Exam 9: Short-Term Profit Planning: Cost-Volume-Profit CVP Analysis

Staley Co. manufactures computer monitors. The following is a summary of its basic cost and revenue data:Assume that Staley Co. is currently selling 600 computer monitors per month and monthly fixed costs are $80,000. What is Staley Co.'s degree of operating leverage (DOL) at this sales volume (i.e., at 600 units)? (Round your answer to three decimal places.)

High operating leverage represents increased risk associated with relatively:

Due to the sluggish economy, the Bi-Wheels Company has experienced some difficulty in selling its bicycles.The following data relate to the current year: Required: 1. Compute Bi-Wheels' annual breakeven point, in both units and dollars. Also, compute the contribution margin ratio. 2. The manager believes that a $40,000 increase in advertising would result in a $120,000 increase in annual sales. If the manager is right, what will be the net effect on the company's operating income (πB)? 3. Refer to the original data. The vice-president in charge of sales is certain that a 10% reduction in selling price in combination with a $30,000 increase in advertising will cause sales volume to increases by 50%. What effect would this strategy have on operating income (πB) of the company? 4. Refer to the original data. In the following year, Bi-Wheels saved $5 of total variable costs per bicycle by buying parts from a different manufacturer. However, Bi-Wheels' rent and insurance increased by $5,600. The store sold 11,000 bikes. What was its operating income (πB) for the year?

At the breakeven point, total fixed cost (F) is:

The sales and cost data for two companies in the transportation industry are as follows:Y Company's margin of safety (MOS) in sales dollars (rounded) is:

The CVP profit-planning model assumes that over the relevant range of activity:

Which one of the following is the most useful measure for comparing the risk of two alternative products?

CVP analysis using activity-based costs will tend to shift some costs from fixed to variable classifications, resulting in:

Stylish Sitting is a retailer of office chairs located in San Francisco, California. Due to increased market competition, the CFO of Stylish Sitting has grown worried about the firm's upcoming income stream. The CFO asked you to use the company financial information provided below. If 40,000 office chairs were sold, Stylish Sitting's operating income (πB) would be:

In the current year, Becker Sofa Company expected to sell 12,000 leather sofas. Fixed costs for the year were expected to be $8,400,000; unit sales price was budgeted at $4,600; and unit variable costs were expected to be $2,200. Becker Sofa Company's margin of safety (MOS) in units is:

During the current year, OutlyTech Corp. expected to sell 24,000 telephone switches. Fixed costs for the year were expected to be $12,144,000, the unit sales price was budgeted at $3,200, and unit variable costs were budgeted at $1,440. OutlyTech's margin of safety (MOS) in units is (rounded up to nearest whole number):

FastQ Company, a specialist in printing, has established 500 convenience copying centers throughout the country. In order to upgrade its services, the company is considering three new models of laser copying machines for use in producing high-quality copies. These high-quality copies would be added to the growing list of products offered in the FastQ shops. The selling price to the customer for each laser copy would be the same, no matter which machine is installed in the shop. The three models of laser copying machines under consideration are 1024S (a small-volume model), 1024M (a medium-volume model), and 1024G (a large-volume model). The annual rental costs and the variable operating costs vary with the size of the machine. The machine capacities and costs are shown below: Required: 1. Determine the volume level in copies at which FastQ Company would be indifferent between acquiring either the small-volume model (1024S) or the medium-volume model (1024M). 2. The management of FastQ Company is able to estimate the number of copies to be sold at each establishment. Present an analysis that would enable FastQ Company to select the most profitable machine without having to make a separate cost calculation for each establishment. (CMA Adapted)

Stylish Sitting is a retailer of office chairs located in San Francisco, California. Due to increased market competition, the CFO of Stylish Sitting has grown worried about the firm's upcoming income stream. The CFO asked you to use the company financial information provided below.The annual breakeven point, in unit sales, is:

Grant's Western Wear is a retailer of western hats located in Atlanta, Georgia. Although Grant's carries numerous styles of western hats, each hat has approximately the same price and invoice purchase cost, as shown below. Sales personnel receive large commissions to encourage them to be more aggressive in their sales efforts. Currently the economy of Atlanta is really humming, and sales growth at Grant's has been great. However, the business is very competitive, and Grant has relied on its knowledgeable and courteous staff to attract and retain customers, who otherwise might go to other western wear stores. Also, because of the rapid growth in sales, Grant is finding it more difficult to manage certain aspects of the business, such as restocking of inventory and hiring and training new salespeople.If 24,000 hats were sold, Grant's operating income (πB) would be:

Which of the following illustrates how the level of operating profit (πB) changes over different levels of output (that is, sales volume)?

Which one of the following is defined, at any given sales volume, as the ratio of the total contribution margin to operating profit at that sales volume?

Which of the following entities can use cost-volume-profit (CVP) analysis?

Cathy's Towels sells three items (which it purchases from a supplier): bath towels, hand towels, and washcloths in a 4:3:2 mix (thus, a batch of 9 towels has 4 bath towels, 3 hand towels, and 2 washcloths). Each bath towel sells for $10 and costs $4, each hand towel sells for $5 and costs $2; and each washcloth sells for $2.50 and costs $1. The shop's annual fixed expenses are $324,000, and the income tax rate, t, is 40%. How many bath towels must the firm sell at the breakeven point?

Which of the following factors is not involved in building a cost/volume/profit (CVP) model?

During the current year, OutlyTech Corp. expected to sell 24,000 telephone switches. Fixed costs for the year were expected to be $12,144,000, the unit sales price was budgeted at $3,200, and unit variable costs were budgeted at $1,440. OutlyTech's margin of safety ratio (MOS %) is: