Exam 6: Cost-Volume-Profit Analysis

A company is debating whether to change its cost structure so that variable costs increase from $4 per unit to $5 per unit but fixed costs decrease from $400,000 to $300,000.If it were to implement the change at its current production level of 100,000,profit would not change.What would happen to the company's profit if the change were implemented and production increased?

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

Last month Angus Company had a $30,000 loss on sales of $250,000.Fixed costs are $60,000 a month.What sales revenue is needed for Angus to break even?

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?

The formula for target sales is:

Allen,Inc. ,has a contribution margin of 40% and fixed costs of $250,000.What is the break-even point in sales dollars?

Which of the following is not a key assumption of cost-volume-profit?

The profit equation is:

Raven Inc.sells a single product for $45.Variable costs include $26 for each unit plus a $10 selling expense per unit.Fixed costs are $200,000 per month. a.What is the contribution margin percentage? b.What is the breakeven sales revenue? c.What sales revenue is needed to achieve a $175,000 per month profit?

Managers can use cost-volume-profit analysis to evaluate changes in cost structure.

Jasper Corp.has a selling price of $30,and variable costs of $20 per unit.When 12,000 units are sold,profits equaled $70,000.How many units must be sold to break-even?

Cost structure refers to:

Plymouth Corp.sells units for $100 each.Variable costs are $75 per unit,and fixed costs are $200,000.If Plymouth leases a new machine,fixed costs will increase by $60,000 a year,but production will be more efficient,saving $5 per unit.At what level of production will Plymouth be indifferent between leasing and not leasing the new machine?

Plymouth Corp.sells units for $100 each.Variable costs are $75 per unit,and fixed costs are $200,000.If Plymouth leases a new machine,production will be more efficient,saving $5 per unit.If Plymouth plans to sell 12,000 units,at what lease cost will Plymouth be indifferent between leasing and not leasing the new machine?

Halifax Products sells a product for $75.Variable costs per unit are $50,and monthly fixed costs are $75,000.Answer the following questions: a.What is the break-even point in units? b.How many units would need to be sold to earn a target profit of $200,000? c.Assuming they achieve the level of sales required in part b,what is the margin of safety in sales dollars?

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

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?

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

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

Malibu,Inc. ,which has fixed costs of $2,150,000,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 $1,075,000,how many units of Product B must be sold?