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

Dirth Company sells only one product at a regular price of $7.50 per unit.Variable expenses are 60% of sales and fixed expenses are $30,000.Management has decided to decrease the selling price to $6.00 in hopes of increasing its volume of sales.What is the contribution margin ratio when the selling price is reduced to $6 per unit?

A. Determine the break-even point in sales dollars. B. The sales manager believed the company could increase sales by 1,000 units if advertising expenditures were increased by $15,000. By how much wiil operating income increase or decrease if the advertising is increased as suggested? c. What is the maximum amount the company could pay for advertising if the advertising would increase sales by 1,000 units?

The _________________ is the units sold or the revenue earned above the break-even volume.

Assume the following information: What volume of sales dollars is needed to break even?

Figure 4-4. Yerke Company makes jungle gyms and tree houses for children.For jungle gyms,the price is $120 and variable expenses are $90 per unit.For tree houses,the price is $200 and variable expenses are $100.Total fixed expenses are $253,750.Last year,Yerke sold 12,000 gyms and 4,000 tree houses. Refer to Figure 4-4.Now suppose that Yerke expects tree house demand to increase from 4,000 to 8,000 units.What is the sales revenue at break-even?

Melody Company sells a product for $14,variable costs are $10 per unit,and total fixed costs are $5,040.What is the break-even point in units?

The _________________________________ can be measured for a given level of sales by taking the ratio of contribution margin to operating income. or or

The formula used to calculate the number of units needed in order to earn a target income is

Operating leverage is the relative mix of

Managers can use CVP analysis to handle risk and uncertainty.

Variable expense per unit consists only of direct materials,direct labor,and variable overhead.

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

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 break-even point in sales dollars?

__________ is the relative combination of products being sold by a firm.

Figure 4-2. Pauley Company provides home health care.Pauley charges $35/hour for professional care.Variable costs are $21/hour and fixed costs are $78,000.Next year,Pauley expects to charge out 12,000 hours of home health care. Refer to Figure 4-2.What is the variable cost ratio?

What are the assumptions underlying cost-volume-profit analysis?

___________________________________ is the income statement format that is based on the separation of costs into fixed and variable components.

The break-even point is where total sales revenue equals total cost.

A profit-volume graph visually portrays the relationship between

The units sold or expected to be sold or sales revenue earned or expected to be earned above the break-even volume is called