[soneeya1]

Cost-Volume Profit Analysis

The township of Balastair is inaugurating a soccer programme for children living in the town, between the ages of 7 and 9 years old. There are 70 children who fall into this category.

The programme will be staffed by volunteer coaches, referees and administrative personnel, so the only out-of-pocket costs involve the following:

Shirts $4.10 per shirt* (design with two colours only)
Shirt design $20 per design
Balls $85 (total for all teams)
Goals $120 (total for all teams)
Cones $70 (total for all teams)
Shin guards $9.50 per pair for each player

*The price obtained for the shirts presume two colours only.

The programme Director, Mr. Kolor Foo, would prefer shirts that are more colourful so that it is more appealing to the younger children.
He has learnt that a “rainbow” pattern having several additional colours would cost $1 extra per shirt plus an additional $100 one-time design charge. Assume that the organiser’s intention is for the soccer programme to fully cover its costs, you are required to:

a. Classify all costs as either fixed or variable costs. (8 marks)

b. Calculate the total fixed costs and variable costs for the 2-colour and the rainbow shirts. (4 marks)

c. Determine the unit selling price of a two-colour shirt and a rainbow shirt. (4 marks)

d. If the price is $18, what is the breakeven point (in units) for:

i. The 2- colour shirts and (2 marks)

ii. The rainbow shirts? (2 marks)

e. Discuss further how the breakeven point (in units) will change with changes in unit selling price. (4 marks) Based on this relationship, name two (2) considerations that the organizers should have, when deciding on the price to charge for the shirts? (6 marks)

[soneeya1]

a Fixed costs:
Shirt design
Balls
Goals
Cones

Variable costs:
Shirts
Shin guards



b 2-colour:
Total fixed costs = $(20+85+120+70) = $295
Total variable costs = $(4.1x70) + $(9.5x70) = $952

Rainbow shirts:
Total fixed costs = $(100+85+120+70) = $375
Total variable costs = $(5.1x70) + $(9.5x70) = $1022

c 2-colour:
Unit selling price = $(295+952) / 70 = $1247/70 = $17.81

Rainbow shirts:
Unit selling price = $(375+1022) / 70 = $1397 / 70 = $19.96

d(I) 2-colour shirts:
$18X - $(4.1X + 9.5X) - $295 = 0 Breakeven = 67 units
4.4X = $295
X = $295 / 4.4 = 67 units

ii Rainbow shirts:
$18X - $(5.1X + 9.5X) - $375 Breakeven = 110 units
3.4X = $375
X = $375 / 3.4 = 110 units

e The breakeven point will increase if there is an increase in the unit selling price.
The organiser may need to take into the variable costs involved and the number
of units of shirts which they are planning to sell.



Please help..is this correct.. thank you

[soneeya1]

I don't know if I'm right:confused:

[rehmanvohra]

You are right for a to d. For e, the answer is that when the selling price increases and the variable costs remain the same, the break even point should decrease.

For instance the selling price is increase to $20 from $18, the increase of $2 per unit will increase the contribution per unit and hence the BE should decline

[soneeya1]

You are right for a to d. For e, the answer is that when the selling price increases and the variable costs remain the same, the break even point should decrease.

For instance the selling price is increase to $20 from $18, the increase of $2 per unit will increase the contribution per unit and hence the BE should decline

Thank you Rehmanvohra:)