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Exam 3: Analysis of Cost,Volume,and Pricing to Increase Profitability

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Question 1

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Select the term from the list provided that best describes each of the following descriptions or definitions.

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verified

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Question 2

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For 2013During the current year,Winchester Company sold 80,000 units at a selling price of $20 per unit.Variable cost per unit was $15,and Winchester's net income for the year was $40,000.What was the amount of Winchester's fixed costs?

A) $360,000
B) $440,000
C) $1,160,000
D) $400,000

E) All of the above
F) A) and D)

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Question 3

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Bloom Company has variable cost per unit of $20 and a sales price of $35 per unit.Its total fixed costs are $240,000.Which of the following is a correct statement?

Jarvis Company produces a product that has a selling price of $20.00 and a variable cost of $15.00 per unit.The company's fixed costs are $50,000.What is the break-even point measured in sales dollars?

The margin of safety ratio can be defined as the:

A margin of safety of 30% means that every dollar in revenue generates thirty cents in profit.

Lush Lawn,Inc.produces and sells electric lawn trimmers for $120 each.The variable costs of each mower total $80 while total monthly fixed costs are $6,000.Current monthly sales are $48,000.The company is considering a proposal that will decrease the selling price by 10%,increase monthly fixed costs by 50% and increase unit sales to 450 units per month. Required: 1)Compute the company's current break-even point in units and dollars. 2)What is the company's current margin of safety in units,dollars,and percentage? 3)Compute the company's margin of safety in units assuming the proposal is accepted. 4)Compute the increase or decrease in profit assuming the proposal is accepted.

The records of Gemini Company show a contribution margin ratio of 40%.The company desires to earn a profit of $35,000 and has fixed costs of $70,000.What sales revenue would have to be generated in order to earn the desired profit?

To attain a target profit,the total gross margin generated from sales must be sufficient to cover total fixed costs plus the target profit.

At its $60 selling price,Atlantic Company has sales of $15,000,variable manufacturing costs of $4,000,fixed manufacturing costs of $1,000,variable selling and administrative costs of $2,000 and fixed selling and administrative costs of $1,000.What is the company's contribution margin per unit?

Billings Company has developed the following budgeted income statement: $\begin{array}{|l|r|}\hline \text { Sales Revenue }(2,300 \text { units } \times \$ 14 \text { sales price }) & \$ 32,200 \\\hline \text { Total Variable Expenses }(2,300 \times \$ 6 \text { per unit }) & \underline{(13,800) } \\\hline \text { Contribution Margin } & 18,400 \\\hline \text { Fixed Expenses } & \underline{(10,000) } \\\hline \text { Net Income } & \underline{\$ 8400}\\\hline\\\hline\end{array}$ The Company is experimenting with new engineering techniques and believes it can reduce variable cost to $4.50 per unit and significantly improve the product.The innovations would double fixed costs but the company expects to be able to increase sales to 3,500 units.If this strategy is pursued the company's budgeted net income will:

Company A makes and sells a single product,unless otherwise indicated.What happens to break-even point when the variable cost per unit and selling price both decrease by the same amount?

Kingston Company sells its product for $200 per unit.The company's accountant provided the following cost information: $\begin{array}{|l|l|}\hline \text { Manufacturing costs } & \$ 25,000+40 \% \text { of sales } \\\hline \text { Selling costs } & \$ 10,000+20 \% \text { of sales } \\\hline \text { Administrative costs } & \$ 15,000+10 \% \text { of sales } \\\hline\end{array}$ What is Kingston Company's contribution margin ratio?

Beacon Company makes a product that has a variable cost of $25 per unit and a selling price of $45 per unit.Annual fixed costs total $860,000.Beacon's net income last year was $240,000.Beacon's management is considering lowering the selling price to $40. Required: 1)How many units did Beacon sell last year? 2)If Beacon Company wants to maintain the same level of income that it had last year,how many units would it have to sell at the new selling price of $35?

Consider the following cost-volume-profit graph: Based on the information in the graph,the breakeven point in sales dollars is approximately equal to:

For a company that sells several products,cost-volume-profit techniques cannot be used to calculate the sales volume required to yield a target level of profit.

Ng Company sells one product that has a sales price of $20 per unit,variable costs of $12 per unit,and total fixed costs of $300,000.What is the amount of sales volume in dollars necessary to attain a desired profit of $100,000?

Hatfield Company sells several different products.It calculated that,for the current year,it would break even if it achieved sales of $850,000.The company actually achieved sales of $856,000,but it incurred a loss of $6,500.What could have caused this result? The costs and selling prices for the individual products did not change.

Which of the following is not one of the assumptions underlying cost-volume-profit analysis?

If total fixed costs increase while variable costs and sales price are unchanged,what happens to the break-even point?