P15-34. CVP Analysis Using Published Financial Statements Condensed data in mill
ID: 2343039 • Letter: P
Question
P15-34. CVP Analysis Using Published Financial Statements Condensed data in millions of dollars from Apple's 2014 and 2015 income stat statements follow 2015 2014 . $233, 715 $182,795 Revenues Total cost of revenues and operating expenses.. . . . . (162,485) .. 71,230 52,503 REQUIRED a. Develop a cost-estimation equation for Apple's annual cost of revenues and operatin b. c. d. expenses Determine Apple's annual break-even point. Predict operating profit for 2016, assuming 2016 sales of $284,000 million. Identify the assumptions required to use the equations and amounts computed above.Explanation / Answer
Req a: Cost equation: Revenue Cost Year -2015 233715 162485 Year -2014 182795 130292 Change 50920 32193 Variable cost ratio = Change in cost / Change in revenue 32193 /50920 *100 = 63.22% Fixed cost: Year2015- Total cost 162485 Less: Variable cost 147755 Fixed cost: 14730 Cost equation: C(X) = 14730 + 0.6322 X Req b: Variable cost ratio = 63.22% Contribution margin ratio = 100-63.22 = 36.78% Break even point in $ = Fixed cost / CM ratio 14730 /36.78% = 40049 Req c: Estimated Operating profits: Estimated Sales of 2016 284000 Less: Variable cost @63.22% 179545 Contribution margin 104455 Less: Fixed cost 14730 Operating income 89725 Req d: Assumptions: Cost behaviour remains constant. Sales in 2016 is within relevant range.
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