Exam 4: Cost-Volume-Profit Analysis: a Managerial Planning Tool

Figure 4-1. Foster Company makes power tools.The budgeted sales are $420,000,budgeted variable costs are $147,000,and budgeted fixed costs are $227,500. Refer to Figure 4-1.What is the variable cost ratio?

The contribution margin ratio can be calculated by subtracting the variable cost ratio from one.

The break-even point in sales dollars is equal to the break-even units multiplied by cost.

If the contribution margin per unit decreases,the break-even point in units

Explain why cost-volume-profit analysis can be useful to managers.

The contribution margin is

Figure 4-1. Foster Company makes power tools.The budgeted sales are $420,000,budgeted variable costs are $147,000,and budgeted fixed costs are $227,500. Refer to Figure 4-1.What is the contribution margin ratio?

Music Now plans to sell 6,000 MP3 players at $60 each in the coming year.Variable cost per unit is $12 and total fixed cost is $24,000. Required: A.)Calculate the variable cost ratio. B.)Calculate the contribution margin ratio. C.)Calculate the break-even point in sales dollars. D.)If Music Now has a target profit of $90,000,how many MP3 players will they have to sell?

Operating leverage is

Figure 4-3. Paney Company makes calendars.Information on cost per unit is as follows: Fixed marketing expense totaled $13,000 and fixed administrative expense totaled $35,000.The price per calendar is $10. Refer to Figure 4-3.What is the contribution margin ratio?

Given the following numbers from Webster Company,match the correct value with its appropriate term. Webster Company sells a product for $20.Unit cost information is as follows:

The Lauren Company manufactures two products.Information about the two product lines for the year is as follows: The company expects fixed costs to be $144,000.The firm expects 60 percent of its sales (in units)to be Product X. Required: Determine the break-even point in units for both Product X and Product Y. Form a package with 3 units of Product X and 2 units of Product Y. Contribution margin from Product X: $40 ´ 3 = $120 Contribution margin from Product Y: $60 ´ 2 = $120

If actual sales equal break-even sales

The formula that can be used to calculate sales dollars necessary in order to earn a target income is

Figure 4-3. Paney Company makes calendars.Information on cost per unit is as follows: Fixed marketing expense totaled $13,000 and fixed administrative expense totaled $35,000.The price per calendar is $10. Refer to Figure 4-3.What is the variable product expense per unit?

The _________________________ depicts the relationships among cost,volume,and profits by plotting the total revenue line and the total cost line on a graph.

Aaron Company provided the following data for next month: Required:

The linear equation for revenue is price multiplied by fixed cost.

_____________________ is the use of fixed costs to extract higher percentage changes in profits as sales activity changes.

Figure 4-7. A company provided the following data: Refer to Figure 4-7.How many units must be sold to earn a profit of $40,000?