Exam 3: Cost-Volume-Profit Analysis

Furniture, Inc., sells lamps for $30. The unit variable cost per lamp is $22. Fixed costs total $9,600. Required: a.What is the contribution margin per lamp? b.What is the breakeven point in lamps? c.How many lamps must be sold to earn a pretax income of $8,000? d.What is the margin of safety, assuming 1,500 lamps are sold?

There is a difference between a good decision and a good outcome and one can exist without the other.

Bell Company sells several products. Information of average revenue and costs is as follows: The company sells 10,000 units. The contribution margin per unit is ________.

Answer the following questions using the information below: The following information is for Alex Corp: -If the sales mix shifts to one unit of Product X and two units of Product Y, then the weighted-average contribution margin will ________.

Dolph and Evan started the DE Restaurant in 2015. They rented a building, bought equipment, and hired two employees to work full time at a fixed monthly salary. Utilities and other operating charges remain fairly constant during each month. During the past two years, the business has grown with average sales increasing 1% a month. This situation pleases both Dolph and Evan, but they do not understand how sales can grow by 1% a month while profits are increasing at an even faster pace. They are afraid that one day they will wake up to increasing sales but decreasing profits. Required: Explain why the profits have increased at a faster rate than sales. Use the terms variable costs and fixed costs in your response.

Karen Hefner, a florist, operates retail stores in several shopping malls. The average selling price of an arrangement is $30 and the average cost of each sale is $18. A new mall is opening where Karen wants to locate a store, but the location manager is not sure about the rent method to accept. The mall operator offers the following three options for its retail store rentals: 1.paying a fixed rent of $15,000 a month, or 2.paying a base rent of $9,000 plus 10% of revenue received, or 3.paying a base rent of $4,800 plus 20% of revenue received up to a maximum rent of $25,000. Required: a.For each option, compute the breakeven sales and the monthly rent paid at break-even. b.Beginning at zero sales, show the sales levels at which each option is preferable up to 5,000 units.

Explain what net income and what taxes can have on a manager's decision?

Helping Hands is a nonprofit organization that supplies electric fans during summer for individuals in need. Fixed costs are $290,000. The fans cost $26 each. The organization has a budgeted appropriation of $675,000. How many people can receive a fan during summer?

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 greatest operating income if 600 people attend?

How many units would have to be sold to yield a target operating income of $26,000, assuming variable costs are $27 per unit, total fixed costs are $2,000, and the unit selling price is $32?

Tally Corp. sells software during the recruiting seasons. During the current year, 10,000 software packages were sold resulting in $470,000 of sales revenue, $130,000 of variable costs, and $48,000 of fixed costs. If sales increase by $80,000, operating income will increase by ________. (Round interim calculations to two decimal places and the final answer to the nearest whole dollar.)

Sparkle Jewelry sells 500 units resulting in $10,000 of sales revenue, $4,000 of variable costs, and $1,500 of fixed costs. Calculate the variable cost per unit. (Round the final answer to the nearest cent.)

Slickware sells porcelain cups. The breakeven point is 5,000 units. The variable cost per unit is $18 and the fixed costs are $20,000. What is the contribution margin at 5,000 units?

In multiproduct situations, when sales mix shifts toward the product with the lowest contribution margin, the operating income will be lower.

Stephanie's Bridal Shoppe sells wedding dresses. The average selling price of each dress is $1,200, variable costs are $700, and fixed costs are $100,000. How many dresses must the Bridal Shoppe sell to yield after-tax net income of $20,000, assuming the tax rate is 40%?

If a company has a degree of operating leverage of 5 and sales increase by 30%, then ________.

A company with sales of $50,000, a contribution margin ratio of 30%, and fixed costs of $25,000 will earn a net income of $10,000.

If a company is planning to reduce the selling price, they must believe that ________.

If planned net income is $30,000 and the tax rate is 30%, then planned operating income would be $39,000.

Lights Manufacturing produces a single product that sells for $130. Variable costs per unit equal $55. The company expects total fixed costs to be $100,000 for the next month at the projected sales level of 1,300 units. What is the current breakeven point in terms of number of units?