CVP Analysis

CVP Analysis

Project description
Assignment 2: Discussion—CVP Analysis
Review Decision Case 1 (Steve and Linda Hom) starting on page 984 of your text. In your initial post, answer the two case questions:
1. Compute the annual breakeven number of meals and sales revenue for the restaurant.
2. Compute the number of meals and the amount of sales revenue needed to earn operating income of $75,600 for the year.
In addition, address the following in one to two paragraphs:
1. Identify and discuss several qualitative factors that should be considered in the decision process in addition to the quantitative data already computed in the case

assignment.
2. What are the potential benefits of applying CVP analysis to business decision making?
3. Provide an example of another business scenario that could benefit from CVP analysis and explain how you would apply CVP analysis in the decision-making process.

Requirements
1. What is the number of lawns that must be serviced to reach break even?
2. If Sherman desires to make a profit of $1,500, how many lawns must be
serviced?

P18-34 This problem continues the Haupt Consulting, Inc., situation from Problem 17-36 of
Chapter 17. Ilaupt Consulting provides consulting service at an average price of
$1 00 per hour and incurs variable cost of $40 per hour. Assume average fixed costs
are $4,000 a month.
Requirements
1. What is the number of hours that must be billed to reach break even?
2. If Haupt desires to make a profit of $5,000, how many lavms must be serviced?
3. Haupt thinks it can reduce fixed cost to $3,000 per month, but variable cost will
increase to $42 per hour. W7 hat is the new break even in hours?

Case 1. Steve and Linda Hom live in Bartlesville, Oklahoma. Two years ago, they visited
Thailand. Linda, a professional chef, was impressed with the cooking methods and the spices
used in the Thai food. Bartlesville does not have a Thai restaurant, and the Homs are contem-
plating opening one. Linda would supervise the cooking, and Steve would leave his current job
to be the maitre d’. The restaurant would serve dinner Tuesday-Saturday.

Steve has noticed a restaurant for lease. The restaurant has seven tables, each of which can
seat four. Tables can be moved together for a large party. Linda is planning two seatings per
evening, and the restaurant will be open 50 weeks per year.

The Horns have drawn up the following estimates:
Average revenue, including beverages and dessert 3% 45 per meal
Average cost of food $ 15 per meal
Chef’s and dishwasher’s salaries………………………………… $61,200 per year
Rent (premises, equipment) $ 4,000 per month
Cleaning (linen and premises)……………………………………. $ 800 per month
Replacement of dishes, cutlery, glasses $ 300 per month
Utilities, advertising, telephone………………………………….. 35 2,300 per month
Requirements
1. Compute the annual breakeven number of meals and sales revenue for the restaurant.
2. Also compute the number of meals and the amount of sales revenue needed to earn oper-
ating income of $75,600 for the year.
984 Chapter 18

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