330 CVP analysis LO 3 SND Inc had the following results for

3-30 CVP analysis (LO 3) SND, Inc., had the following results for last year: XLS Sales revenue Variable expenses Contribution margin Fixed expenses Operating income Per Unit $2,000,000 $20.00 12.50 7.50 1,250,000 750,000 400,000 $ 350,000 Prepare a new income statement for each of the following scenarios. Consider each scenario independently Required a. Sales volume decreases by 10% b, The sales price increases by 5% c. Variable costs per unit increase by $1.50 d. The sales price decreases to $18, and an additional 5,000 units are sold. e. A new advertising campaign costing $75,000 increases sales volume by 15% f. Variable costs per unit increase by $2.00, the sales price per unit increases by $1.50, sales volume decreases by 2,500 units, and fixed expenses increase by $20,000 118 CHAPTER 3 Cost-Volume-Profit Analysis and Pricing Decisions

Solution

Ans.(a) Sales volume decreases by 10% Income Statement Particulars Amt. ($) Sales revenue (90,000 unit @20)          1,800,000 Less: Variable expense          1,125,000 Contribution margin              675,000 Less: Fixed expenses              400,000 Operating Income              275,000 Ans.(b) Sales price increases by 5% Income Statement Particulars Amt. ($) Sales revenue (100,000 unit @21)          2,100,000 Less: Variable expense          1,250,000 Contribution margin              850,000 Less: Fixed expenses              400,000 Operating Income              450,000 Ans.(c) Variable cost per unit increase by $1.50 Income Statement Particulars Amt. ($) Sales revenue          2,000,000 Less: Variable expense ($14)          1,400,000 Contribution margin              600,000 Less: Fixed expenses              400,000 Operating Income              200,000 Ans.(d) The sale price decreases to $18, and an additional 5,000 units are sold. Income Statement Particulars Amt. ($) Sales revenue (105,000 units @18)          1,890,000 Less: Variable expense ($12.50)          1,312,500 Contribution margin              577,500 Less: Fixed expenses              400,000 Operating Income              177,500 Ans.(e) A new advertising campaing costing $75,000 increases Sales volume by 15% Income Statement Particulars Amt. ($) Sales revenue (115,000 units @20)      2,300,000 Less: Variable expense ($12.50)      1,437,500 Contribution margin          862,500 Less: Fixed expenses          400,000 Operating Income          462,500 Less: Advertising Expense            75,000 Net Income          387,500 Ans.(f) Variable cost increases by $2.00, the sale price per unit increases by $1.50, sales volume decreases by 2,500 units, and fixed expenses increases by $20,000 Income Statement Particulars Amt. ($) Sales revenue (97,500 units @21.50)      2,096,250 Less: Variable expense ($14.50)      1,413,750 Contribution margin          682,500 Less: Fixed expenses          420,000 Operating Income          262,500