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5. Given: Selling price per unit, $40; total fixed expenses, $80,000; variable expenses per
unit, $30. Assume that variable expenses are reduced by 20% per unit, and the total fixed
expenses are increased by 10%. Find the sales in units to achieve a profit of $20,000,
assuming no change in selling price.
Ans.
Target sales volume = (Total Fixed cost + Target income) / Contribution margin per unit
= ($88,000 + $20,000) / ($40 - $24)
= 6,750 units
4. Given: Sales, $50,000; variable expenses, $20,000; fixed expenses, $20,000; net income,
$10,000. Assume no change in selling price; find net income if activity volume increases 10%.
Ans.
Net Income = (Previous net income + Contribution margin) * Increase in volume
= $10,000 + (30,000 * 0.01)
= $13,000
2. Given: Sales $40,000; variable expenses $30,000; fixed expenses $7,500; net income
$2,500. Find break-even sales in dollars.
Ans.
Break even in dollars = Break even in units * Selling price per unit
= [Fixed Cost / (Sales - Variable Expense)] x Sales
= [$7,500 / ($40,000 - $30,000)] x $40,000
= $30,000
Ch.3-E 3.6
ROI analysis using Dupont model.
a-
Firm D has net income of 27.900, sales of 930.000, and average total assets of 465.000.
Calculate firm margin turnover and ROI.
Ans.
Net Margin = Net Income / Sales = $27,900 / $930,000 = 3%
Turnover = Net Sales / Total Assets= $930,000 / $465,000 = 2 times
ROI = Net Income / Net Investment = $27,900 / $465,000 = 6%
b-
Firm E has net income of 75.000, salesof1.250.000 and ROI 15%. Calculate turnover
and average total assets.
Ans.
ROI = Net Income / Net Investment
Therefore,
Average Total Assets= Net Income/ ROI
=75000/.15
=$500000
c-
Firm F has 12.6% ROI, total assets of 1.730.159 and turnover of 1.4.
Calculate firm sales, margin and net income.
Ans.
Net Margin = Net Income / Sales
Net Income = 12.6% x $1,730,159 = $218,000
Sales = 1.4 x 1,730,159 = $2,422,223
Margin = Net Income / Sales $218,000.03 / $2,422,223 = 9%
Ch.22-7- Key Question A firm has fixed costs of $60 and variable costs as indicated in the
table on the following page.Complete the table and check your calculations by referring to
question 4 at the end of Chapter 23.
a.
Graph total fixed cost, total variable cost, and total cost. Explain how the law of
diminishing returns influences the shapes of the variable-cost and total-cost curves.
b. Graph AFC, AVC, ATC, and MC. Explain the derivation and shape of each of these four
curves and their
relationships to one another. Specifically, explain in nontechnical terms why the MC curve
intersects both
the AVC and the ATC curves at their minimum points.
c. Explain how the location of each curve graphed in question 7b would be altered if (1) total
fixed cost had been $100 rather than $60 and (2) total variable cost had been $10 less at
each level of output.
Total
;
Product
Total
Total
Fixed Cost
Total
Average
Variable Cost
Average
Cost
Average
Fixed Cost
Marginal
Variable Cost
Total
Cost
Cost
0
0
$_____
1
$____
45
nbsp;
$____
85
$____
120
$____
150
bsp;$____
185
$____
225
$____
270
;$____
$____
8
325
$____
390
$____
$____
$____
$____
$____
$____
$____
$____
$____
$____
&n
$____
$____
$____
$____
$____
$______
$______
&n
$____ &
$______
$______
$____
$____
$______
$____
9
p;
$______
$____
7
$____
$_
$____
6
nbsp;
$______
$____
$_
$____
5
bsp;
$____
$____
4
nbsp;
$______
$____
$____&
$____
3
___
$______
$____
2
___
$____ &nb sp;
$____
$____ &
$____
$____
$____
$____
&nbs
$____
10
;
465
$______
$____
Total
Product
Average
Fixed Cost
Average
Variable
cost
Average
total
Cost
Cost
0
marginal
$____
$____
$____
$____
$45
1
$60.00
$45.00
$105.00
40
2
30.00
42.50
72.50
35
3
20.00
40.00
60.00
30
4
15.00
37.50
52.50
35
5
12.00
37.00
49.00
40
6
10.00
37.50
47.50
45
7
8.57
38.57
47.14
55
8
7.50
40.63
48.13
65
9
6.67
43.33
50.00
75
10
6.00
46.50
52.50
Ans.
(a) See the graph. Over the 0 to 4 range of output, the TVC and TC curves slope upward
at a decreasing rate because of increasing marginal returns. The slopes of the curves
then increase at an increasing rate as diminishing marginal returns occur.
(b) See the graph. AFC (= TFC/Q) falls continuously since a fixed amount of capital
cost is spread over more units of output. The MC (= change in TC/change in Q),
AVC (= TVC/Q), and ATC (= TC/Q) curves are U-shaped, reflecting the influence of
first increasing and then diminishing returns. The ATC curve sums AFC and AVC
vertically. The ATC curve falls when the MC curve is below it; the ATC curve rises
when the MC curve is above it. This means the MC curve must intersect the ATC
curve at its lowest point. The same logic holds for the minimum point of the AVC
curve.
(c1)If TFC has been $100 instead of $60, the AFC and ATC curves would be higher—by
an amount equal to $40 divided by the specific output. Example: at 4 units, AVC =
$25.00 [= ($60 + $40)/4]; and ATC = $62.50 [= ($210 + $40)/4]. The AVC and MC
curves are not affected by changes in fixed costs.
(c2)If TVC has been $10 less at each output, MC would be $10 lower for the first unit of
output but remain the same for the remaining output. The AVC and ATC curves
would also be lower—by an amount equal to $10 divided by the specific output.
Example: at 4 units of output, AVC = $35.00
[= $150 - $10)/4], ATC = $50 [=
($210 - $10)/4]. The AFC curve would not be affected by the change in variable
costs.
Ch. 20-2. Key Question Graph the accompanying demand data, and then use the midpoint
formula for Ed to determine price
Price Product
5
1
4
2
3
3
2
4
1
5
Ans.
Quantity Demanded