Only Answer Exercise 2 and 3 please. After completing Exercise 2, What is the number of units needed to achieve the desired profit?

After completing Exercise 3- situation 1, what is the number of units needed to achieve the desired profit?

See circle on the photos below for exercise 2 and 3

Cost-Volume-Profit Analysis Break Even Analysis Break Even is the level of operations where Profit equals zero. EXERCISE 1: Abner Corporation makes a product that sells for $200 per unit. The Variable costs per unit are $120. Fixed Costs total $500,000 each year. Abner currently sells 7,500 units per year. Calculate the number of units that Abner must sell to break even. Use the equation method to solve for the number of units Abner needs to sell to breakeven. If you need help, refer to the examples in the text. Equation Method: Sales Variable Costs Fixed Costs Profit STEP 1 = Set profit to ZERO STEP 2= Solve for N STEP 3= Solve for N STEP 4= Breakeven in UNITS Units In STEP 3 above, solving for N resulted in dividing Fixed Costs by Unit Contribution Margin. Remember, Unit Contribution Margin (UCM) is calculated as follows: Unit Contribution Margin (UCM) - Sales Price per Unit - Variable Cost per Unit So, an easier way to calculate the breakeven point in units is simply use this formula: Fixed Costs | UCM = Breakeven in Units Fixed Costs / UCM = Breakeven in Units S units Breakeven in sales dollars? To get breakeven in sales dollars. you could simply multiply the breakeven in units by the sales price per unit. Or, you can use the Contribution Margin Ratio Contribution Margin Sales - Contribution Margin Ratio What is the Contribution Margin Ratio for Abner? Contribution Margin / Sales CM Ratio s S Now that you have the Contribution Ratio (CM Ratio), just use the same breakeven formula as before but replace the UCM with CM Ratio: Fixed Costs 1 CM Ratio Breakeven in Sales dollars Fixed Costs / CM Ratio = Breakeven in Dollars $ 1 $ EXERCISE 2: Desired Profit Breakeven point is helpful, but most companies want to earn a profit of course. You can use the same equation method to calculate the number of units that Abner must sell to make $200,000 in profit. Hint: Just set the profit to $200,000 instead of zero. Equation Method: Sales - Variable Costs - Fixed Costs = Profit STEP 1 = Set profit to $200,000 STEP 2= Solve for N STEP 3= Solve for N STEP 4= Desired Profit Units In STEP 3 above, solving for N resulted in dividing Fixed Costs + Desired Profit by Unit Contribution Margin. So, the problem can be solved much quicker by using the following formula: Fixed Costs + Desired Profit / UCM = Sales in Units to Earn Desired Profit (Fixed Costs + Desired Profit) / UCM Sales in Units units Situation 1: Abner can purchase equipment that would automate its production facility. The equipment would raise fixed costs to $600,000 per year. However, automation would cause the Variable Cost per Unit to drop to $100 per unit. If the equipment is purchased, how many units would Page 2 of 6 Abner need to sell to make $200,000 in profit? (Fixed Costs + Desired Profit) / UCM = 1 Sales in Units units = Should Abner invest in the equipment? YES or NO Situation 2: Using original assumptions (no factory automation), Abner estimates that $40,000 of radio advertising could increase the company's sales by 10%. Abner currently sells 7,500 units per year. Should the company purchase the radio ads? Be sure to use the original UCM of $80 in this problem. To solve this problem, calculate the increase in Contribution Margin from the radio ads and compare this figure to the ad cost. If the increase in CM exceeds the cost of the ads, then the company should purchase the ads. 10% Increased Sales in Units X UCM X $ increased CM Cost of Ads $ Difference S Should they purchase the radio ads? Yes or No