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

TexFab manufactures two products, GT450 and GT600 that have the following sales and cost information. Round all dollar answers up, to the nearest whole number. Required: 1.What is the breakeven point in dollars if sales remain at the same sales mix reflected in the income statement presented above? 2.If the TexFab Company's sales mix becomes $50,000 of product GT450 and $50,000 of product GT600, what is the breakeven point in sales dollars? Prepare an income statement-in the format given above-for this scenario. 3.Why have the breakeven point and the amount of operating income changed?

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 ratio (MOS%) is (rounded to two decimal points):

Walker Corp. is a retail store that sells shoes and boots. In the past, it has bought all its shoes from a supplier for $15 per unit. However, Walker has the opportunity to acquire a small manufacturing facility where it could produce its own shoes. The projected data for producing its own shoes are as follows, for a pair of shoes: selling price $25; variable costs, $5; total fixed costs (per year), $125,000. Required 1. If Walker acquired the manufacturing facility, how many pairs of shoes (per year) would it have to produce to break even (round your answer up, to the nearest whole unit)? 2. To earn an annual after-tax profit (πA) of $100,000, how many pairs of shoes would Walker have to sell if it buys the shoes from the supplier? How many pairs would it have to sell if it produces its own shoes? Walker's combined income tax rate, t, is estimated as 35%. Round up your answers, to the nearest whole number of units. 3. At what annual volume of sales (in units) would Walker be indifferent between the two decision alternatives (ignore income tax effects)? Show a computation of operating incomes to prove your answer.

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

Cost/volume/profit (CVP) analysis is a technique available to management to understand better the interrelationships of several factors that combine to determine a firm's operating profit, πB. As with many such techniques, the accountant oversimplifies the real world by making assumptions. Which of the following is not a major assumption underlying a conventional CVP analysis?