Exam 8: Cost-Volume-Profit Relationships

Reference: 08-14 Wright Corporation's contribution format income statement for last month appears below. Sales \ 45,000 Less variable expenses 27,000 Contribution margin 18,000 Less fixed expenses 12,000 Net income \ 6,000 There were no beginning or ending inventories. The company produced and sold 3,000 units during the month. -If sales decrease by 500 units by next month, by how much would fixed expenses have to be reduced to maintain the current net income?

Reference: 08-15 Jimbob Co.'s records include the following information for the month of January: Units manufactured 5,000 Units sold 4,000 Selling price per unit \ 50 Variable manufacturing costs per unit: Direct materials \ 5 Direct labour \ 2 Manufacturing overhead \ 1 Variable selling and administrative expenses per unit sold \ 1 Total fixed costs: Manufacturing overhead \ 10,000 Selling and administrative expenses \ 20,000 There were no beginning inventories. -Using absorption costing, what is the net income for January?

The following is last month's contribution format income statement: Sales (10,000 units) \ 1,200,000 Less variable expenses 800,000 Contribution margin 400,000 Less fixed expenses 240,000 Net income \ 160,000 What is the company's break-even sales in units?

Reference: 08-06 Arthur Company had the following data for the year just ended: Sales 4,000 units Sales price \ 60 per unit Variable cost \ 18 per unit Fixed costs \ 42,000 -If the company wants its margin of safety to equal $35,000 next year, all other factors remaining the same, how many units will it need to sell (round your final answer to the nearest whole number)

The following monthly data are available for the Phelps Company: Product A Product B Product C Total Sales \ 150,000 \ 130,000 \ 90,000 \ 370,000 Variable expenses 91,000 104,000 27,000 222,000 Contribution margin \ 59,000 \ 26,000 \ 63,000 148,000 Fixed expenses 55,000 Net income \ 93,000 The break-even sales for the month for the company are:

Marling Corporation has budgeted the following data: Expected sales \ 600,000 Variable expenses 420,000 Fixed expenses 120,000 What is the break-even in sales dollars?

Last year, Black Company reported sales of $640,000, a contribution margin of $160,000, and a net loss of $40,000. Based on this information, the break-even point in total sales dollars was:

Reference: 08-12 Junsin Corporation's budget for next year appears below. The budget assumes the company will sell 30,000 units. Sales \ 600,000 Less expenses: Variable \ 390,000 Fixed 140,000 530,000 Net income \ 70,000 -The break-even point in annual sales dollars is?

In a contribution margin income statement, all manufacturing costs are deducted to get to contribution margin.

Roberts Company sells a single product at a selling price of $55 per unit. Variable costs are $30.25 per unit and fixed costs are $113,850. Roberts Company's break-even point is?

A sales manager has projected that an increase in the monthly advertising budget to $10,000 will increase monthly sales from 10,000 units to 12,000 units. Each unit sells for $50 with total variable costs per unit of $40. Monthly fixed expenses, including the current advertising costs of $5,000, total $20,000. Given the above data, what will be the expected impact on net income?

Curtis Company anticipates selling 10,000 units next year. The company wants to earn a net income equal to 10% of sales. If variable expenses are $12 per unit and fixed expenses total $78,000 per year, what selling price must be established to achieve the desired level of net income?

Reference: 08-15 Jimbob Co.'s records include the following information for the month of January: Units manufactured 5,000 Units sold 4,000 Selling price per unit \ 50 Variable manufacturing costs per unit: Direct materials \ 5 Direct labour \ 2 Manufacturing overhead \ 1 Variable selling and administrative expenses per unit sold \ 1 Total fixed costs: Manufacturing overhead \ 10,000 Selling and administrative expenses \ 20,000 There were no beginning inventories. -Using absorption costing, what is the cost per unit manufactured in January

Reference: 08-10 Oslo Co.'s industrial photo-finishing division incurred the following expenses last year: Variable Fixed Direct materials \ 200,000 Direct labour 150,000 Factory overhead 70,000 \ 42,000 Selling and administrative 30,000 48,000 Total During the year, the division sold 300,000 photo-prints for $2.00 each. -What was the division's total contribution margin?

The following is last month's contribution format income statement: Sales (8,000 units) \ 800,000 Less variable expenses 500,000 Contribution margin 300,000 Less fixed expenses 200,000 Net income \ 100,000 What is the company's degree of operating leverage?

If two companies produce the same product and have the same total sales and same total expenses, operating leverage will be lower in the company with a higher proportion of fixed expenses in its cost structure.

The formula for the break-even point is the same as the formula to attain a given target profit for the special case where the target profit is zero.

The total volume in sales dollars that would be required to attain a given target profit is determined by dividing the sum of the fixed expenses and the target profit by the contribution margin ratio.

In CVP analysis there is an assumption that selling prices of products or services will change as volumes change.

Reference: 08-15 Jimbob Co.'s records include the following information for the month of January: Units manufactured 5,000 Units sold 4,000 Selling price per unit \ 50 Variable manufacturing costs per unit: Direct materials \ 5 Direct labour \ 2 Manufacturing overhead \ 1 Variable selling and administrative expenses per unit sold \ 1 Total fixed costs: Manufacturing overhead \ 10,000 Selling and administrative expenses \ 20,000 There were no beginning inventories. -Using variable costing, what is the contribution margin per unit for January