Exam 3: Cost-Volume-Profit Analysis

All else being constant, an increase in operating income will result in an increase in net income.

The margin of safety is the difference between ________.

Craylon Manufacturing produces a single product that sells for $130. Variable costs per unit equal $30. The company expects total fixed costs to be $60,000 for the next month at the projected sales level of 1,200 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately. Suppose that management believes that a $12,000 increase in the monthly advertising expense will result in a considerable increase in sales. Sales must increase by ________ to justify this additional expenditure.

Freddie's Company has mostly fixed costs and Valerie's Company has mostly variable costs. Which company has the greatest risk of a net loss? Explain why.

Operating income plus total fixed costs equals the contribution margin.

When a greater proportion of costs are fixed costs, then ________.

Arthur's Plumbing reported the following: Required: a.Compute contribution margin. b.Compute contribution margin percentage. c.Compute gross margin. d.Compute gross margin percentage. e.Compute operating income.

In most multiproduct situations when sales mix shifts toward the product with the highest contribution margin, operating income will be higher.

What is sales mix? How do companies choose their sales mix?

Sensitivity analysis is ________.

Sales of Blistre Autos are 380,000, variable cost is 230,000, fixed cost is 90,000 tax rate is 40%. Calculate the operating leverage of the company.

Ballpark Concessions currently sells hot dogs. During a typical month, the stand reports a profit of $9,000 with sales of $50,000, fixed costs of $21,000, and variable costs of $0.64 per hot dog. Next year, the company plans to start selling nachos for $3 per unit. Nachos will have a variable cost of $0.72 and new equipment and personnel to produce nachos will increase monthly fixed costs by $8,808. Initial sales of nachos should total 5,000 units. Most of the nacho sales are anticipated to come from current hot dog purchasers, therefore, monthly sales of hot dogs are expected to decline to $20,000. After the first year of nacho sales, the company president believes that hot dog sales will increase to $33,750 a month and nacho sales will increase to 7,500 units a month. Required: a.Determine the monthly breakeven sales in dollars before adding nachos. b.Determine the monthly breakeven sales during the first year of nachos sales, assuming a constant sales mix of 1 hotdog and 2 units of nachos.

A planned decrease in selling price would be expected to cause an increase in the quantity sold.

Stella Company sells only two products, Product A and Product B. Stella sells two units of Product A for each unit it sells of Product B. Stella faces a tax rate of 40%. Stella desires a net after-tax income of $54,000. The breakeven point in units would be ________.

In a company with low operating leverage, ________.

All else being equal, an increase in advertising expenditures will ________.

The following information is for Alex Corp: What is the operating income, assuming actual sales total 120,000 units, and the sales mix is two units of Product X and one unit of Product Y? A) 1,159,500 B) 1,200,000 C) 1,960,000 D) 1,240,500

A profit-volume graph shows the impact on operating income from changes in the output level.

Contribution margin and gross margin are terms that can be used interchangeably.

If selling price per unit is $55, variable costs per unit are $25, total fixed costs are $24,000, the tax rate is 35%, and the company sells 7,000 units, net income is ________.