Exam 7: Cost-Volume-Profit Analysis

The following information relates to Paternus Company: If a manager at Paternus desired to determine the percentage impact on income of a given percentage change in sales, the manager would multiply the percentage increase/decrease in sales revenue by:

Total contribution margin is defined as total sales revenue plus total variable expenses.

Santa Fe Production sells a single product to wholesalers. The company's budget for the upcoming year revealed anticipated unit sales of 31,600, a selling price of $20, variable cost per unit of $8, and total fixed costs of $360,000. Santa Fe's safety margin in units is:

If a company desires to increase its safety margin, it should:

The contribution-margin ratio is:

The extent to which an organization uses fixed costs in its cost structure is measured by:

Shotz Corporation sells three products: J, K, and L. The following information was taken from a recent budget: Total fixed costs are anticipated to be $2,450,000. A. Determine Shotz's sales mix. B. Determine the weighted-average contribution margin. C. Calculate the number of units of J, K, and L that must be sold to break even. D. If Shotz desires to increase company profitability, should it attempt to increase or decrease the sales of product K relative to those of J and L? Briefly explain.

The relevant range is the range of activity in which management of a company expects to operate.

Use the following information to answer the following Questions -Refer to the figure above. The slope of line A is equal to the:

A recent income statement of McClennon Corporation reported the following data: If the company desired to earn a target profit of $1,270,000, it would have to sell:

A company has fixed costs of $900 and a per-unit contribution margin of $3. Which of the following statements is true?

Use the following information to answer the following Questions -Refer to the figure above. Line A is the:

Many operating managers find the traditional income-statement format difficult to use, because it does not separate revenues and expenses.

At a volume level of 500,000 units, Sullivan reported the following information: The company's contribution-margin ratio is closest to:

An ABC cost-volume-profit analysis recognizes that some costs that are fixed with respect to sales volume may not be fixed with respect to other important cost drivers.

Calle Company is studying the impact of the following: 1. An increase in sales price. 2. An increase in the variable cost per unit. 3. An increase in the number of units sold (note: each unit produces a $6 contribution margin). 4. A decrease in fixed costs. 5. A proposed change in the method of compensation for salespeople, away from commissions based on gross sales dollars and toward higher monthly salaries. Required: Determine the impact of each of these operating changes on Calle’s per-unit contribution margin and break-even point by completing the chart that follows. Your responses should be Increase (INC), Decrease (DEC), No Effect (NE), or Insufficient Information to Judge (II).

Use the following information to answer the following Questions Narchie sells a single product for $50. Variable costs are 60% of the selling price, and the company has fixed costs that amount to $400,000. Current sales total 16,000 units. -Narchie:

Markham Industries is studying the profitability of a change in operation and has gathered the following information: Should Markham Industries make the change?

A company, subject to a 40% tax rate, desires to earn $500,000 of after-tax income. How much should the firm add to fixed costs when figuring the sales revenues necessary to produce this income level?

Two brothers (Baylor and Lamar) dreamt about owning and operating companies in the same line of business. Baylor believed in maintaining a very large, highly efficient manual labor force; Lamar, on the other hand, favored automated-production processes. One business was located in Omaha and the other was located in Tulsa. Recent data follow. A. Which of the two businesses, Omaha or Tulsa, has the higher level of (1) variable cost and (2) higher level of fixed cost? Explain how you determined your answer. B. Determine the probable owner of the firm located in (1) Omaha and (2) Tulsa. Briefly explain your logic. C. Compute the operating leverage factor for Omaha and Tulsa. D. Suppose that both Omaha and Tulsa had the opportunity to increase sales by 10%. Which of the two locations would experience a larger percentage change in net income? Why?