Exam 19: Cost-Volume-Profit Analysis

Arlington Company's highest point of total cost was $61,875 in June. Their point of lowest cost was $52,250 in December. The company makes a single product. Production volume in June was 7,000 units; production volume in December was 12,500 units. How much is the variable cost per unit?

The mixed cost per unit is constant throughout the relevant range of activity.

Gray Company sells two products, X and Y. For the coming year, Gray predicts the sale of 5,000 units of X and 10,000 units of Y. The contribution margins of the two products are $2 and $3, respectively. The weighted-average contribution margin would be $2.50.

A small business produces a single product and reports the following data: Price \ 8.00 per unit Variable cost \ 5.00 per unit Fixed cost \ 21,000 per month Volume 10,000 per month - The price is raised to $8.50 per unit, and the volume drops to 9.000 units per month. Assume other factors remain the same. How would this change affect operating income?

Which of the following statements is CORRECT with respect to fixed costs per unit?

Lightfoot Company sells its product for $55 and has variable costs of $30 per unit. Total fixed costs are $25,000. What will be the effect on the breakeven point if variable costs increase by 10% due to an increase in the cost of direct materials?

If a company reduces its fixed costs, the operating income will increase in the exact same amount as the cost reduction.

Arquebus Company is owned and operated by a craftsman who makes replicas of historic firearms for museums, sportsmen and collectors. He is currently producing 40 flintlock muskets per month. Cost data are as follows: Price \ 720 per unit Variable cost \ 470 per unit Fixed costs \ 8,000 per month In June, the cost of the special kind of metal he uses went up considerably, and the variable cost per unit increased by $50 per unit. -The owner believes he can pass along half of the cost increase to his customers by raising the price to $745, and still maintain the same volume of sales. If so, how will this affect his operating income?

Jackson Company has provided the following information regarding the two products that it sells: Jet Bants SkiBoats Sales price per unit Variable east per urit \ 4,800 \ 14,000 Annual fixed costs are $280,000. How many units must be sold in order for Jackson to breakeven, assuming that Jackson sells five jet boats for every two ski boats sold?

Allston Products sells a special kind of effects pedal for musical performers. Each unit sells for $20.00. Additional data for the month of April, 2011, are as follows: Direct materials \ 4.00 per unit Direct labor \ 8.00 per unit Variable manuf. overhead \ 20,000 per month Fixed manuf. ovehead \ 14,000 per month Operating Experses \ 21,000 per month Bepinging inventory 0 units Units produced 8,000 units Units sold 7,500 units Ending inventory 500 units - Using absorption costing, how much is the net operating income for April?

Porterhouse Company has both fixed and variable production costs. If volume goes up by 20%, how would that affect the total fixed costs? (Assume all volumes are within the relevant range.)

Dakota Company provides the following information about its single product: Targeted aperating income \ 40,000 Selling price per unit \ 3.50 Variable cost per unit \ 1.05 Total fixed costs \ 90,000 What is the contribution margin ratio?

Olympus Company sells 1,400 units per month at a price of $28.00 per unit. The variable cost is $22.50 per unit. Fixed costs are $6,900 per month. Please prepare a contribution margin income statement in the format provided here.

A company's contribution margin ratio is 8%. Fixed costs are $2,400 per month. How much sales revenue is needed to break even?

Total variable costs change in response to changes in the volume of production.

Which of the following statements is CORRECT with respect to total variable costs, within the relevant range?

Juan Martinez played classical guitar professionally until his motorcycle accident left him disabled. After long months of therapy, he hired an experienced luthier (maker of stringed instruments) and opened a small shop that makes and sells Spanish guitars. The guitars sell for $600, and the fixed monthly operating costs are as follows: Rent and utilities \ 960 Wages and benefits of luthier \ 1,500 Other \ 900 -Juan got confused when his accountant told him about contribution margin ratios, but he understood clearly that for every dollar of sales, $0.70 went to cover his fixed costs, and that anything past that point was pure profit. How many guitars does Juan have to sell each month to break even?

Juan Martinez played classical guitar professionally until his motorcycle accident left him disabled. After long months of therapy, he hired an experienced luthier (maker of stringed instruments) and opened a small shop that makes and sells Spanish guitars. The guitars sell for $600, and the fixed monthly operating costs are as follows: Rent and utilities \ 960 Wages and benefits of luthier \ 1,500 Other \ 900 - Juan got confused when his accountant told him about contribution margin ratios, but he understood clearly that for every dollar of sales, $0.70 went to cover his fixed costs, and that anything past that point was pure profit. How many dollars of revenue does Juan have to make each month to break even?

Taizhong Semiconductor Company mass produces several common computer chips. Type A sells for $1.20 per unit. Variable cost is $0.95 per unit and the fixed costs are $32,000 per month. Taizhong currently sells 140,000 units per month. Under intense pressure to boost profits, the production manager has a plan which will reduce fixed costs by 10%. How will this affect the breakeven point in terms of units per month?

Fixed costs divided by the contribution margin per unit equals the breakeven point in unit sales.