Question

please answer the following questions

2-A3 Exercises in Cost-Volume-Profit Relationships Upcraft Moving Company specializes in hauling heavy goods over long distances. The company's revenues and expenses depend on revenue-miles, a measure that combines both weights and mileage. CHAPTER 2. INTRODUCTION TO COST BEHAVIOR AND COST-VOLUME-PROFIT RELATIONSHIPS 65 Summarized budget data for next year are based on predicted total revenue miles of 500,000. At that level of volume, and at any level of volume between 300,000 and 700,000 revenue miles, the company's fixed costs are $50,000. The selling price and variable costs are as follows: Per Revenue-Mile Average selling price (revenue) Average variable expenses $2.00 1.60 1. Compute the budgeted net income. Ignore income taxes. 2. Management is trying to decide how various possible conditions or decisions might affect net income. Compute the new net income for each of the following changes. Consider cach case independently. a. A 30% increase in sales price. b. A 30% increase in revenue miles c. A 30% increase in variable expenses. CHAPTER 2

Answer 1

Answer :

Cost Volume Profit Relationship
Data :
Revenue miles	5,00,000
Fixed cost	$50,000
Selling price	$2.00
Variable expenses	$1.60

(1). Budgeted net income

Sales	1000,000
Variable expenses	800,000
Contribution margin	200,000
Fixed cost	50,000
Net income	$150,000

(2) (a) A 30% increase in sales price

Sales	1300,000
Variable cost	800,000
Contribution margin	500,000
Fixed cost	50,000
Net income	450,000

Net income = $450,000

Selling price = 2*1.30 = 2.60

(b) A 30% increase in Revenue miles

Sales	1300,000
Variable cost	1040,000
Contribution margin	260,000
Fixed cost	50,000
Net income	210,000

Net income = $210,000

Revenue miles = 500,000*1.30 = 650,000

(c) A 30% increase in variable cost

Sales	1000,000
Variable cost	1040,000
Contribution margin	(40,000)
Fixed cost	(50,000)
Net income	(90,000)

Net income = (90,000) Loss

Variable cost = 1.6*1.30 = 2.08