Exam 3: Cost-Volume-Profit Analysis

Answer the following questions using the information below: Southwestern College is planning to hold a fund raising banquet at one of the local country clubs. It has two options for the banquet: Southwestern College has budgeted $1,800 for administrative and marketing expenses. It plans to hire a band which will cost another $800. Tickets are expected to be $30 per person. Local business supporters will donate any other items required for the event. -Which option provides the least amount of risk?

The breakeven point is .

SaleCo sells 11,000 units resulting in $110,000 of sales revenue, $50,000 of variable costs, and $45,000 of fixed costs. To achieve $150,000 in operating income, sales must total ________. (Round intermediate calculations to two decimal places and the final answer to the nearest dollar.)

Fine Suiting Company sells shirts for men and boys. The average selling price and variable cost for each product are as follows: Required: a.What is the breakeven point in units for each type of shirt, assuming the sales mix is 1:1? b.What is the operating leverage, assuming the sales mix is 2:1 in favor of men's shirts, and sales total 5,000 shirts?

Stones Manufacturing sells a marble slab for $1,100. Fixed costs are $33,000, while the variable costs are $550 per slab. The company currently plans to sell 210 slabs this month. What is the margin of safety assuming 85 slabs are actually sold? (Round interim calculations and final calculations to the nearest whole number.)

Family Furniture sells a table for $900. Its fixed costs are $30,000, while its variable costs are $600 per table. It currently plans to sell 175 tables this month. What is the budgeted revenue for the month assuming that Family Furniture sells 175 tables?

What would be the expected monetary value for Avalia Corp using the probability method?

Atlanta Radio Supply sells only two products, Product X and Product Y. Atlanta Radio Supply sells three units of Product X for each two units it sells of Product Y. Atlanta Radio Supply has a tax rate of 25%. Required: a.What is the breakeven point in units for each product, assuming the sales mix is 3 units of Product X for each two units of Product Y? b.How many units of each product would be sold if Atlanta Radio Supply desired an after-tax net income of $210,000, using its tax rate of 25%?

Gross Margin will always be greater than contribution margin.

Katrina's Bridal Shoppe sells wedding dresses. The average selling price of each dress is $1,100, variable costs are $500, and fixed costs are $100,000. How many dresses are sold when operating income is zero?

The contribution margin per unit equals .

Auto Tires has been in the tire business for four years. It rents a building but owns all of its equipment. All employees are paid a fixed salary except for the busy season (April-June), when temporary help is hired by the hour. Utilities and other operating charges remain fairly constant during each month except those in the busy season. Selling prices per tire average $75 except during the busy season. Because a large number of customers buy tires prior to winter, discounts run above average during the busy season. A 15% discount is given when two tires are purchased at one time. During the busy months, selling prices per tire average $60. The president of Auto Tires is somewhat displeased with the company's management accounting system because the cost behavior patterns displayed by the monthly breakeven charts are inconsistent; the busy months' charts are different from the other months of the year. The president is never sure if the company has a satisfactory margin of safety or if it is just above the breakeven point. Required: a.Why might it be difficult to use CVP in this situation? b.How can the information be presented in a better format for the president?

Sparkle Jewelry sells 600 units resulting in $75,000 of sales revenue, $32,000 of variable costs, and $26,000 of fixed costs. Breakeven point in units is ________. (Round to the nearest whole unit.)

In the merchandising sector ________.

Craylon Manufacturing produces a single product that sells for $140. Variable costs per unit equal $35. The company expects total fixed costs to be $60,000 for the next month at the projected sales level of 1,500 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately. One alternative is to increase advertising expenses by $11,000. What is the effect on operating income with the increase of advertising expenses?

Contribution margin per unit equals contribution margin divided by number of units sold.

Lauren had been a manager of a major hotel chain for 15 years. Due to a hotel owner's illness, Lauren was offered the opportunity to purchase a hotel near a vacation area she had often visited. It was a great place surrounded by mountains and known for its scenic beauty. After obtaining a lawyer and an accountant to assist her, Lauren did an analysis of the business and evaluated several contingencies relating to various scenarios. Since the expected monetary value of the various scenarios was much higher than the price of the hotel, she decided to purchase the hotel. She resigned her position, obtained a loan, and purchased the hotel. The following year, there was a severe economic downturn and also a very bad weather season that reduced the number of guests and also caused a resulting mold situation in the hotel building that required expensive repair work. Lauren ran short of cash, became emotionally distraught, and eventually had to sell the hotel at a significant loss. Was it a bad decision for her to purchase the hotel instead of keeping her other managerial position? Explain.

Which of the following statements about net income (NI) is true?

If a company has a degree of operating leverage of 4.0, that means a 10% increase in sales will result in a 40% increase in operating income.

Ruben is a travel agent. He intends to sell his customers a special round-trip airline ticket package. He is able to purchase the package from the airline for $140 each. The round-trip tickets will be sold for $230 each and the airline intends to reimburse Ruben for any unsold ticket packages. Fixed costs include $5,500 in advertising costs. How many ticket packages will Ruben need to sell in order to achieve $60,000 of operating income?