Angie’s Empanadas: CVP and Cost Behavior 30 points Tired of the corporate life A
ID: 2709947 • Letter: A
Question
Angie’s Empanadas: CVP and Cost Behavior 30 points
Tired of the corporate life Angie opened Angie’s Empanadas in on April 1st near a large
university campus. She had long been told that her empanadas were the best in town.
Angie sells three different types of empanadas, Peruvian, Argentinean and vegaterian as
appetizers, selling to local restaurants.
The empanadas are assembled in a rented kitchen, with the stuffing fully cooked, frozen
and then placed on trays in batches of eight. Currently all types sell for the same price.
Each tray of 8 empanadas is priced at $ See attached Spreadsheet.
Restaurants unwrap the tray and then heat the empanadas in an oven as an appetizer for
patrons. Angie rented a kitchen near her home. Angie does most of the preparation and
assembly herself but additional labor is hired as needed to help make the product. The
assembly is mostly by hand so labor is a relatively large part of the cost of the product.
Because the ingredients are organic and sometimes not readily available they are relatively
high cost as well. Angie relies on quality and excellent taste to differentiate her products but
is trying to keep the price low to gain a foothold in the market.
Angie’s realizes that the business will take time to be profitable so her short term goal is to
break even. By the end of the first year Angie would like to earn at least $4,000 a month.
The results of Angie’s first six months of operations are presented on the attached
spreadsheet. Prices are per tray so when determining per unit amounts use trays as the
basic unit.
Explanation / Answer
Angie Will first earn the Profit in the Month of June.
Angie will incur the loss in the Month of April and May.
Ingredients, Labour and Trays are the Variable Cost items. Utilities and Deliveries are Mixed cost items. Rent is the Fixed Cost item.
Contribution Margin per Unit
First Year being base year we need to calculate Contribution Margin per Unit based on 2nd year onwards which is equal to $3.835 Per tray.
Contribution Margin percentage= Contribution Margin Per Unit/Sales Per Unit
= $3.835/$11.50
=33.35%
Cost Volume Profit Formula=
Sales=Variable Cost+Fixed Cost+Profit.
At Breakeven Point the Profit is Zero so by using the above formula we can derive breakeven point
11.50X=7.665X+$1812+0
11.50X-7.665X=1812
3.835X=1812
X=472 Units
At Sales of 472 Units the Profit will be Zero.
Break even sales at 472 Units = 472*11.5
=$5428
Sales for the target of $4000 Profit will be as follows.
11.5X=7.665X+1812+4000
11.50X-7.665X=5812
3.835X=5812
X= 1516 Units for Making Profit of $4000
Angies Empanadas-Variable Costing income Statement April May June July August September Sales $3,450 $4,025 $5,175 $5,750 $7,475 $12,650 Price Per Unit $11.50 $11.50 $11.50 $11.50 $11.50 $11.50 Units 300 350 450 500 650 1100 Sales $3,450 $4,025 $5,175 $5,750 $7,475 $12,650 Less: Variable Cost Ingredients $ 690.00 $ 805.00 $ 1,035.00 $ 1,150.00 $ 1,495.00 $ 2,530.00 Labour $ 1,207.50 $ 1,408.75 $ 1,811.25 $ 2,012.50 $ 2,616.25 $ 4,427.50 Trays $ 90.00 $ 105.00 $ 135.00 $ 150.00 $ 195.00 $ 330.00 Utilities $ - $ 2.00 $ 6.00 $ 8.00 $ 14.00 $ 32.00 Deliveries $ - $ 50.00 $ 150.00 $ 200.00 $ 350.00 $ 800.00 Total Variable Cost $ 1,987.50 $ 2,370.75 $ 3,137.25 $ 3,520.50 $ 4,670.25 $ 8,119.50 Net Contribution margin $ 1,462.50 $ 1,654.25 $ 2,037.75 $ 2,229.50 $ 2,804.75 $ 4,530.50 Fixed Cost Rent $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 Utilities $ 112.00 $ 112.00 $ 112.00 $ 112.00 $ 112.00 $ 112.00 Deliveries $ 700.00 $ 700.00 $ 700.00 $ 700.00 $ 700.00 $ 700.00 Total Fixed Cost $ 1,812.00 $ 1,812.00 $ 1,812.00 $ 1,812.00 $ 1,812.00 $ 1,812.00 Net Profit $ (349.50) $ (157.75) $ 225.75 $ 417.50 $ 992.75 $ 2,718.50