Reference no: EM132877356

SEATWORK: COST-VOLUME-PROFIT RELATIONSHIP PROBLEM SOLVING

Problem 1 - Break-even Analysis

Delta Chi Sorority is planning its annual Riverboat Extravaganza. The Extravaganza committee has assembled the following expected costs for the event:

Dinner (per person) P7

Favors and program (per person) 3

Band 1,500

Tickets and advertising 700

Riverboat rental 4,800

Floorshow and strolling entertainers 1,000

Required - The committee members would like to charge P30 per person for the evening's activities.

1. Compute the break-even point for the Extravaganza (in terms of the number of persons that must attend).

2. Assume that only 250 persons attended the Extravaganza last year. If the same number attends this year, what price per ticket must be charged to break even?

Problem 2 - Break-even and Target Profit Analysis

Rojo Products sells camping equipment. One of the company's products, a camp lantern, sells for P900 per unit. Variable expenses are P630 per lantern, and fixed expenses associated with the lantern total P1,350,000 per month.

Required -

1. Compute the company's break-even point in number of lanterns and in total sales pesos.

2. If the variable expenses per lantern increase as a percentage of the selling price, will it result in a higher or a lower break-even point? Why? (Assume that the fixed expenses remain unchanged.)

3. At present, the company is selling 8,000 lanterns per month. The sales manager is convinced that a 10% reduction in the selling price will result in a 25% increase in the number of lanterns sold each month. Prepare two contribution income statements, one under present operating conditions, and one as operations would appear after the proposed changes. Show both total and per unit data on your statements.

4. Refer to the data in (3) above. How many lanterns would have to be sold at the new selling price to yield a minimum net operating income of P720,000 per month?