Exam 3: Fundamentals of Cost-Volume-Profit Analysis

If the fixed costs are $2,400, targeted before-tax operating profit is $1,200, tax rate is 25%, selling price per unit is $2, and contribution margin ratio is 40%, then the sales volume is 9,000 units.

The break-even point in sales dollars is fixed costs divided by the contribution margin ratio.

Given the following information: Sales \ 5,000 Fixed Expenses 2,000 Variable Expenses 1,750 What would expected operating profit be if the company experienced a 10% increase in fixed costs and a 10% increase in sales volume?

Which of the following formulas is used to calculate the contribution margin ratio?

An organization's operating leverage is high when it has a low proportion of variable costs in its total costs.

You have been provided with the following information regarding the Omaha Manufacturing Company: Sales price \5 0 Variable manufacturing cost per unit 24 Variable marketing cost per unit 6 Fixed manufacturing costs 360,000 Fixed administrative costs 80,000 This information is based on forecasted sales of 30,000 units. Required: (a) What is the expected operating profit for the upcoming year? (b) What is the break-even point in units? (c) If $180,000 of operating profit is desired, how many units must be sold?

Profit is the unit contribution margin multiplied by the number of units minus the fixed component of the total costs (TC).

Lamar has the following data: Selling Price \ 40 Variable manufacturing cost quad22 Fixed manufacturing cost \ 150,000 per month Variable selling \& administrative costs \ 6 Fixed selling \& administrative costs \ 120,000 per month - How many units must Lamar produce and sell in order to achieve a profit of $30,000 per month?

Why is it important for the profit equation to make a distinction between fixed and variable costs?

Grayson Corporation produces and sells a single product. Data concerning that product appear below: Selling price per unit \ 230.00 Variable cost per unit \ 92.00 Fixed cost per month \ 621,000 Required: a. Assume the company's monthly target profit is $69,000. Determine the unit sales to attain that target profit. b. Assume the company's monthly target profit is $41,400. Determine the dollar sales to attain that target profit.

With regard to the CVP graph, which of the following statements is not correct?

An increase in an organization's tax rate will cause an increase in its break-even point.

Dorcan Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $7.50 each, and the variable cost to manufacture them was $2.25 per unit. The company needed to sell 20,000 shirts to break-even. The after tax net income last year was $5,040. Donnelly's expectations for the coming year include the following: (CMA adapted) ∙ The sales price of the T-shirts will be $10. ∙ Variable cost to manufacture will increase by one-third. ∙ Fixed costs will increase by 10%. ∙ The income tax rate of 40% will be unchanged. Based on a $10 selling price per unit, the number of T-shirts Dorcan Corporation must sell to break-even in the coming year is:

Honeysuckle Manufacturing has the following data: Selling Price \ 60 Variable manufacturing cost \ 33 Fixed manufacturing cost \ 250,000 per month Variable selling \& administrative costs \ 9 Fixed selling \& administrative costs \ 120,000 per month - What dollar sales volume does Honeysuckle need to achieve a $50,000 operating profit per month?

The difference between total sales in dollars and total variable costs is called:

Flower Company manufactures and sells a single product that has a positive contribution margin. If the selling price and variable costs both decrease by 5% and fixed costs do not change, then what would be the effect on the contribution margin per unit and the contribution margin ratio? Contribution margin per unit Contribution margin ratio A. Decrease Decrease B. Decrease No change C. No change Decrease D. No change No change

Lamar has the following data: Selling Price \ 40 Variable manufacturing cost quad22 Fixed manufacturing cost \ 150,000 per month Variable selling \& administrative costs \ 6 Fixed selling \& administrative costs \ 120,000 per month - How many units must Lamar produce and sell in order to break-even?

Dorcan Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $7.50 each, and the variable cost to manufacture them was $2.25 per unit. The company needed to sell 20,000 shirts to break-even. The after tax net income last year was $5,040. Donnelly's expectations for the coming year include the following: (CMA adapted) The sales price of the T-shirts will be $9. ? Variable cost to manufacture will increase by one-third. ? Fixed costs will increase by 10%. ? The income tax rate of 40% will be unchanged. The selling price that would maintain the same contribution margin ratio as last year is:

The best course of action in sensitive decisions is that the manager should depend upon the cost analyst's CVP analysis without considering alternative assumptions.

The following costs have been estimated based on sales of 30,000 units: Total Annual Percent That Is Costs Variable Direct materials \ 300,000 100\% Direct labor 250,000 100\% Manufacturing overhead 250,000 100\% Selling and administrative 150,000 25\% What selling price (rounded to two decimal places) will yield a contribution margin of 40%?