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Impact on breakeven point if sale price, variable costs, and fixed costs Change
Dependable Drivers Driving School charges $250 per student to prepare and administer written and driving tests. Variable costs of $100 per student include trainers' wages, study materials, and gasoline. Annual fixed costs of $75,000 include the training facility and fleet of cars.
I. For each of the following independent situations, calculate the contribution margin per unit and the breakeven point in units by first referring to the original data provided:
a. Breakeven point with no change in information.
b. Decrease sales price to $220 per student.
c. Decrease variable costs to $50 per student.
d. Decrease fixed costs to $60,000.
II. Compare the impact of changes in the sales price, variable costs, and fixed costs on the contribution margin per unit and the breakeven point in units.
Analyzing CVP relationships
Kincaid Company sells flags with team logos. Kincaid has fixed cost of $583,200
per year plus variable costs of $4.80 per flag. Each flag sells for $12.00
1. Use the income statement equation approach to compute the number of flags Kincaid must sell each year to break even.
2. Use the contribution margin ratio CVP formula to compute the dollar sales Kincaid needs to earn $33,000 in operating income for 2012. (Round the contribution margin to two decimal places.)
3. Prepare Kincaid's contribution margin income statement for the year December 31, 2012, for sales of 72,000 flags. Cost of goods sold is 70% of variable cost. Operating costs make up the rest of variable costs and all of fixed cost. (Round your final answers to the nearest whole number.)
4. The company is considering an expansion that will increase fixed costs by 21% and variable costs by $0.60 per flag. Compute the new breakeven point in units and in dollars. Should Kincaid undertake the expansion? Give your reasoning. Round your final answers to the nearest whole number.