Exam 6: Cost-Volume-Profit Analysis

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 Lyle Company had a $60,000 profit on sales of $300,000.Fixed costs are $120,000 a month.How much do sales have to increase for Lyle to earn a $100,000 profit?

Knoll,Inc.currently sells 15,000 units a month for $50 each,has variable costs of $20 per unit,and fixed costs of $300,000.Knoll is considering increasing the price of its units to $60 per unit.This will not affect costs,but demand is expected to drop 20%.Should Knoll increase the price of its product?

A firm with a higher degree of operating leverage would be considered less risky than a comparable firm with a lower degree of operating leverage.

Leather Company sold 20,000 units,had variable costs of $12 per unit,fixed costs of $100,000,and profits of $60,000.What is the selling price per unit?

At a level of 20,000 units sold,Gail Corp.has sales of $400,000,a contribution margin ratio of 40%,and a profit of $40,000.What is the break-even point in units?

Frontier Corp.has a contribution margin of $450,000 and profit of $150,000.What is its degree of operating leverage?

Frontier Corp.has fixed costs of $300,000 and profit of $150,000.If sales increase 20%,by how much will profits increase?

Jerome Corp.has fixed costs of $500,000 and a contribution margin ratio of 40%.Currently,sales are $3,000,000.What is Jerome's margin of safety?

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?

Which of the following statements about leverage is not correct?

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

At the break-even point,the margin of safety will be:

Chelsea Company has sales of $400,000,variable costs of $10 per unit,fixed costs of $100,000,and a target profit of $60,000.How many units were sold?

Graham Corp.sells two products.Product A sells for $200 per unit,and has unit variable costs of $150.Product B sells for $50 per unit,and has unit variable costs of $20.Currently,Graham sells three units of Product B for every two units of Product A sold.Graham has fixed costs of $760,000.What is Graham's break-even point in units?

Virgil Corp.has a selling price of $30 per unit,and variable costs of $20 per unit.When 12,000 units are sold,profits equaled $55,000.How many units must be sold to break-even?

Dexter Corp.has fixed costs of $500,000 and a contribution margin ratio of 25%.Currently,margin of safety is $1,000,000.What are Dexter's current sales?

If production volume does not equal sales volume:

Munoz Inc.has a contribution margin ratio of 30% and fixed costs of $90,000.What sales revenue is needed to generate a $60,000 profit?

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?