Analyzing Multiproduct CVP Biscayne’s Rent-A-Ride rents two models of automobiles: the standard and the deluxe. Information follows:
Biscayne’s total fixed cost is $18,500 per month.
1. Determine the contribution margin per rental day and contribution margin ratio for each model that Biscayne’s offers.
2. Which model would Biscayne’s prefer to rent? Explain your answer.
3. Calculate Biscayne’s break-even point if the product mix is 50/50.
4. Calculate the break-even point if Biscayne’s product mix changes so that the standard model is rented 75 percent of the time and the deluxe model is rented for only 25 percent.
5. Calculate the break-even point if Biscayne’s product mix changes so that the standard model is rented 25 percent of the time and the deluxe model is rented for 75 percent.
(a)
Contribution Margin:
The margin of profit which is computed after considering the variable cost only and not the fixed costis known as contribution. In other words, it means the contribution made by selling the product after covering its variable cost to the company.
The contribution marginand contribution margin ratio.
Answer to Problem 16E
The contribution margin for standard is
Explanation of Solution
Contribution Margin Income Statement
Particulars | Standard | Deluxe |
Rental Price |
||
Variable Cost per Canoe |
||
Contribution Margin |
(b)
Contribution Margin:
The margin of profit which is computed after considering the variable cost only and not the fixed costis known as contribution. In other words, it means the contribution made by selling the product after covering its variable cost to the company.
The model to be preferred to give on rent.
Answer to Problem 16E
The preference for providing the automobiles on rent depends on the demand of rides per day of the two models.
Explanation of Solution
The contribution margin for standard is
The contribution margin of deluxe model is higher, it means that if the demand of rides per day is more then this model should be preferred. In case the demand of rides is limited, the standard model should be preferred as the contribution margin ratio in terms of percentage of sales is higher than the deluxe model.
(c)
Concept introduction:
Breakeven Point:
The level of sales where the company is neither on profit nor loss is termed as breakeven point. In other words, that level of sales at which the fixed cost of the business is recovered.
The breakeven point if the product mix is
Answer to Problem 16E
The breakeven point in units is
Explanation of Solution
Contribution Margin Income Statement
Particulars | Standard | Deluxe |
Rental Price |
||
Variable Cost per Canoe |
||
Contribution Margin |
As the product mix is
So, the weighted contribution margin is calculated as:
The break-even point in units is calculated as:
(d)
Concept introduction:
Breakeven Point:
The level of sales where the company is neither on profit nor loss is termed as breakeven point. In other words, that level of sales at which the fixed cost of the business is recovered.
The breakeven point if the product mix changes to
Answer to Problem 16E
The breakeven point in units is
Explanation of Solution
Contribution Margin Income Statement
Particulars | Standard | Deluxe |
Rental Price |
||
Variable Cost per Canoe |
||
Contribution Margin |
As the product mix is
So, the weighted contribution margin is calculated as:
The break-even point in units is calculated as:
(e)
Concept introduction:
Breakeven Point:
The level of sales where the company is neither on profit nor loss is termed as breakeven point. In other words, that level of sales at which the fixed cost of the business is recovered.
The breakeven point if the product mix changes to
Answer to Problem 16E
The breakeven point in units is
Explanation of Solution
Contribution Margin Income Statement
Particulars | Standard | Deluxe |
Rental Price |
||
Variable Cost per Canoe |
||
Contribution Margin |
As the product mix is
So, the weighted contribution margin is calculated as:
The break-even point in units is calculated as:
Want to see more full solutions like this?
Chapter 6 Solutions
MANAGERIAL ACCOUNTING W/CONNECT
- Biscayne's Rent-A-Ride rents two models of automobiles: the standard and the deluxe. Information follows: Rental price per day Variable cost per day Standard $ 40.00 Deluxe $48.00 15.50 20.20 Biscayne's total fixed cost is $21,000 per month. Required: Determine Biscayne's new break-even point in each of the following independent scenarios: 1. Product mix is 40/60. 2. Sales price increases on both models by 15 percent. (Assume a product mix of 50/50.) 3. Fixed costs increase by $3,200. (Assume a product mix of 50/50.) 4. Variable costs increase by 20 percent. (Assume a product mix of 50/50.)arrow_forwardGood morning, Please answer questions Patsy Smith is planning to sell her special knife for $15 per unit. She purchases units from alocal distributor for $6 each. She can return any unsold units for a full refund. Fixed costs forbooth rental, including lighting and security is $4500.Requireda) Compute the breakeven point in units sold. b) Suppose the unit purchased is $5 instead of $6, the fixed cost increases by $500, butthe selling price is unchanged. Compute the new breakeven point in units sold. c) Using the above data, explain how cost behaviour affects Patsy Smith’s decisionmaking?arrow_forwardBiscayne’s Rent-A-Ride rents two models of automobiles: the standard and the deluxe. Information follows: Standard Deluxe Rental price per day $ 46.00 $ 54.00 Variable cost per day 18.50 23.20 Biscayne’s total fixed cost is $22,500.00 per month.Required:1. Determine Biscayne’s new break-even point in each of the following independent scenarios:a. Product mix is 40/60. (Do not round your intermediate calculations. Round your answer to the nearest whole number.) b. Sales price increases on both models by 15 percent. (Assume a product mix of 50/50.) (Do not round your intermediatecalculations. Round your answer to the nearest whole number.) c. Fixed costs increase by $3,800. (Assume a product mix of 50/50.) (Do not round your intermediate calculations. Round your answer to the nearest whole number.) d. Variable costs increase by 20 percent. (Assume a product mix of 50/50.) (Do not round your intermediate calculations. Round your answer to the nearest…arrow_forward
- Which of the following is an example of a mixed cost behavior? a. A rental van charges $50 / day for the first 100 miles, and $0.42 per mile beyond100 miles.b. A piece of equipment can be leased for a year for a fee of $14,000 regardless ofhow many hours it is operated.c. A vacation home charges $250 per day regardless of the number of occupants.d. A local utility charges $0.14 per kilowatt-hour of energy consumed.arrow_forwardE5-17 (Algo) Determining Cost Behavior, Preparing Contribution Margin Income Statement [LO 5-1, 5-5) Riverside Incorporated makes one model of wooden canoe. Partial information for it follows: Number of Canoes Produced and Sold Total costs Variable costs Fixed costs Total costs Cost per unit Variable cost per unit Fixed cost per unit Total cost per unit Required 1 Required 3 Variable costs Fixed costs 515 $ 72,615 149,300 $ 221,915 Number of Canoes Produced and Sold Total costs Total costs Cost per unit Variable cost per unit Fixed cost per unit Required: 1. Complete the table. 3. Suppose Riverside sells its canoes for $505 each. Calculate the contribution margin per canoe and the contribution margin ratio. 4. Next year Riverside expects to sell 865 canoes. Complete the contribution margin income statement for the company. Required 4 Total cost per unit 7 7 Complete the table. Note: Round your cost per unit answers to 2 decimal places. $ $ 665 $ 7 515 72,615 149,300 221,915 $ 815 0.00…arrow_forwardTim-Buck-Il rents jet skis at a beach resort. There are three models available to rent: Junior, Adult, and Expert. The rental price and variable costs for these three models are as follows: The current product mix is 5:4:1. The three models share total fixed costs of $1 14,750 A. Calculate the sales price per composite unit. B. What is the contribution margin per composite unit? C. Calculate Tim-Buck-IIs break-even point in both dollars and units. D. Using an income statement format, prove that this is the break-even point.arrow_forward
- Choose the correct letter of answer Bautista Company produces and sells a particular home appliance. The variable cost (VC) per unit is P50. The unit selling price (SP) is P120 while fixed cost (FC) is P70,000. What is the revenue function in this case? a. C = 50x + 70,000b. P = 120x – 50x – 70,000c. R = 120x d. none of the abovearrow_forwardChoose the correct letter of answer Jan Slaugther Company produces and sells a particular home appliance. The variable cost (VC) per unit is P50. The unit selling price (SP) is P120 while fixed cost (FC) is P70,000. What is the profit function in this case? a. C = 50x + 70,000b. Answer not givenc. P = 120x – 50x – 70,000d. R = 120xarrow_forwardM, or L, for Design a method that calculates the monthly cost to rent a roadside billboard. Variables include the size of the billboard small, medium, or large) and its location (H, M, or L for high-, medium-, or low-traffic areas). The method should throw an exception if the size or location code is invalid. The monthly rental cost is shown in Table 11-1. High Traffic Medium Traffic Low Traffic Small size 900.00 500.00 200.00 Medium size 1600.00 1200.00 600.00 Large size 2000.00 1500.00 800.00 Table 11-1 Monthly billboard rental ratesarrow_forward
- Red Hawk Enterprises sells handmade clocks. Its variable cost per clock is $6.50, and each clock sells for $16.00. Required: Calculate Red Hawk's unit contribution margin. Calculate Red Hawk's contribution margin ratio. Suppose Red Hawk sells 2,050 clocks this year. Calculate the total contribution margin. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Suppose Red Hawk sells 2,050 clocks this year. Calculate the total contribution margin. Note: Round your answers to 2 decimal places.arrow_forwardRequired: 1. Complete the following table. 2. Suppose Sandy Bank sells its canoes for $590 each. Calculate the contribution margin per canoe and the contribution margin ratio. 3. This year Sandy Bank expects to sell 760 canoes for $590 each. Prepare a contribution margin income statement for the company. 4. Calculate Sandy Bank's break-even point in units and in sales dollars. Sandy Bank sells its canoes for $590 each. 5. Suppose Sandy Bank wants to earn $76,000 profit this year. Calculate the number of canoes that must be sold to achieve this target. Sandy Bank sells its canoes for $590 each. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Complete the following table. Note: Round your "Cost per Unit" answers to 2 decimal places. Number of Canoes Produced and Sold Total costs Variable Costs Fixed Costs Total Costs Cost per Unit Required 3 Required 4 Variable Cost per Unit Fixed Cost per Unit Total Cost per Unit $ $ $ 500 Required 5 780 0 0.00arrow_forward1) Your delivery business uses a rental truck, In an attempt to estimate future truck rental costs you have collected the following information: Month Miles driven Rental cost of truck January February 600 $585 620 588 March 580 574 April 640 591 May 700 610 June 680 598 If you drive the truck 640 miles in July, what should the total rental cost be? Use the high/low method. Do you think this is a decent estimate of what the cost will be? Why?arrow_forward
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College