Exam 7: Cost-Volume-Profit Analysis

Haines Corporation has a predicted operating income of $80,000. Its total variable expenses are $25,000 and its total fixed expenses are $24,000. The company has a unit contribution margin of $20 on its sole product. a. Calculate the break-even in sales units. b. Calculate the break-even in sales units if the company's fixed expenses double from $24,000 to $48,000.

Star Corporation management has budgeted the following amounts for its next fiscal year: If Star Corporation spends an additional $20,000 on advertising, sales volume should increase by 3,000 units. What effect will this have on operating income?

To find the number of units that need to be sold to breakeven, the formula used could be

The margin of safety is the "cushion," or drop in sales, a company can absorb without incurring a loss.

Holding all other factors constant, the breakeven point will always double if fixed expenses increase by 25%.

If the sales price per unit increases while the variable cost per unit and total fixed costs remain constant, which of the following statements is true?

Fancy Furniture has variable expenses of 40% of sales and monthly fixed expenses of $240,000. The monthly target operating income is $60,000. What is Fancy Furniture's operating leverage factor at the target level of operating income?

Bernard Corporation gathered the following information for the year just ended: During the year, Bernard produced and sold 50,000 units of product at a selling price of $9.00 per unit. There was no beginning inventory of product at the start of the year. What is the operating income (loss)for the year?

I Scream For Ice Cream sells specialty ice cream in three flavors: Rocky Road, Peanut Butter, and Fruity Tooty. It sold 15,000 gallons last year. For every five gallons of ice cream sold, one pound is Fruity Tooty and the remainder is split evenly between Peanut Butter and Rocky Road. Fixed costs for I Scream For Ice Cream are $27,000 and additional information follows: Breakeven sales in dollars for I Scream For Ice Cream is

Dairy Days Ice Cream sells ice cream cones for $4 per customer. Variable costs are $3 per cone. Fixed costs are $2,500 per month. What is Dairy Days' contribution margin ratio?

Jackie's Snacks sells fudge, caramels, and popcorn. It sold 12,000 units last year. Popcorn outsold fudge by a ratio of 2 to 1. Sales of caramels were the same as sales of popcorn. Fixed costs for Jackie's Snacks are $14,000. Additional information follows: The sales mix percentage of caramel corn based upon units is

The Settler's Chuck Wagon sells tickets for dinner and a show for $50 each. The cost of providing dinner is $23 per ticket and the fixed cost of operating the theater is $115,000 per month. The company can accommodate 13,500 patrons each month. What is the contribution margin ratio?

Operating leverage refers to the relative amount of fixed and variable costs that make up total costs for a company.

A product's contribution margin per unit is the excess of the selling price per unit over the variable cost of obtaining and selling each unit.

If both fixed expenses and the selling price per unit increase while variable costs per unit are unchanged, which of the following statements is true?

Palmer's Gourmet Chocolates produces and sells assorted boxed chocolates. The unit selling price is $50, unit variable costs are $25, and total fixed costs are $2,000. What are breakeven sales in dollars?

Only the income statement approach may be used to calculate the breakeven point.

Helga's Pretzels sells pretzels for $5. The variable costs for each pizza are $3, while the total fixed costs are $1,500. The contribution margin for 1,500 pretzels is

The contribution margin derived from different products is not used to motivate the sales force to increase sales of the most profitable products.

Sales above the breakeven point indicate a ________, whereas sales below the breakeven point indicate a ________.