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Exam 21: Cost-Volume-Profit Analysis

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Question 51

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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) D) and E)

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Question 52

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The excess of expected sales over the sales level at the break-even point is known as the:

A) Sales turnover.
B) Profit margin.
C) Contribution margin.
D) Relevant range.
E) Margin of safety.

F) A) and E)
G) A) and D)

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Question 53

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In cost-volume-profit analysis,the unit contribution margin is:

Forrester Company is considering buying new equipment that would increase monthly fixed costs from $120,000 to $150,000 and would decrease the current variable costs of $70 by $10 per unit.The selling price of $100 is not expected to change.Forrester's current break-even sales are $400,000 and current break-even units are 4,000.If Forrester purchases this new equipment,the revised break-even point in dollars would be:

Cost-volume-profit analysis requires management to classify all costs as either fixed or variable with respect to production or sales volume within the relevant range of operations.

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.

Mason Company manufactures and sells shoelaces for $2.00 per pair.Its variable cost per unit is $1.70.Mason's total fixed costs are $10,500.How many pairs must Mason Company sell to break even?

Cost-volume-profit analysis is a precise tool for determining the profit consequences of future cost changes,price changes,and volume of activity changes.

Kent Manufacturing produces a product that sells for $50.00.Fixed costs are $260,000 and variable costs are $24.00 per unit.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.What effect would the purchase of the new machine have on Kent's break-even point in units?

Crookshank Manufacturing has total fixed costs of $460,000.A unit of product sells for $20 and variable costs per unit are $11. Prepare a contribution margin income statement showing predicted net income (loss)if Crookshank sells 100,000 units for the year ended December 31.

The margin of safety is the excess of:

In Keegan Corporation's most recent fiscal year,the company reported pretax earnings of $215,000.Fixed costs totaled $325,800,the unit selling price of the firm's only product was $60,and the variable costs per unit were 40% of the selling price.Based on this information,the firm's break-even point in units was:

_____________ is a statistical method of identifying an estimated line of cost behavior.

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

The budgeted income statement presented below is for Burkett Corporation for the coming fiscal year.If Burkett Corporation is able to achieve the budgeted level of sales,its margin of safety in dollars would be:

Locus Company has total fixed costs of $112,000.Its product sells for $35 per unit and variable costs amount to $25 per unit.Next year Locus Company wishes to earn a pretax income that equals 10% of fixed costs.How many units must be sold to achieve this target income level?

Which of the following is the correct interpretation of a degree of operating leverage of 5?

Mullis Corp.manufactures DVDs that sell for $5.00.Fixed costs are $28,000 and variable costs are $3.60 per unit.Mullis can buy a newer production machine that will increase fixed costs by $8,000 per year,but will decrease variable costs by $0.40 per unit.What effect would the purchase of the new machine have on Mullis' break-even point in units?

The following information is available for a company's cost of sales over the last five months. Using the high-low method,the estimated variable cost of sales per unit sold is:

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