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Topic: Cost-volume-profit analysis (

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mits07
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Regular

Joined: 22 Jan 2010
Location: United States
Online Status: Offline
Posts: 115

Posted: 11 Feb 2010 at 11:17 \| IP Logged

Hi guys, I need help with this question.

During 2007, Thor Lab supplied hospitals with a comprehensive diagnostic kit for $120. At a volume of 80,000 kits, Thor had fixed costs of $1,000,000 and a profit before income taxes of $200,000. Due to an adverse legal decision, Thor's 2008 liability insurance increased by $1,200,000 over 2007. Assuming the volume and other costs are unchanged, what should the 2008 price be if Thor is to make the same $200,000 profit before taxes?

Answer: $135

ssham1976
Major Contributor

Joined: 12 Apr 2009
Location: United States
Online Status: Offline
Posts: 350

Posted: 11 Feb 2010 at 22:50 \| IP Logged

BEP = FC+PROFIT /CM

80000 = 1000000+200000/CM

CM = 15

SP = 120

VC = ? = 105 PLUG

FC = ; 1000000

LIAB INS - 1200000

VC = 105*80000 = 8400000

PROFIT DESIRED = 200000

TOTAL = 10800000/80000 = 135

CPA-hopeful
Major Contributor

Joined: 09 Nov 2008
Location: United States
Online Status: Offline
Posts: 254

Posted: 13 Feb 2010 at 13:21 \| IP Logged

how is the CM figured out?

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