1) Negative Fixed Costs
This is crazy" exclaimed the production supervisor as he reviewed the work of his new assistant. "You and the computer are telling me that fixed cost are negative! Tell me, how did you get to these negative fixed costs, and what am I suppose to do with them?"
Required:
Explain to the supervisor the meaning of the negative "fixed costs" and what can be done with them.
2)CVP Analysis Using Published Financial Statements
Condensed data in thousands of dollars (000) from Netflix 2009 and 2010 income statements follow
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2010
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2009
|
|
Revenues.........
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$2,162,625
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$1,670,269
|
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Total Cost of Revenues and Operating expenses
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(1,878,984)
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(1,478,330)
|
|
Operating Income
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$283,641
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$191,939
|
Required:
a. Develop a cost estimation equation for Netflix's annual cost of revenues and operating expenses
b. Determine Netflix's annual break-even point.
c. Predict operating profit for 2011, assuming 2011 sales of $3,204,577
d. Identify the assumptions required to use the equations and amounts computed above.