Exam 2: Introduction to Cost Behavior and Cost Volume Relationships

The margin of safety shows how far sales can fall below the planned level of sales before losses occur.

As the cost- driver activity level increases within the relevant range:

Output measures of both resources and activities are:

The Sweetheart Company, a producer of specialty cards, has asked you to complete several calculations based upon the following information:

Cause the consumption of costly resources

The study of the effects of output volume on sales, costs, and profit

Cleveland Manufacturing, Inc.'s most recent income statement is presented below: Sales \ 450,000 Cost of goods sold 200,000 Gross margin 250,000 Other op erating 196,000 expenses Operating income \ 54,000 Cleveland Manufacturing, Inc., has determined that $50,000 of cost of goods sold and $166,000 of operating expenses is fixed. Required: a. Compute the contribution margin. b. Compute the contribution- margin percentage. c. Compute the break- even volume in sales dollars. d. Compute the current margin of safety.

The incremental approach means that a manager focuses on the effects of changes from the current condition.

Muy Mal Company, a producer of salsa, has the following information: Income tax rate 30\% Selling pric e per unit \ 5.00 Variable cost p er unit \ 3,00 Total fixed costs \ 90,000.00 must be sold to obtain a targeted after- tax income of $14,000.

Graybill Corporation gathered the following information: Variable costs \ 945,000 Income tax rate 40\% Contribution- margin 25\% ratio Required: a. Compute total fixed costs assuming a break- even volume in dollars of $1,610,000. b. Compute sales volume in dollars to produce an after- tax net income of $210,000.

If fixed expenses were the same and contribution margin per unit was cut in half, then the break- even point would:

The benefits of increased accuracy of using a computer model in CVP analysis always exceed the costs.

When analyzing costs, two rules of thumb are useful: (1) think of fixed costs on a per- unit basis; and (2) think of variable costs as a total.

Ankeny Company wishes to earn after- tax net income of $18,000. Total fixed costs are $84,000, and the contribution margin per unit is $6.00. Ankeny's tax rate is 40%. The number of units that must be sold to earn the targeted net income is:

The margin of safety is the difference between planned unit sales and break- even sales.

As the cost driver activity level decreases within the relevant range:

Total fixed expenses / contribution- margin ratio

The relative proportions or combinations of quantities of products that comprise total sales

The margin of safety:

The reliability of computer models used in CVP analysis depends on the accuracy of their underlying assumptions about how revenues and costs may actually be affected.