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Exam 5: Cost Behavior Cost-Volume-Profit Analysis

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Question 91

True/False

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Cost-volume-profit analysis cannot be used when a firm produces and sells more than one product.

A) True
B) False

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Question 92

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A company has fixed costs of $270,000, a unit contribution margin of $14, and a contribution margin ratio of 55%. If the firm wants to earn a target $60,000 pretax income, what amount of sales must the company make (rounded to the nearest whole dollar) ?

A) 490,909.
B) 330,000.
C) 109,090.
D) 381,818.
E) 600,000.

F) All of the above
G) A) and B)

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Question 93

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McCoy Brothers manufactures and sells two products, A and Z in the ratio of 5:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the contribution margin per composite unit.

Under variable costing, only costs that change in total with changes in production levels are included in product costs.

The following information is available for Alba Company's maintenance cost over the last four months. Use the high-low method to estimate both the fixed and variable component of its maintenance cost.

Flannigan Company manufactures and sells a single product that sells for $450 per unit; variable costs are $270. Annual fixed costs are $800,000. Current sales volume is $4,200,000. Flannigan Company management targets an annual pre-tax income of $1,125,000. Compute the unit sales to earn the target pre-tax net income.

Solving problems to determine the relationship of cost, volume, and profit often commences with the measurement of the ________ point. Further analysis emphasizing profitability may be accomplished by measuring the ________ and ________.

Degree of operating leverage (DOL) is defined as total contribution margin in dollars divided by pretax income.

Barclay Enterprises manufactures and sells three distinct styles of bicycles: the Youth model sells for $300 and has a unit contribution margin of $105; the Adult model sells for $850 and has a unit contribution margin of $450; and the Recreational model sells for $1,000 and has a unit contribution margin of $500. The company's sales mix includes: 5 Youth models; 9 Adult models; and 6 Recreational models. If the firm's annual fixed costs total $6,500,000, calculate the firm's break-even point in composite units (rounded to the nearest whole unit) .

Henderson Co. has fixed costs of $36,000 and a contribution margin ratio of 24%. If expected sales are $200,000, what is the margin of safety as a percent of sales?

A cost-volume-profit (CVP) chart is a graph that plots number of units produced on the horizontal axis and dollars of costs and sales on the vertical axis.

Carver Packing Company reports total contribution margin of $72,000 and pretax net income of $24,000 for the current month. In the next month, the company expects sales volume to increase by 8%. The degree of operating leverage and the expected percent change in income, respectively, are:

The following data relate to a product sold by Hallstone Company: (a) Calculate the number of units expected to be sold. (b) Calculate the expected total dollar sales.

Elk Co. manufactures a product that sells for $12 per unit. Total fixed costs are $96,000 and variable costs are $7 per unit. Elk can buy a newer production machine that will increase total fixed costs by $22,800 but variable costs will be decreased by $0.40 per unit. What effect would the purchase of the new machine have on Elk's break-even point in units?

Cost-volume-profit analysis is based on necessary assumptions. Which of the following is not one of these assumptions?

The margin of safety is the excess of:

Kent Manufacturing produces a product that sells for $50.00 and has variable costs of $24.00 per unit. Fixed costs are $260,000. Kent can buy a new production machine that will increase fixed costs by $11,400 per year, but will decrease variable costs by $3.50 per unit. Compute the revised break-even point in units if the new machine is purchased.

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

Total fixed costs change in proportion to changes in volume of activity.

McCoy Brothers manufactures and sells two products, A and Z in the ratio of 5:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the number of units of Product A McCoy must sell to break even.