Question

Week 10 - CVP Cost-Volume-Profits and Vending Machines Cola Food Services Company operates and services soft drink vending machines loca in restaurants, gas stations, factories, etc., in four Southern states. The machines are ren from the manufacturer. In addition, Cola must rent the space occupied by its machi The following expense and revenue relationships pertain to a contemplated expans program of 20 machines. Fixed monthly expenses follow: Machine rental: 20 machines @ $43.50 Space rental: 20 locations @ $28.80 Part-time wages to service the additional 20 machines Other fixed costs Total monthly fixed costs $ 870 576 1,454 100 $3,000 Other data follow: Per Unit $1.00 Selling price Cost of snack Contribution margin Per $100 of Sales 100% 80 20% 80 $ .20 These questions relate to the above data unless otherwise noted. Consider each question independently. 1. What is the monthly break-even point in number of units? In dollar sales? 2. If 18,000 units were sold, what would be the company's net income? 3. If the space rental cost were doubled, what would be the monthly break-even point in number of units? In dollar sales? 4. If, in addition to the fixed rent, Cola Food Services Company paid the vend machine manufacturer 2¢ per unit sold, what would be the monthly break-eren point in number of units? In dollar sales? Refer to the original data. 5. If, in addition to the fixed rent, Cola paid the machine manufacturer 4¢ for edh unit sold in excess of the break-even point, what would the new net income be T 18,000 units were sold? Refer to the original data.

Answer 1

1.
Break Even Point (Units) = Fixed costs / Contribution Margin per unit
= $3000 / $0.20 = 15000 units

Break Even Point (Dollars) = Fixed costs / Contribution Margin Ratio
= $3000 / 20% = $15000

2.
Net Income = Contribution margin - Fixed Costs
= 18000 x $0.2 - $3000 = $600

3.
New Fixed Costs = $3000 + $576 = $3576
Break Even Point (Units) = Fixed costs / Contribution Margin per unit
= $3576 / $0.20 = 17880 units

Break Even Point (Dollars) = Fixed costs / Contribution Margin Ratio
= $33576 / 20% = $17880

4.
New Contribution Margin per unit = $0.20 - $0.02 = $0.18 per unit

Break Even Point (Units) = Fixed costs / Contribution Margin per unit
= $3000 / $0.18 = 16667 units

Break Even Point (Dollars) = Fixed costs / Contribution Margin Ratio
= $3000 / 18% = $16667

5.
Net Income = Contribution margin - Fixed Costs - Commission
= 18000 x $0.2 - $3000 - (18000-15000) x $0.04 = $480