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Exam 5: Cost Behavior Cost-Volume-Profit Analysis

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Question 111

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Proctor Company has fixed costs of $315,000 and a contribution margin ratio of 24%. If sales are expected to be $1,500,000, what is the percentage of the margin of safety?

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Break-even point in dollars sa...

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Question 112

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To determine the slope of the variable cost from a scatter diagram, divide the change in units by the change in cost.

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Question 113

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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?

The following information is available for a company's cost of sales over the last five months. Use the high-low method to estimate the fixed and variable components of the cost of sales.

The following information is available for a company's utility cost for operating its machines over the last four months. Using the high-low method, the estimated total fixed cost for utilities is:

Madison Corporation sells three products (M, N, and O) in the following mix: 3:1:2. Unit price and cost data are: Total fixed costs are $340,000. The selling price per composite unit for the current sales mix (rounded to the nearest cent) is:

Briefly describe a CVP chart, including its major components.

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:

A ________ cost is one that remains unchanged despite variations in the volume of activity within a relevant range. A ________ cost is one that changes in proportion to changes in volume of activity.

The proportion of sales volumes for various products in a multiproduct company is known as the composite mix.

An important assumption in multiproduct CVP analysis is a constant sales mix.

During its most recent fiscal year, Dover, Inc. had total sales of $3,200,000. Contribution margin amounted to $1,500,000 and pretax income was $400,000. What amount should have been reported as fixed costs in the company's contribution margin income statement for the year in question?

A company's normal operating range, which excludes extremely high or low operating levels that are not likely to occur, is called the:

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:

A product sells for $200 per unit, and its variable costs per unit are $130. The fixed costs are $420,000. If the firm wants to earn $35,000 pretax income, how many units must be sold?

A company manufactures and sells a product for $120 per unit. The company's fixed costs are $68,760, and its variable costs are $90 per unit. The company's break-even point in units is:

A break-even point can be calculated either in units or in dollars.

Journey 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 $8.50; and total fixed costs of $81,250. Determine the dollar sales needed to generate a pre-tax income of $44,000, rounded to the nearest whole dollar.

Margin Company has total fixed costs of $360,000 and variable costs of $14 per unit. If the unit sales price is reduced from $24 to $20 and advertising is increased by $10,000, sales will increase from 40,000 to 65,000 units. Should Margin reduce its per unit sales price and pay for the additional advertising? (Support your answer with calculations.)

The margin of safety can be expressed in units of product, in dollars, or as a percent of sales.