@ 2012, Cengage Learning Cost Behavior and Cost-Volume-Profit Analysis LO 3b – Analyzing the Effects of Changes on the Cost-Volume-Profit Relationship.

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@ 2012, Cengage Learning Cost Behavior and Cost-Volume-Profit Analysis LO 3b – Analyzing the Effects of Changes on the Cost-Volume-Profit Relationship

Effect of Changes in Fixed Costs Bishop Co. is evaluating a proposal to budget an additional $100,000 for advertising. The data for Bishop Co. are as follows: LO 3

Effect of Changes in Fixed Costs LO 3 Break-Even Sales (units) = Fixed Costs Unit Contribution Margin Without additional advertising: Break-Even Sales (units) = $600,000 $20 = 30,000 units With additional advertising: Break-Even Sales (units) = $700,000 $20 = 35,000 units

Unit Variable Cost If Break- Even Break- Even then Unit Variable Costs Unit Variable Costs If then Break- Even Break- Even Effect of Changes in Unit Variable Costs LO 3

Effect of Changes in Unit Variable Costs LO 3 Park Co. is evaluating a proposal to pay an additional 2% commission on sales to its salespeople (a variable cost) as an incentive to increase sales. Fixed costs are estimated at $840,000. The other data for Park Co. are as follows:

Effect of Changes in Unit Variable Costs LO 3 $250 – [$145 + ($250 x 2%)] = $100 Without additional 2% commission: Break-Even Sales (units) = $840,000 $105 = 8,000 units Break-Even Sales (units) = Fixed Costs Unit Contribution Margin With additional 2% commission: Break-Even Sales (units) = $840,000 $100 = 8,400 units

Effect of Changes in Unit Selling Price Unit Selling Price If Unit Selling Price Unit Selling Price If Break- Even Break- Even then Break- Even Break- Even LO 3

Effect of Changes in Unit Selling Price LO 3 Graham Co. is evaluating a proposal to increase the unit selling price of a product from $50 to $60. The estimated fixed costs are $600,000. The following additional data have been gathered:

Effect of Changes in Unit Selling Price LO 3 Break-Even Sales (units) = Fixed Costs Unit Contribution Margin Without price increase: Break-Even Sales (units) = $600,000 $20 = 30,000 units With price increase: Break-Even Sales (units) = $600,000 $30 = 20,000 units

Summary of Effects of Changes on B/E Point LO 3

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