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

Premium Beds is a retailer of luxury bed frames located in Los Angeles, California. Due to a recent industry-wide financial crisis, the CFO of Premium Beds fears a significant drop in the firm's upcoming income stream. The CFO asked you to use the company financial information provided below.The annual breakeven point in units is:

Which of the following is not an underlying assumption of a conventional CVP analysis?

New Hope Corporation manufactures replacement windshield wiper blades for the U.S. domestic market, and is recognized in the industry for quality and product design innovations. New Hope has just received a patent for a superior rubberized plastic wiper insert and wants you to help plan several strategic directions for manufacturing and distributing the new product. Required: 1. Incremental material, labor, and variable overhead costs to produce and distribute the new blade insert total $0.073 per blade. Incremental fixed costs of production and distribution total $62,500 per month. Marketing research indicates that New Hope can raise the price of their new product by $0.37 per package of two-blade inserts. What would be the package breakeven sales for the new blade inserts? Round your answer up, to the nearest whole number. 2. Without prejudice to your answer to Part 1, assume the annual breakeven sales for the new blade is 276,000 packages. Calculate the incremental profit New Hope should earn with projected sales of 316,000 packages. 3. Assume once again the annual 276,000 package breakeven sales level referenced in Part 2. If sales are expected to range between 280,000 and 300,000 packages annually, what added information or refinement of information would you want before recommending production and distribution of the new wiper blades?

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.The annual breakeven point in unit sales is calculated to be:

Fashions, Inc.is a retail store that sells sweaters and jackets.In the past, it has bought all its sweaters from a supplier for $20 per unit and had no fixed costs for this line of clothing.However, Fashions has the opportunity to acquire a small manufacturing facility where it could produce its own sweaters.The projected data for producing its own sweaters are as follows: Required: 1.If Fashions acquired the manufacturing facility, how many sweaters would it have to produce in order to break even? (Round your answer up, to the nearest whole number.) 2.To earn an after tax profit of $125,000 per month, how many sweaters would Fashions have to sell if it buys the sweaters from the supplier? If it produces its own sweaters? Fashion's combined income tax rate is 30%.(Round your answer up, to the nearest whole number.) 3.What is the profit-indifference sales volume in terms of the two options under consideration? (Ignore income tax effects.) Show a computation of operating income to prove your answer.

Framing House, Inc. produces and sells picture frames. Variable costs are expected to be $17 per frame; fixed costs for the year are expected to total $130,000. The budgeted selling price is $25 per frame. The sales dollars required by Framing House to make an after-tax profit (πA) of $10,000, given an income tax rate, t, of 20 percent, would be (round intermediate calculation(s) to nearest whole number):

For the current year, Power Cords Corp. expected to sell 42,000 industrial power cords. Fixed costs were expected to total $1,650,000; unit sales price was expected to be $3,750; and unit variable costs were budgeted at $2,250. Power Cord Corp.'s margin of safety (MOS) in sales dollars is:

Income taxes have the following effect on the breakeven point calculation:

Firms A and B both produce and sell computer cables.The sales price is $5 per cable.Data for both firms at a sales volume of 100 units are as follows: Required: Which firm's profit or loss is more sensitive to changes in sales volume? Explain.

Cleaning Care Inc. expects to sell 10,000 mops. Fixed costs (for the year) are expected to be $10,000, unit sales price is expected to be $12, and unit variable costs are budgeted at $7. Cleaning Care's margin of safety (MOS) in units is:

The contribution income statement would require a firm to:

The sales and cost data for two companies in the transportation industry are as follows:The annual breakeven point in sales dollars for X Company is:

EZ Carry Corp. is the maker of high quality golf bags. The company currently has three different lines of bags, which it sells to sporting goods stores and golf shops throughout the world. EZ Carry sells a constant mix of 4 small bags for each medium-sized bag and 5 medium bags for each large-sized bag. Total fixed costs for the year are expected to be $2,027,562. (Note: round all decimals to three places; round final answers up to nearest whole number.)The breakeven point in units (for the year) would be:

Cleaning Care Inc. expects to sell 10,000 mops. Fixed costs (for the year) are expected to be $10,000, unit sales price is expected to be $12, and unit variable costs are budgeted at $7. Cleaning Care's margin of safety ratio (MOS %) is:

Hightech Company recently developed the technology necessary to produce a low-end, a medium-end, and high-end computer memory chip for heart monitoring healthcare equipment.Budgeted fixed costs for the manufacture of all three products total $4,250,000.The budgeted sales by product and in total for the coming year are as follows: Required: 1.Prepare a contribution income statement for the year based on actual sales data (but budgeted cost data, for both variable and fixed costs). 2.Compare the breakeven sales dollars for the year based on both budgeted and on actual sales, assuming that the sales mix remains constant in terms of sales dollars.(Round contribution margin ratios, in all calculations, to three decimal places.Round answer in dollars up, to the nearest whole number.) 3.The company president knows that total actual sales were $8,250,000 for the year, the same as budgeted.Because she had seen the budgeted income statement, she was expecting a nice profit from producing the memory chips.Explain to her what happened.

Daley Co.manufactures computer monitors.Following is a summary of its basic cost and revenue data: Assume that Daley Co.is currently selling 700 computer monitors per month.Fixed costs are expected to be $96,000. Required: Calculate Daley Co.'s margin of safety (MOS) in units if 700 units are sold.Round your answer up, to the nearest whole number.

The degree of operating leverage (DOL), at a given sales volume, is equal to:

A cost-volume-profit (CVP) analysis models short-term profit (πB) as a function of all of the following variables except:

Label Corp. recorded sales of $2,235,245 for the most recent year. The company's breakeven sales point (in dollars) is $1,650,000, and its margin of safety ratio (MOS%) at the current sales level is 27%. What sales (in dollars) would be needed to increase the company's MOS% to 38%?

Effective use of the CVP (cost-volume-profit) model requires an understanding of all of the following concepts, except: