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Exam 18: Cost-Volume-Profit Analysis

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Question 1

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Which one of the following statements is not true?

A) Total fixed costs remain the same regardless of volume.
B) Total variable costs change with volume.
C) Total variable costs decrease as the volume increases.
D) Fixed costs per unit increase as the volume decreases.
E) Variable costs per unit remain the same regardless of the volume.

F) B) and D)
G) A) and B)

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Question 2

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The following information describes a product expected to be produced and sold by Pepin Corporation: $\begin{array}{ll}\text { Selling price } & \$ 32 \text { per unit } \\\text { Variable costs } & \$ 27 \text { per unit } \\\text { Total fixed costs } & \$ 850,000 \text { per year }\end{array}$ Required: a.Calculate the contribution margin per unit. b.Calculate the break-even point in units.

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a.Contribution margin = $32 - ...

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Question 3

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Hiller Co.anticipates total fixed costs of $120,000 and variable costs equal to 40% of sales.What is the pretax income if sales are $650,000?

Break-even analysis cannot be applied in a multiproduct situation.

Benny and Frieda are art students who often received compliments on the t-shirts they designed and made themselves.In need of funds for fall semester,they decide to sell these t-shirts at a small stand at the South Haven Beach during the summer.Rent on the beach stand is $1,600 per month.Variable costs per t-shirt are $4.75. a.Complete the following table which estimates total costs and cost per t-shirt at the indicated levels of activity for this t-shirt stand.Round the costs per t-shirt to two decimal places. $\begin{array} {r}{ \text { Number of t-shirts sold in one month } } \\\begin{array} { | l | c | c | c | } \hline & 1,000 & 1,500 & 2,000 \\\hline \text { Total fixed cost } & & & \\\hline \text { Total variable cost } & & & \\\hline \text { Total cost } & & & \\\hline \text { Cost per t-shitt sold } & & & \\\hline\end{array}\end{array}$ b.Benny and Frieda need to each earn $5,000 before the fall term starts.They plan to sell the t-shirts for $15. 1.Will they be able to meet their goal? Support your comments with computations. 2.What other factors might affect this business venture?

A cost that changes with volume,but not at a constant rate,is called a:

On a typical cost-volume-profit graph,unit sales are shown on the horizontal axis and both dollars of sales and dollars of costs are represented on the vertical axis.

During the past year a company had total fixed costs of $70,000.Its product sold for $9 per unit.Variable costs during this time equaled $5 per unit.Next year the company is anticipating a 4% increase in total fixed costs and a $1 per unit decrease in variable costs but would like to maintain its current selling price per unit.How many units must the company sell next year to earn $1 million? (Round answer to complete units.)

Macleod Company's product has a contribution margin per unit of $62.50 and a contribution margin ratio of 25%.What is the per unit selling price of the product?

There are only two methods to derive an estimated line of cost behavior: the high-low method and the scatter diagram.

Describe how a cost-volume-profit analysis would be performed for a company that sells more than one product.(Assume that the sales mix is known.)

Ivan Company has a goal of earning $70,000 after-tax income.Ivan would need to pay $20,000 of income taxes at the target level of income.The contribution margin ratio is 30%.What amount of dollar sales must be achieved to reach the goal if fixed costs are $36,000?

Legacy Company is considering the production and sale of a new product with the following sales and cost data: unit sales price $18; unit variable costs $8.10; and total fixed costs of $8,250.Legacy is subject to a 25% tax rate.Determine the dollar sales needed to generate an after-tax income of $33,000.

Define the break-even point of a company.

Beard Enterprises has collected the following data in order to analyze the behavior of their costs: $\begin{array} { | c | c | c | } \hline \text { Month } & \text { Units Produced } & \text { Total Cost } \\\hline \text { January } & 17,500 & \$ 20,500 \\\hline \text { February } & 27,500 & \$ 21,500 \\\hline \text { March } & 25,000 & \$ 25,000 \\\hline \text { April } & 35,000 & \$ 21,500 \\\hline \text { May } & 47,500 & \$ 25,500 \\\hline \text { June } & 22,500 & \$ 18,500 \\\hline\end{array}$ a.Using the high-low method,calculate the variable cost per unit and the estimated fixed costs. b.Using the resulting relationship,predict the costs if they produce 28,000 units in a future period.

Hald Co.produces and sells Ultra,Super,and Mega and has total fixed costs of $52,000.Sales and cost data follow: $\begin{array}{lrrr}&\text { Ultra}&\text { Super }&\text { Mega }\\\text { Sales price per unit } & \$ 6 & \$ 8 & \$ 10 \\\text { Variable costs per unit } & 4 & 6 & 7 \\\text { Sales mix } & 3 & 2 & 1\end{array}$ Calculate the break-even point in composite units.

Three important assumptions in cost-volume-profit analysis is that (1)_______________per unit is constant,(2)_____________ per unit is constant,and (3)______________ are constant in total.

Kelley Company and Mason Company each have sales of $200,000 and costs of $140,000.Kelley Company's costs consist of $40,000 fixed and $100,000 variable,while Mason Company's costs consist of $100,000 fixed and $40,000 variable.Which company will suffer the greatest decline in profits if sales volume declines by 15%?

An important tool in predicting the volume of activity,the costs to be incurred,the sales to be earned,and the profit to be received is:

A company sells a single product that has a contribution margin ratio of 24%.If the company's total fixed costs are $84,000,what is the break-even point in dollar sales?