Exam 9: Cost-Volume-Profit Analysis and Relevant Costing

Screen Saver Industries has spare production capacity due to the cancellation of a customer order. An overseas retail chain has offered the business an order for 300 units at a price of $25 each. The variable cost of the units is $20 each and the fixed costs are $3 per unit. What will be the impact on Screen Savers profit if the special order is accepted?

Variable costs per unit are also known as:

Where several products are produced and there is a scarce factor, what is the rule for deciding on the optimum product mix?

Which of these is not a relevant qualitative factor in deciding to outsource a product rather than continue making it?

How is the break-even point best defined?

Variable costs are best defined as:

Use the information below to answer the following questions. Sales Extraordinaire sells one particular photo frame. It estimates that it can sell as many frames as it produces. Sales price per unit \ 6.00 Variable cost per unit \ 3.00 Fixed costs per annum \ 9,000 -Refer to the table above. The sale of 6,000 photo frames would result in:

Opal Incorporated sold 30,000 units of its product last year with the following results: Sales revenue \ 900,000 Variable Costs 630,000 Contribution Margin 270,000 Fixed Costs Operating Profit \ 80,000 The company expects variable costs to increase by $3 per unit this year. REQUIRED: a)Assuming the unit sales price remains constant, compute the unit contribution margin for this year. b)Given the expected change in variable costs, how many units will have to be sold this year to earn the same operating profit as last year?

If total costs are $90,000 at an output of 12,000 units and $105,000 at 15,000 units, fixed costs are:

Use the information below to answer the following questions. Computers Expertise Ltd provides three services, the details for which are as follows: Sales price per unit \ 20 \ 30 \ 50 Variable cost per unit \ 10 \ 12 \ 15 (paper, transport, etc.) Labour time per unit 1 hour 2 hours 5 hours Annual fixed costs \ 20,000 The demand for all service is unlimited. The ability to provide the service is limited by the availability of qualified staff and therefore the labour time available. -Refer to the table above. Which product is the most profitable?

An example of a variable cost is:

Variable costs are represented graphically as:

Xon Company needs 1,000 components for one of its products. It can subcontract production of the components to the Eon Company for $40 each. The business can produce the components internally for a total variable cost of $30 per component. Xon Company has spare capacity. What will be the impact on Xon's profit if Eon's offer is accepted?

Hawk Co sells T-shirts. If the sales price per shirt is $10, the variable production costs are $7.00 per shirt and the fixed costs are $21,000 p.a., calculate the break-even point in sales dollars.

How is margin of safety best described?

The statement of financial performance for LA Blues is: Sales \ 300,000 Variable Expenses \ 200,000 Contribution Margin \ 100,000 Fixed Expenses \ 20,000 Profit \ 80,000 If the break-even point in sales dollars is $62,500, what is the margin of safety?

Use the information below to answer the following questions. Unique Tables manufacture coffee tables made of recycled timber. Market research has suggested that there will be strong demand for the tables. Due to this, management is debating whether to lease a new turning machine to meet increased production. To assist in their decisionmaking, the management accountant has supplied the following information: Without With turning machine turning machine Expected level of sales 1,500 units 1,500 units Sales price per unit \ 150 \ 150 Variable costs per unit \ 120 \ 110 Fixed costs \ 7500 \ 15,000 -Refer to the table above. As the level of sales increases above 1,500 units, the level of profit would increase:

L Ltd can subcontract out one of its components at $18 each. The business can produce the component internally for a total cost of $19 including the allocation of fixed costs at $5 per component. L Ltd has spare capacity. Should it make the component internally or contract it out?

Use the information below to answer the following questions. Unique Tables manufacture coffee tables made of recycled timber. Market research has suggested that there will be strong demand for the tables. Due to this, management is debating whether to lease a new turning machine to meet increased production. To assist in their decisionmaking, the management accountant has supplied the following information: Without With turning machine turning machine Expected level of sales 1,500 units 1,500 units Sales price per unit \ 150 \ 150 Variable costs per unit \ 120 \ 110 Fixed costs \ 7500 \ 15,000 -Refer to the table above. The operating gearing for Unique Tables is:

Management's concern about 'scarce resource' is primarily due to: