Exam 7: Cost-Volume-Profit Analysis

All else being equal, a company earns more income by selling high-contribution margin products than by selling an equal number of low-contribution margin products.

A company that sells one product would be more likely to calculate breakeven in terms of sales units, rather than sales revenue.

CVP assumes that inventory levels will not change.

Medoc Company provides the following information about its single product. How many units must be sold to earn the targeted operating income?

Light Me Up Lamps has variable expenses of 30% of sales and monthly fixed expenses of $140,000. The monthly target operating income is $70,000. What is Light Me Up Lamps' operating leverage factor at the target level of operating income?

By multiplying the operating leverage factor by the anticipated percentage change in volume, one can find

Randolph runs a lemonade stand and wants to make $150 in the next week. He sells each cup of lemonade for $0.75, while the variable cost is $0.15 for the cups and ingredients. Fixed costs such as posters and signs are $15.00. Calculate the following: a. Contribution margin per unit sold b. Contribution margin ratio c. Breakeven point in units d. Units to be sold to earn the targeted operating income

Lewis Enterprises management has budgeted the following amounts for its next fiscal year: Requirements: a. If Lewis Enterprises can reduce fixed expenses by $25,000, how will breakeven sales in units be affected? b. If Lewis Enterprises spends an additional $1,000 on advertising, sales volume should increase by 1,000 units. What effect will this have on operating income? c. If Lewis Enterprises can reduce fixed expenses by $40,000, by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in units? d. If fixed expenses increase by 25%, to maintain the original breakeven sales in units, what would be the selling price per unit have to be?

Pittsboro Corporation produces and sells a single product. Data for that product are: Management is discussing increasing the price to $525 to cover an increase in fixed expenses of $80,000. Management believes they might lose 2% of sales per month. How many units per month would the company have to sell to maintain its current level of operating income? Round up to the nearest whole unit.

Fancy Scarf Factory Contribution Margin The managerial accountant at Fancy Scarf Factory reported the price per scarf is $22. The only variable cost is $15 per scarf. The managerial accountant also reported that the sales goals were increased to 1000 scarves during the next quarter. First, compute the unit contribution margin per scarf. If fixed expenses are $5000, what is the forecasted operating income if 1000 scarves are sold in the next quarter?

Which of the following represents the excess of the selling price per unit of a product over the variable cost of obtaining and selling each unit?

On a CVP graph, the total cost line intersects the total revenue line at which of the following points?

Garfield Corporation is considering building a new plant in Canada. It predicts sales at the new plant to be 70,000 units at $7.00/unit. Below is a listing of estimated expenses. A Canadian firm was contracted to sell the product and will receive a commission of 30% of the sales price. No U.S. home office expenses will be allocated to the new facility. The contribution margin ratio for Garfield Corporation is

In the last reporting period, Helena's Heavenly Fixture Company recorded 90,000 units sold for the first time in the history of the company. The price per unit was $91.97 and variable costs per unit at $35.77. Compute the contribution margin. Next, compute the fixed costs if the operating income is $3,910,000.

The following information pertains to the Flying Fig Corporation: What is the breakeven in units?

Mississippi Mile Travel Company is conducting a sensitivity analysis in order to assess the company's margin of safety in units and in dollars. Predicted data indicate that 4900 travel package sales can be expected while 2000 package sales are necessary to meet the company's breakeven point. Each travel package costs $2700. Calculate the company's margin of safety in package units and dollars.

Contribution margin less fixed costs yields

Sensitivity analysis is a "what if" technique that asks what a result will be if an underlying assumption changes.

All else being equal, a company earns more income by selling low-contribution margin products than by selling an equal number of high-contribution margin products.

Companies with high operating leverages generally have lower fixed costs than variable costs.