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7-31 CVP analysis, international cost structure differences. Braided Rugs, Ino,...
Oct 22, 2024
Solution
a
Breakeven Point Calculation: The breakeven point in units can be calculated using the formula: Breakeven Point (units)=Fixed CostsSales Price−Variable Costs \text{Breakeven Point (units)} = \frac{\text{Fixed Costs}}{\text{Sales Price} - \text{Variable Costs}} For each country, we need to calculate the total variable cost per rug, which is the sum of the variable manufacturing cost and the variable marketing & distribution cost. - Portugal: - Variable Cost = 45+10=5545 + 10 = 55 - Breakeven Point = 7,500,000250−55=7,500,000195≈38,462 units\frac{7,500,000}{250 - 55} = \frac{7,500,000}{195} \approx 38,462 \text{ units} - Italy: - Variable Cost = 65+15=8065 + 15 = 80 - Breakeven Point = 7,500,000250−80=7,500,000170≈44,118 units\frac{7,500,000}{250 - 80} = \frac{7,500,000}{170} \approx 44,118 \text{ units} - Thailand: - Variable Cost = 55+20=7555 + 20 = 75 - Breakeven Point = 9,000,000250−75=9,000,000175≈51,429 units\frac{9,000,000}{250 - 75} = \frac{9,000,000}{175} \approx 51,429 \text{ units}
b ⋮ Revenue at Breakeven: The revenue at breakeven can be calculated using the formula: Revenue=Breakeven Point (units)×Sales Price \text{Revenue} = \text{Breakeven Point (units)} \times \text{Sales Price} - Portugal: Revenue = 38,462×250≈9,615,50038,462 \times 250 \approx 9,615,500 - Italy: Revenue = 44,118×250≈11,029,50044,118 \times 250 \approx 11,029,500 - Thailand: Revenue = 51,429×250≈12,857,25051,429 \times 250 \approx 12,857,250 ‖ c ⋮ Budgeted Operating Income: The budgeted operating income can be calculated using the formula: Operating Income=(Sales Price×Units Sold)−(Fixed Costs+Variable Costs×Units Sold) \text{Operating Income} = (\text{Sales Price} \times \text{Units Sold}) - (\text{Fixed Costs} + \text{Variable Costs} \times \text{Units Sold}) Assuming 80,000 rugs are sold: - Portugal: - Operating Income = (250×80,000)−(7,500,000+55×80,000)=20,000,000−(7,500,000+4,400,000)=20,000,000−11,900,000=8,100,000(250 \times 80,000) - (7,500,000 + 55 \times 80,000) = 20,000,000 - (7,500,000 + 4,400,000) = 20,000,000 - 11,900,000 = 8,100,000 - Italy: - Operating Income = (250×80,000)−(7,500,000+80×80,000)=20,000,000−(7,500,000+6,400,000)=20,000,000−13,900,000=6,100,000(250 \times 80,000) - (7,500,000 + 80 \times 80,000) = 20,000,000 - (7,500,000 + 6,400,000) = 20,000,000 - 13,900,000 = 6,100,000 - Thailand: - Operating Income = (250×80,000)−(9,000,000+75×80,000)=20,000,000−(9,000,000+6,000,000)=20,000,000−15,000,000=5,000,000(250 \times 80,000) - (9,000,000 + 75 \times 80,000) = 20,000,000 - (9,000,000 + 6,000,000) = 20,000,000 - 15,000,000 = 5,000,000
Answer
Breakeven Points: Portugal: 38,462 units, Italy: 44,118 units, Thailand: 51,429 units. Revenues at Breakeven: Portugal: 9,615,500,Italy:9,615,500, Italy: 11,029,500, Thailand: 12,857,250.OperatingIncome:Portugal:12,857,250. Operating Income: Portugal: 8,100,000, Italy: 6,100,000,Thailand:6,100,000, Thailand: 5,000,000.
Key Concept
Breakeven analysis helps determine the minimum sales needed to cover costs.
Explanation
The analysis shows how different cost structures affect profitability across countries, guiding strategic decisions for manufacturing locations.
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