit = (CM ratio ? Sales) ? Fixed expenses
If Racing Bicycle increased its sales volume to 500
bikes, what would management expect profit or net
operating income to be?
Profit = (40% ? \$250,000) ? \$80,000
Profit = \$100,000 ? \$80,000
Profit = \$20,000
5-22

Learning Objective 4
Show the effects on net
operating income of
changes in variable
costs, fixed costs,
selling price, and
volume.

5-23

The Variable Expense Ratio
The variable expense ratio is the ratio of variable
expenses to sales. It can be computed by dividing the total
variable expenses by the total sales, or in a single product
analysis, it can be computed by dividing the variable
expenses per unit by the unit selling price.

5-24

Changes in Fixed Costs and
Sales Volume
What is the profit impact if Racing Bicycle
can increase unit sales from 500 to 540 by
by \$10,000?

5-25

Changes in Fixed Costs and
Sales Volume
\$80,000 + \$10,000 advertising = \$90,000
\$80,000 + \$10,000 advertising = \$90,000

Sales increased by \$20,000, but net operating
Sales increased by \$20,000, but net operating
income decreased by \$2,000..
income decreased by \$2,000
5-26

Changes in Fixed Costs and
Sales Volume
A shortcut solution using incremental analysis

5-27

Change in Variable Costs and
Sales Volume
What is the profit impact if Racing
Bicycle can use higher-quality raw
materials, thus increasing variable costs
per unit by \$10, to generate an increase
in unit sales from 500 to 580?

5-28

Change in Variable Costs and
Sales Volume
580 units ? \$310 variable cost/unit = \$179,800
580 units ? \$310 variable cost/unit = \$179,800

Sales increase by \$40,000 and net operating income
Sales increase by \$40,000 and net operating income
increases by \$10,200..
increases by \$10,200
5-29

Change in Fixed Cost, Sales Price,
and Volume
What is the profit impact if RBC (1) cuts its
selling price \$20 per unit, (2) increases its
advertising budget by \$15,000 per month,
and (3) increases sales from 500 to 650
units per month?

5-30

Change in Fixed Cost, Sales Price,
and Volume
650 units ? \$480 = \$312,000
650 units \$480 = \$312,000

Sales increase by \$62,000, fixed costs increase by
Sales increase by \$62,000, fixed costs increase by
\$15,000, and net operating income increases by \$2,000..
\$15,000, and net operating income increases by \$2,000
5-31

Change in Variable Cost, Fixed
Cost, and Sales Volume

What is the profit impact if RBC (1) pays a
\$15 sales commission per bike sold instead
of paying salespersons flat salaries that
currently total \$6,000 per month, and (2)
increases unit sales from 500 to 575 bikes?

5-32

Change in Variable Cost, Fixed
Cost, and Sales Volume
575 units ? \$315 = \$181,125
575 units ? \$315 = \$181,125

Sales increase by \$37,500, fixed expenses decrease by
Sales increase by \$37,500, fixed expenses decrease by
\$6,000, and net operating income increases by \$12,375.
\$6,000, and net operating income increases by \$12,375.

5-33

Change in Regular Sales Price
If RBC has an opportunity to sell 150
bikes to a wholesaler without disturbing
sales to other customers or fixed
expenses, what price would it quote to
the wholesaler if it wants to increase
monthly profits by \$3,000?

5-34

Change in Regular Sales Price
\$ 3,000 ? 150 bikes
\$ 3,000 ? 150 bikes
Variable cost per bike
Variable cost per bike
Selling price required
Selling price required

=
=
=
=
=
=

\$ 20 per bike
\$ 20 per bike
300 per bike
300 per bike
\$ 320 per bike
\$ 320 per bike

5-35

Learning Objective 5

Determine the level of
sales needed to achieve
a desired target profit.

5-36

Target Profit Analysis
We can compute the number of units
that must be sold to attain a target
profit using either:
(1) Equation method, or
(2) Formula method.

5-37

Equation Method
Profit = Unit CM ? Q ? Fixed expenses
Our goal is to solve for the unknown ?Q? which
represents the quantity of units that must be sold
to attain the target profit.

5-38

Target Profit Analysis
Suppose RBC?s management wants to know how
many bikes must be sold to earn a target profit
of \$100,000.

Profit = Unit CM ? Q ? Fixed expenses
\$100,000 = \$200 ? Q ? \$80,000
\$200 ? Q = \$100,000 ? \$80,000
Q = (\$100,000 + \$80,000) ? \$200
Q = 900
5-39

The Formula Method
The formula uses the following equation.
Unit sales to attain
Target profit + Fixed expenses
=
the target profit
CM per unit

5-40

Target Profit Analysis in Terms of
Unit Sales

Suppose Racing Bicycle Company wants to
know how many bikes must be sold to earn
a profit of \$100,000.
Unit sales to attain
Target profit + Fixed expenses
=
the target profit
CM per unit

\$100,000 + \$80,000
Unit sales =
\$200
Unit sales = 900
5-41

Target Profit Analysis
We can also compute the target profit in terms of
sales dollars using either the equation method or
the formula method.

Equation
Method
Method

OR

Formula
Method
Method

5-42

Equation Method
Profit = CM ratio ? Sales ? Fixed expenses
Our goal is to solve for the unknown
?Sales,? which represents the dollar
amount of sales that must be sold to
attain the target profit.
Suppose RBC management wants to know the
sales volume that must be generated to earn a
target profit of \$100,000.
\$100,000 = 40% ? Sales ? \$80,000
40% ? Sales = \$100,000 + \$80,000
Sales = (\$100,000 + \$80,000) ? 40%
Sales = \$450,000
5-43

Formula Method

We can calculate the dollar sales needed to
attain a target profit (net operating profit) of
\$100,000 at Racing Bicycle.

Dollar sales to attain
Target profit + Fixed expenses
=
the target profit
CM ratio

\$100,000 + \$80,000
Dollar sales =
40%
Dollar sales = \$450,000
5-44

Quick Check
Coffee Klatch is an espresso stand in a downtown office
building. The average selling price of a cup of coffee is
\$1.49 and the average variable expense per cup is
\$0.36. The average fixed expense per month is \$1,300.
Use the formula method to determine how many cups of
coffee would have to be sold to attain target profits of
\$2,500 per month.
a. 3,363 cups
b. 2,212 cups
c. 1,150 cups
d. 4,200 cups
5-45

Quick Check
Coffee Klatch is an espresso stand in a downtown office
building. The average selling price of a cup of coffee is
\$1.49 and the average variable expense per cup is
\$0.36. The Unit sales
average fixed expense per + Fixedis \$1,300.
Target profit month expenses
to attain =
Use the formula method to determineUnit CM
how many cups of
target profit
coffee would have to be sold to attain target profits of
\$2,500 + \$1,300
\$2,500 per month.
= \$1.49 – \$0.36
a. 3,363 cups
b. 2,212 cups
\$3,800
=
\$1.13
c. 1,150 cups
d. 4,200 cups
= 3,363 cups
5-46

Quick Check
Coffee Klatch is an espresso stand in a downtown office
building. The average selling price of a cup of coffee is
\$1.49 and the average variable expense per cup is
\$0.36. The average fixed expense per month is \$1,300.
Use the formula method to determine the sales dollars
that must be generated to attain target profits of \$2,500
per month.
a. \$2,550
b. \$5,013
c. \$8,458
d. \$10,555
5-47

Quick Check
Coffee Klatch is an espresso stand in a downtown office
building. The average selling price of a cup of coffee is
\$1.49 and the average variable expense per cup is
\$0.36. The average fixed expense per month is \$1,300.
Use the formula method to determine the sales dollars
Sales \$
Target profit of \$2,500
that must be generated to attain target profits + Fixed
to attain =
expenses
per month.
target profit
CM ratio
a. \$2,550
\$2,500 + \$1,300
=
(\$1.49 ? 0.36) ? \$1.49
b. \$5,013
\$3,800
c. \$8,458
=
0.758
d. \$10,555
= \$5,013
5-48

Learning Objective 6

Determine the breakeven point.

5-49

Break-Even Analysis
The equation and formula methods can be used to
determine the unit sales and dollar sales needed to
achieve a target profit of zero. Let?s use the RBC
information to complete the break-even analysis.

5-50

Break-Even in Unit Sales:
Equation Method
Profits = Unit CM ? Q ? Fixed expenses
Suppose RBC wants to know how many
bikes must be sold to break-even
(earn a target profit of \$0).

\$0 = \$200 ? Q + \$80,000
Profits are zero at the break-even point.
5-51

Break-Even in Unit Sales:
Equation Method
Profits = Unit CM ? Q ? Fixed expenses
\$0 = \$200 ? Q + \$80,000
\$200 ? Q = \$80,000
Q = 400 bikes

5-52

Break-Even in Unit Sales:
Formula Method

Let?s apply the formula method to solve for
the break-even point.
Unit sales to
=
break even

Fixed expenses
CM per unit

\$80,000
Unit sales =
\$200
Unit sales = 400
5-53

Break-Even in Dollar Sales:
Equation Method
Suppose Racing Bicycle wants to compute
the sales dollars required to break-even (earn
a target profit of \$0). Let?s use the equation
method to solve this problem.

Profit = CM ratio ? Sales ? Fixed expenses
Solve for the unknown ?Sales.?
5-54

Break-Even in Dollar Sales:
Equation Method
Profit = CM ratio ? Sales ? Fixed expenses
\$ 0 = 40% ? Sales ? \$80,000
40% ? Sales = \$80,000
Sales = \$80,000 ? 40%
Sales = \$200,000
5-55

Break-Even in Dollar Sales:
Formula Method
Now, let?s use the formula method to calculate the
dollar sales at the break-even point.
Dollar sales to
Fixed expenses
=
break even
CM ratio

\$80,000
Dollar sales =
40%
Dollar sales = \$200,000
5-56

Quick Check
Coffee Klatch is an espresso stand in a downtown
office building. The average selling price of a cup of
coffee is \$1.49 and the average variable expense per
cup is \$0.36. The average fixed expense per month is
\$1,300. An average of 2,100 cups are sold each
month. What is the break-even sales dollars?
a. \$1,300
b. \$1,715
c. \$1,788
d. \$3,129

5-57

Quick Check
Coffee Klatch is an espresso stand in a downtown
office building. The average selling price of a cup of
coffee is \$1.49 and the average variable expense per
cup is \$0.36. The average fixed expense per month is
\$1,300. An average of 2,100 cups are sold each
month. What is the break-even sales dollars?
a. \$1,300
Fixed expenses
Break-even
=
b. \$1,715
CM Ratio
sales
\$1,300
c. \$1,788
=
0.758
d. \$3,129
= \$1,715
5-58

Quick Check
Coffee Klatch is an espresso stand in a downtown
office building. The average selling price of a cup of
coffee is \$1.49 and the average variable expense per
cup is \$0.36. The average fixed expense per month is
\$1,300. An average of 2,100 cups are sold each
month. What is the break-even sales in units?
a. 872 cups
b. 3,611 cups
c. 1,200 cups
d. 1,150 cups

5-59

Quick Check
Coffee Klatch is an espresso stand in a downtown
office building. The average selling price of a cup of
coffee is \$1.49 and the average variable expense per
cup is \$0.36. The average fixed expense per month is
\$1,300. An averageBreak-even = are sold each
of 2,100 cups Fixed expenses
CM per
month. What is the break-even sales in units?Unit
\$1,300
a. 872 cups
=
\$1.49/cup – \$0.36/cup
b. 3,611 cups
\$1,300
c. 1,200 cups
=
\$1.13/cup
d. 1,150 cups
= 1,150 cups
5-60

End of Chapter 05

5-61