Exam 6: Cost-Volume-Profit Analysis

Fountain Corp. has a selling price of $15 per unit and variable costs of $10 per unit. When 14,000 units are sold, profits equaled $45,000. What is the margin of safety?

The manager of Arbor, Inc. is considering raising its current price of $50 per unit by 10%. If she does so, she estimates that demand will decrease by 30,000 units per month. Arbor currently sells 100,000 units per month, each of which costs $35 in variable costs. Fixed costs are $1,200,000. a. What is the current profit? b. What is the current break-even point in units? c. If the manager raises the price, what will profit be? d. If the manager raises the price, what will be the new break-even point in units? e. Assume the manager does not know how much demand will drop if the price increases. By how much would demand have to drop before the manager would not want to implement the price increase?

Nancy Company has sales of $100,000, variable costs of $5 per unit, fixed costs of $25,000, and a profit of $15,000. How many units were sold?

Megan, Inc. has fixed costs of $400,000, sales price of $40, and variable cost of $30 per unit. How many units must be sold to earn profit of $80,000?

Mira Corp. has a selling price of $50 per unit, variable costs of $40 per unit, and fixed costs of $90,000. How many units must be sold to break-even?

Forge, Inc. is trying to decide whether to increase the commission-based pay of its salespeople. Currently, each of its ten salespeople earns a 10% commission on the units they sell for $90 each, plus a fixed salary of $30,000 each. Forge hopes that by increasing commissions to 20% and decreasing each salesperson's salary to $21,000, sales will increase because salespeople will be more motivated. Currently, sales are 12,000 units. Forge's other fixed costs, not including the salespeople's salaries, total $188,580. Forge's other variable costs, not including commissions, total $30 per unit. a. What is current profit? b. What is the current break-even point in units? c. What would the break-even point in units be if commissions are increased and salaries decreased? d. If sales increase by 1,000 units, what will profit be under the new plan? e. At what sales level would Forge be indifferent between the lower-commission plan and the higher-commission plan?

To determine the number of units needed to earn a target profit, divide the target contribution margin by the contribution margin per unit

The formula for target sales is:

The formula for break-even point in terms of sales dollars is:

Frontier Corp. has a contribution margin of $450,000 and profit of $150,000. If sales increase 20%, by how much will profits increase?

Cost-volume-profit analysis can only be performed for companies that sell only one product

Fontaine Corp. has a selling price of $15 and variable costs of $10 per unit. When 10,000 units are sold, profits equaled $25,000. What is the margin of safety?

Juniper had revenues of $450,000 in March. Fixed costs in March were $240,000 and profit was $30,000. Answer the following questions: a. What was the contribution margin percentage? b. What monthly sales volume (in dollars) would be needed to break-even? c. What was the margin of safety for March?

Drake, Inc., which has fixed costs of $1,400,000, sells three products whose sales price, variable cost per unit, and percentage of sales units are presented in the table below. a. What is the weighted average unit contribution margin? b. At the break-even point, how many units of Product A must be sold? c. To make a profit of $910,000, how many units of Product B must be sold?

Portia Company is a retailer of hammers. Portia pays $4.75 for each hammer and sells them for $8.00. Monthly fixed costs are $26,000. The hammer cost is the only variable cost. a. What is the contribution margin per unit? b. What is the break-even point in units? c. How many units will Portia need to sell to earn target profit of $13,000?

All else being equal, what happens to the unit contribution margin and the contribution margin ratio if the sales price per unit increases?

Quail, Inc., has a contribution margin of 40% and fixed costs of $130,000. What is the break-even point in sales dollars?

Match the assumption for cost behavior patterns used in cost-volume-profit analysis with its corresponding explanation. Your choices are: -All costs can be classified as either fixed or variable. -There is a constant product mix. -There is a linear relationship between cost and revenue. -Only volume affects total cost and total revenue. -Production volume is equal to sales volume.

The manager of Calypso, Inc. is considering raising its current price of $30 per unit by 10%. If she does so, she estimates that demand will decrease by 20,000 units per month. Calypso currently sells 50,000 units per month, each of which costs $25 in variable costs. Fixed costs are $180,000. a. What is the current profit? b. What is the current break-even point in units? c. If the manager raises the price, what will profit be? d. If the manager raises the price, what will be the new break-even point in units? e. Assume the manager does not know how much demand will drop if the price increases. By how much would demand have to drop before the manager would not want to implement the price increase?

Last month Stagecoach Company had a $60,000 loss on sales of $300,000. Fixed costs are $120,000 a month. What sales revenue is needed for Stagecoach to break even?