Exam 17: Cost-Volume-Profit

Sweet Manufacturing is planning to sell 400,000 hammers for $6 per unit. The contribution margin ratio is 20%. If Sweet will break even at this level of sales, what are the fixed costs?

Cost activity indexes might help classify costs as

Lansbury Manufacturing produces hair brushes. The selling price is $20 per unit and the variable costs are $8 per brush. Fixed costs per month are $4,800. If Lansbury sells 30 more units beyond breakeven, how much does profit increase as a result?

Firms operating at 100% capacity

Costs will not change in total within the relevant range of activity.

The activity level is represented by an activity index such as direct labor hours, units of output, or sales dollars.

A fixed cost remains constant in total and on a per unit basis at various levels of activity.

Unit contribution margin is the amount that each unit sold contributes towards the recovery of fixed costs and to income.

Gribble Company's high and low level of activity last year was 60,000 units of product produced in May and 20,000 units produced in November. Machine maintenance costs were $156,000 in May and $60,000 in November. Using the high-low method, determine an estimate of total maintenance cost for a month in which production is expected to be 45,000 units.

Wendy Industries produces only one product. Monthly fixed expenses are $12,000, monthly unit sales are 4,000, and the unit contribution margin is $10. How much is monthly net income?

Changes in the level of activity will cause unit variable and unit fixed costs to change in opposite directions.

Boswell Company reported the following information for the current year: Sales (50,000 units) $1,000,000, direct materials and direct labor $500,000, other variable costs $50,000, and fixed costs $360,000. What is Boswell's contribution margin ratio?

The difference between the costs at the high and low levels of activity represents the fixed cost element of a mixed cost.

Target net income is the income objective for an individual product line.

If graphed, fixed costs that behave in a curvilinear fashion resemble a(n)

Cunningham, Inc. sells MP3 players for $60 each. Variable costs are $40 per unit, and fixed costs total $120,000. How many MP3 players must Cunningham sell to earn net income of $280,000?

A company desires to sell a sufficient quantity of products to earn a profit of $400,000. If the unit sales price is $20, unit variable cost is $12, and total fixed costs are $800,000, how many units must be sold to earn net income of $400,000?

Boswell Company reported the following information for the current year: Sales (50,000 units) $1,000,000, direct materials and direct labor $500,000, other variable costs $50,000, and fixed costs $360,000. What is Boswell's break-even point in units?

At the break-even point,

Cost behavior analysis applies to