Exam 7: Cost-Volume-Profit Analysis

Who Done It Mystery Theater sells tickets for dinner and a show for $55 each. The cost of providing dinner is $21 per ticket and the fixed cost of operating the theater is $60,000 per month. The company can accommodate 15,000 patrons each month. What is the contribution margin ratio?

If the contribution margin ratio is 60%, target operating income is $50,000, and the sales revenue needed to achieve the target operating income is $800,000, what are total fixed expenses?

On a CVP graph, total fixed costs are shown as a horizontal line.

The breakeven point may be defined as the number of units a company must sell to do which of the following?

The Muffin House produces and sells a variety of muffins. The selling price per dozen is $19, variable costs are $13 per dozen, and total fixed costs are $4200. What are breakeven sales in dollars?

Richland Enterprises has budgeted the following amounts for its next fiscal year: If Richland Enterprises can reduce fixed expenses by $5280, how will breakeven sales in units be affected?

Electric Jet Skis operates a jet ski rental business. Assume the jet skis rent for $35 for 6 hours. The variable costs are $24 per 6 hour rental, and its fixed costs are $65,000 each month. What is the contribution margin per 6 hour jet ski rental?

The following information pertains to the Flying Fig Corporation: What is the breakeven in sales dollars? (Round any intermediary calculations and your final answer to the nearest whole number.)

Poplar Mills Incorporated has a predicted operating income of $74,000. Its total variable expenses are $17,000 and its total fixed expenses are $13,500. It has a unit contribution margin of $5. Poplar Mills' breakeven sales in units is

Contribution margin on an income statement is equal to sales revenue minus fixed expenses.

I Scream For Ice Cream sells specialty ice cream in three flavors: Rocky Road, Peanut Butter, and Fruity Tooty. It sold 10,000 gallons last year. For every five gallons of ice cream sold, one pound is Fruity Tooty and the remainder is split evenly between Peanut Butter and Rocky Road. Fixed costs for I Scream For Ice Cream are $38,125 and additional information follows: The weighted average contribution margin per pound for the three products of I Scream For Ice Cream is

The same CVP formulas that are used to perform CVP analysis for a company with a single product can be used for any company that sells more than one product, as long as a company uses the weighted average contribution margin of all products, rather than the contribution margin of a sole product.

Jackie's Snacks sells fudge, caramels, and popcorn. It sold 15,000 units last year. Popcorn outsold fudge by a margin of 2 to 1. Sales of caramels were the same as sales of popcorn. Fixed costs for Jackie's Snacks are $13,000. Additional information follows: Breakeven sales in dollars for Jackie's Snacks is: (Round unit amounts up to the nearest whole unit.)

Corny and Sweet grows and sells sweet corn at its roadside produce stand. The selling price per dozen is $4.00, variable costs are $2.00 per dozen, and total fixed costs are $1200.00. What are breakeven sales in dollars?

Management at the Forrest Company currently sells its products for $225 per unit and is contemplating a 40% increase in the selling price for the next year. Variable costs are currently 25% of sales revenue and are not expected to change in dollar amount on a per unit basis next year (the company will still pay the same variable cost per unit). Fixed expenses are $119,000 per year. If fixed costs were to decrease 10% during the current year and the new selling price goes into effect, how many units will need to be sold to breakeven?

When calculating the breakeven point in terms of units, fixed costs should be divided by the contribution per unit.

Perry Corporation produces and sells a single product. Data for that product are: Upper management is considering using a biodegradable packaging which costs $5 more per unit but it produces less waste in the long run. Management plans to increase advertising by $10,000 in the first month to advertise this new feature to their packaging. They believe that environmentally friendly people will switch to their product resulting in an increase in sales of 2,000 units per month. What should be the overall effect on the company's monthly operating income in the first month if this change is implemented?

The sales mix cannot significantly affect CVP relationships.

Alexis Incorporated sells two products, larges and smalls. Larges sell for $94 per unit with variable costs of $60 per unit. Smalls sell for $35 per unit with variable costs of $15 per unit. Total fixed costs for the company are $12,000. Alexis Incorporated typically sells five larges for every four smalls. What is the breakeven point in total units?

Who Done It Mystery Theater sells tickets for dinner and a show for $60 each. The cost of providing dinner is $27 per ticket and the fixed cost of operating the theater is $110,000 per month. The company can accommodate 8000 patrons each month. What is the projected monthly income if 15,000 patrons visit the theater each month?