The ABC Ice Cream Shop sells ice cream cones. The stores cost structure is as...
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Accounting
The ABC Ice Cream Shop sells ice cream cones.
The stores cost structure is as follows:
Fixed costs per month are $5,000.
Variable costs are $3.50 for a single scoop cone and $4.5 for a double scoop cone.
Required:
(1) If ABC only sells double scoop cones, and sells them for $6.50 per cone, what is the break-even point in units? (2 marks)
(2) If ABC only sells single scoop cones, and charges $5.50 per cone, how many ice cream cones would ABC have to sell to make a profit of $3,000 per month? (3 marks)
(3) Assume that ABC wants to sell only double scoop cones, and believes it can sell 5,000 cones per month at $6 per cone. What would the variable cost per cone have to be for ABC to make a profit of $13,000 per month? (3 marks)
(4) Ignore Question (2) and refer to the original information. If ABC only sells single scoop cones, and sells 7,000 cones per month for $6 per cone, what is the margin of safety? (2 marks)
(5) Discuss the limitations of CVP analysis. (5 marks)
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