Exam 5: Cost Behavior Cost-Volume-Profit Analysis

A company has a goal of earning $128,000 in pre-tax income. The contribution margin ratio is 30%. What dollar amount of sales must be achieved to reach the goal if fixed costs are $64,000?

The relevant range of operations includes extremely high and low levels of production that are unlikely to occur.

A product is sold for $45 and has variable costs of $33 per unit. The total fixed costs for the firm are $180,600. If the firm desires to earn a pretax income of $77,400, how many units must be sold?

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.

Barclay Enterprises manufactures and sells three distinct styles of bicycles: the Youth model sells for $300 and has a unit contribution margin of $105; the Adult model sells for $850 and has a unit contribution margin of $450; and the Recreational model sells for $1,000 and has a unit contribution margin of $500. The company's sales mix includes: 5 Youth models; 9 Adult models; and 6 Recreational models. If the firm's annual fixed costs total $6,500,000, calculate the firm's selling price per composite unit.

Identify items a, b, and c in the cost-volume-profit graph shown below.

Seaquest Company's contribution margin income statement is presented below. Sales for the current period consisted of 5,000 units. Determine the company's break-even point in dollars.

Fixed costs per unit decrease proportionately with increases in volume of activity.

A manufacturer reports the following information below for its first three years in operation. Income for year 1 using absorption costing is:

Parker Co. is preparing next period's forecasts. Total fixed costs are expected to be $300,000 and the contribution margin ratio is expected to be 30%. (a) Calculate the company's break-even point in dollar sales. (b) If sales are $1,800,000 above the break-even point, what will Parker's pretax income be?

A method that estimates cost behavior by using just the highest and lowest volume levels is called the:

Dodge Industries incurs the following costs during the current year: Sales for the year were $80,000 and Dodge 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. Dodge sold 400 units. (a) Calculate the unit contribution margin and the contribution margin ratio for Dodge Industries. (b) Dodge Industries is considering plans that would increase the contribution margin ratio for next year. Should it pursue these plans? Explain.

________ is a statistical method of identifying an estimated line of cost behavior.

Whiting Company sells a mix of three related products. Total fixed costs are $144,000. The following additional information is available for Whiting Company. Determine the company's break-even point in composite units.

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?

Madison Corporation sells three products (M, N, and O) in the following mix: 3:1:2. Unit price and cost data are: Total fixed costs are $340,000. The break-even point in composite units for the current sales mix (round to the nearest unit) is:

A product sells for $30 per unit and has variable costs of $18 per unit. The fixed costs are $720,000. If the variable costs per unit were to decrease to $15 per unit, fixed costs increase to $900,000, and the selling price does not change, break-even point in units would:

Morse Company reports total contribution margin of $48,000 and pretax net income of $12,000 for the current month. The degree of operating leverage is:

Gladstone Co. has expected sales of $326,000 for the upcoming month and its monthly break even sales are $300,000. What is the margin of safety as a percent of sales, rounded to the nearest whole percent?

The relevant range of operations is a range of volume neither close to zero nor at maximum capacity.