Exam 22: Cost-Volume-Profit

Walters Corporation sells radios for $50 per unit. The fixed costs are $525000 and the variable costs are 60% of the selling price. As a result of new automated equipment it is anticipated that fixed costs will increase by $125000 and variable costs will be 50% of the selling price. The new break-even point in units is:

For an activity base to be useful in cost behavior analysis

For analysis purposes the high-low method usually produces a(n)

For two years Annette Larson has been the manager of the production department of a company manufacturing toys made of plastic-coated cardboard. One of the toys is a paper doll whose "clothes" are made of acetate and stay on the doll with static electricity. The company's sales were mainly to large educational institutions until last year when the dolls were sold for the first time to a large discount retailer. The dolls were sold out immediately and enough orders were received to keep the department at full capacity for the immediate future. The fixed costs for the department are $50000 with $1 per unit variable costs. A paper doll and one set of clothes sell for $3. The maximum volume is 80000 units. With the increased volume Ms. Larson is considering two options to improve profitability. One would reduce variable costs to $0.75 and the other would reduce fixed costs to $35000. Required: Given the fact that sales are increasing make a short (one paragraph) recommendation to Ms. Larson about which option she should choose. Support your recommendation with a calculation showing her how profitability will change with each option.

At the break-even point of 2000 units variable costs are $55000 and fixed costs are $35000. How much is the selling price per unit?

The activity that causes changes in the behavior of costs is referred to as the activity

If volume increases all costs will increase.

Portman Company's activity for the first three months of 2016 are as follows: Machine Hours Electrical Cost January 2,100 \ 4,800 February 2,600 \ 5,800 March 2,900 \ 6,400 Using the high-low method how much is the cost per machine hour?

Cost behavior analysis applies to

Total fixed costs are ___________ over various levels of activities whereas total variable costs __________________ directly and ________________ with changes in the activity level.

Cunningham Industries reported actual sales of $2000000 and fixed costs of $540000. The contribution margin ratio is 30%. Instructions Compute the margin of safety in dollars and the margin of safety ratio.

The costing approach that charges all manufacturing costs to the product is referred to as

Moresan Co. gathered the following information on power costs and factory machine usage for the last six months: Month Power Cost Factory Machine Hours January \ 24,400 13,900 February 30,400 17,600 March 29,000 16,800 April 22,340 13,200 May 19,900 11,600 June 16,900 8,600 Instructions Using the high-low method of analyzing costs answer the following questions and show computations to support your answers. (a) What is the estimated variable portion of power costs per factory machine hour? (b) What is the estimated fixed power cost each month? (c) If it is estimated that 10000 factory machine hours will be run in July what is the expected total power cost for July?

Leoparod Company developed the following unit information for January 2014 its first month of operations: Per Unit Total Cost Sales price \2 0 Variable costs Direct materials 5 Direct labor 3 Variable manufacturing overhead 4 Selling and administrative expenses 2 Fixed selling and administrative expenses \3 1,000 Fixed manufacturing overhead 46,000 During January 16000 units were produced and 12000 units were sold. Instructions (a) Prepare an income statement under the variable costing approach using the CVP format. (b) What would be the net income (loss) if the absorption cost approach had been used? Explain any income difference between absorption and variable costing.

Corris Co. accumulates the following data concerning a mixed cost using miles as the activity level. Miles Driven Total Cost January 10,000 \ 17,000 February 8,000 13,500 March 9,000 14,400 April 7,000 12,500 Instructions Compute the variable and fixed cost elements using the high-low method.

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

A mixed cost contains

The margin of safety is the difference between contribution margin and fixed costs.

Frazier Manufacturing Company collected the following production data for the past month: Units Produced Total Cost 1,600 \ 66,000 1,300 57,000 1,500 67,500 1,100 49,500 If the high-low method is used what is the monthly total cost equation?

A division sold 200000 calculators during 2017: Sales \2 ,000,000 Variable costs: Materials \3 80,000 Order processing 150,000 Billing labor 110,000 Selling expenses 60,000 Total variable costs 700,000 Fixed costs 1,000,000 How much is the unit contribution margin?