# Please check all of the following questions for accuracy. Q 1….

Please check all of the following questions for accuracy.
Q 1. Problem 3-48, “CVP Analysis and Price Changes.”
Argentina Partners is concerned about the possible effects of inflation on its operations. Presently, the company sells 60,000 units for \$30 per unit. The variable production costs are \$15, and fixed costs amount to \$700,000. Production engineers have advised management that they expect unit labor costs to rise by 15 percent and unit materials costs to rise by 10 percent in the coming year. Of the \$15 variable costs, 50 percent are from labor and 25 percent are from materials. Variable overhead costs are expected to increase by 20 percent. Sales prices cannot increase more than 10 percent. It is also expected that fixed costs will rise by 5 percent as a result of increased taxes and other miscellaneous fixed charges.
The company wishes to maintain the same level of profit in real dollar terms. It is expected that to accomplish this objective, profits must increase by 6 percent during the year.
Required:
Compute the volume in units and the dollar sales level necessary to maintain the present profit level, assuming that the maximum price increase is implemented.
sales with 10% price increase 60000 33 1980000
variable labor costs with 15% increase 60000 8.625 517500
variable materials costs with 10% increase 60000 4.125 247500
variable overhead costs with 20% increase 60000 4.5 270000
Total variable costs 1035000
fixed costs with 5% increase 735,000
Profit level 210,000
Compute the volume of sales and the dollar sales level necessary to provide the 6 percent increase in profits, assuming that the maximum price increase is implemented.
sales with 10% price increase 60061 33 1982013
variable labor costs with 15% increase 60000 8.625 517500
variable materials costs with 10% increase 60000 4.125 247500
variable overhead costs with 20% increase 60000 4.5 270000
Total variable costs 1035000
fixed costs with 5% increase 735,000
Profit level 212,013
If the volume of sales were to remain at 60,000 units, what price increase would be required to attain the 6 percent increase in profits?
sales with 10% price increase 60000 33.034 1982040
variable labor costs with 15% increase 60000 8.625 517500
variable materials costs with 10% increase 60000 4.125 247500
variable overhead costs with 20% increase 60000 4.5 270000
Total variable costs 1035000
fixed costs with 5% increase 735,000
Profit level 212,040
Q 2. Problem 3-59, “Extension of CVP Analysis – Taxes.”
Frightproof Commuter Airlines is considering adding a new flight to its current schedule from Metro to Hicksville. This route has the following prices and costs.
Selling price per passenger per flight \$ 240
Variable cost per passenger per flight \$ 60
Fixed cost per flight \$8,640
Income tax rate 25%
Required
Compute Frightproof’ s break-even point in number of passengers per flight.
contribution margin = pp unit – vc per unit
Selling price per passenger per flight \$ 240
-Variable cost per passenger per flight \$ 60
Contribution margin \$ 180
Break-even point = Fixed costs / unit contribution margin
Fixed costs \$ 8,640
/ Contribution margin \$ 180
Break-even point 48
How many passengers per flight must Frightproof have to earn \$3,510 per flight after taxes?
Selling price per passenger per flight \$ 240
Income tax rate 25%
After tax amount \$ 180
(180 x N – 8,640) x .75 = 3,510
180N – 8,640 = 3,510 / .75
180N – 8,640 = 4,680
180N = 4,680 + 8,640
180N = 13,320
N = 74
Each aircraft has the capacity for 70 passengers per flight. In view of this capacity limitation, can Frightproof carry enough passengers to break even? Can the company carry enough passengers to earn \$3,510 per flight after taxes?
Yes. Frightproof can carry enough passengers to break even. The break even point of forty-eight passengers is under the maximum capacity of seventy passengers.
No. Frightproof cannot carry enough passengers to earn \$3,510 per flight after taxes as the needed # of passengers to achieve this goal is 74. Four passengers above the max capacity of seventy passengers.