Exam 21: Cost-Volume-Profit Analysis

Abington Corporation provides the following data from a recent period for its manufacture of shoes: variable manufacturing costs,$24,000; variable selling costs,$12,000; and total fixed costs,$40,000.Sales were $60,000 based on 12,000 units sold during the period.Calculate the contribution margin and the contribution margin ratio.

A company manufactures a product and sells it for $120 per unit.The total fixed costs of manufacturing and selling the product are expected to be $155,250,and the variable costs are expected to be $75 per unit.What is the company's break-even point in (a)units and (b)dollar sales?

During a recent fiscal year,Dawson Company reported pretax income of $125,000,a contribution margin ratio of 25% and total contribution margin of $400,000.Total variable costs must have been:

The method most likely to produce the most precise line of cost behavior is the scatter diagram.

Plymouth Industries incurs the following costs during the current year: Sales for the year were $80,000 and Plymouth Industries determined that only the direct production costs (prime costs)and sales commissions are to be classified as variable costs; all other costs are classified as fixed costs.Plymouth sold 400 units. (a)Calculate the unit contribution margin and the contribution margin ratio for Plymouth Industries. (b)Plymouth Industries is considering plans that would increase the contribution margin ratio for next year.Should it pursue these plans? Explain.

A company is looking into two alternative methods of producing its product.The following information about the two alternatives is available.If the company's expected sales volume is 35,000 units,which alternative should be selected? Prepare forecasted income statements and compute degree of operating leverage to assess the alternatives.

Winthrop Manufacturing produces a product that sells for $50.00.Fixed costs are $260,000 and variable costs are $24.00 per unit.Winthrop can buy a new production machine that will increase fixed costs by $11,400 per year,but will decrease variable costs by $3.50 per unit.Compute break-even point in dollars with the purchase of the new machine.

Examining strategies that impact several estimates in the CVP analysis is known as _______________________.

Browning Company sells a mix of three related products.Total fixed costs are $144,000.The following additional information is available for Browning Company. Use the weighted average method to determine the company's break-even point for composite units.

Describe how a cost-volume-profit analysis would be performed for a company that sells more than one product.(Assume that the sales mix is known.)

If a firm's forecasted sales are $250,000 and its break-even sales are $190,000,the margin of safety in dollars is:

Degree of operating leverage (DOL)is defined as total contribution margin in dollars divided by pretax income.

A firm provides the following sales data: Expected unit sales..5,000 Unit variable cost….. $10 Unit selling price…. $16 Total fixed cost…….$12,000 Required: (a)Calculate the break-even point in dollar sales. (b)Calculate the margin of safety in dollar sales.

When using the high-low method for estimating cost behavior,the slope,or variable cost per sales dollar,is calculated by ___________________________________.

Herriot Co.has total fixed costs of $180,000 and a contribution margin ratio of 40%.Assume that an additional advertising expenditure of $4,000 would increase sales by $8,000.Should the company spend this additional amount on advertising? (Support your answer with calculations.)

Management anticipates fixed costs of $72,500 and variable costs equal to 40% of sales.What will pretax income equal if sales are $325,000?

A graph used to analyze past cost behaviors by displaying costs and volume levels for each period as points on the diagram is called a:

A company has total fixed costs of $200,000.Its product sells for $25 per unit and variable costs amount to $15 per unit.The company wishes to earn an after-tax income of $35,000.Assume that the company has a 30% tax rate.How many units must be sold to achieve this after-tax income level?

Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are $300.Annual fixed costs are $990,000.Current sales volume is $4,200,000.Dunkin company management targets an annual after-tax income of $843,750.The company is subject to a 25% income tax rate.Compute the dollar sales to earn the target after-tax net income.

A cost that remains the same in total even when volume of activity varies is a: