Exam 3: Cost-Volume-Profit Analysis

You have just been hired as the new management accountant for a pool chemical wholesaler.The company sells packages of pool chemicals to retail stores, consisting of all of the chemicals a typical pool would need for a week, for a price of $25, and a variable cost of $8.The company has fixed costs of $125,000.The previous accountant was promoted to an associated company but has left you her working papers for a project she was working on.The project involves advising management whether to accept an advertising arrangement with an industry publication.The arrangement being offered is a contract calling for a set payment per month (amount to be negotiated)for 6 months.The industry is cyclical and has no sales for 4 months [16 weeks] of the year.The previous accountant notes show her projection that this would result in an increase of 50 units per week, above the normal 1,000 units per week that the company sells currently.The increased demand would arise from more customers to existing outlets, and from new outlets as well.The advertiser is suggesting a monthly fee of $1,800.What is your advice, based on the previous accountant's notes and your own analysis?

Ben's Custom Golf sells special clubs.Ben is able to purchase equipment from a manufacturing company for $100 each.The equipment is sold for $150 each.Required: a.What is the break-even in units assuming Ben incurred $2,500 in selling expenses, and there were no other expenses? b.What would be the break-even in units assuming Ben incurred $2,500 in selling expenses and had $10,000 in other fixed expenses?

The parent group of the local university football team organizes an end of training camp bar-b-que dinner each year.The 110 player roster and 12 coaches eat for free, and ticket sales are used along with a fixed amount subsidy to fund the event.Last season 250 meals were produced and served.The following financial statement was prepared by one of the team parents: Revenue: Expenditures: * The deficit was covered by a one-time donation from a parent whose son graduated and is consequently no longer on this years team.Required: Calculate the price per ticket that must be charged to breakeven based on the following assumptions:

Use the information below to answer the following question(s).Brian O'Neil intends to sell his customers a special round-trip airline ticket package.He is able to purchase the package from the airline carrier for $400 each.The airline intends to reimburse Brian for any unsold ticket packages.The round-trip tickets will be sold for $500 each.Brian has a tax rate of 30% on his business income. -What is the dollar amount of sales required for Brian to earn an after-tax profit of $7,000 if fixed costs are $10,000?

Karen Hefner, a florist, operates retail stores in several shopping malls.The average selling price of an arrangement is $30 and the average cost of each sale is $18.A new mall is opening where Karen wants to locate a store, but the location manager is not sure about the rent method to accept.The mall operator offers the following three options for its retail store rentals: 1.paying a fixed rent of $15,000 a month, or 2.paying a base rent of $9,000 plus 10% of revenue received, or 3.paying a base rent of $4,800 plus 20% of revenue received up to a maximum rent of $25,000.Required: a.For each option, compute the break-even sales and the monthly rent paid at break-even. b.Beginning at zero sales, show the sales levels at which each option is preferable up to 5,000 units.

Chris Muss is going to sell Ad-hoc compact disks for $40 a box; one box is considered to be one unit.The disks cost Chris $10 a unit.She is planning to rent a booth at the up-coming Area Computer Show.She has three options for attending the show: 1.paying a fixed fee of $3,000; 2.paying a $1,000 fee plus 10% of her revenue made at the convention, or; 3.paying 25% of her revenue made at the convention.Which of the following statements is TRUE?

Use the information below to answer the following question(s).The following information is for Winnie Company: -A social agency receives a budget appropriation of $11,000 monthly from the municipality.Annual fixed costs are projected to be $20,000 and the variable cost per client was $238.50 last year.Although the agency projects its case load to increase by the usual 15% this year (as it has done historically), the municipality appropriated funds based on last year's case load.Which of the following strategies would be ineffective in dealing with the expected shortfall in budget appropriation for the agency?

ABC Grocery needs to know the kilograms of bananas to have on hand each day.Each kilogram of bananas costs $0.25 and can be sold for $0.40.Unsold bananas are worthless at the end of the day.The following demands were found after studying the last six month's sales: 200 kilograms of bananas one-fourth of the time 300 kilograms of bananas one-half of the time 400 kilograms of bananas one-fourth of the time Required: Determine whether ABC Grocery should order 200, 300, or 400 kilograms of bananas.

Use the information below to answer the following question(s).Bartwell Company sells several products.Information of average revenue and costs is as follows: -The break-even point in CVP analysis is defined as the point

Use the information below to answer the following question(s).Big Sports University is planning to hold a fund raising banquet at one of the local country clubs.It has two options for the banquet: 1.Foothills Country Club 2.Downhill Country Club Big Sports has budgeted $900 for administrative and marketing expenses.It plans to hire a band, which will cost another $400.Tickets are expected to be $40 per person.Any other items required for the event will be donated by its local business supporters. -What is the "operating income" assuming 250 people attend and option two is chosen?

Use the information below to answer the following question(s).The following information is for Winnie Company: -Mount Carmel Company sells only two products, Product A and Product B. Mount Carmel sells two units of Product A for each unit it sells of Product B.Mount Carmel faces a tax rate of 30%.Mount Carmel desires a net after-tax income of $73,500.The number of units needed to be sold to achieve the desired after-tax profit would be

Schuppener Company sells its only product for $18 per unit; variable production costs are $6 per unit, and variable selling and administrative costs are $3 per unit; fixed costs for 10,000 units are $10,000.The contribution margin is

If planned net income is $21,000 and the tax rate is 30%, then planned operating income would be $27,300.

Which of the following statements about net income (NI)is TRUE?

Which of the following statements about contribution margin and gross margin in CVP analysis is TRUE?

The contribution income statement highlights

Variable operating costs and fixed operating costs constitute total operating costs.

Jason Smart Company sells car batteries to service stations for an average of $85 each.The variable cost of each battery is $48 and monthly fixed selling costs total $6,000.Other monthly fixed costs of the company total $7,000.Required: a.What is the breakeven point in batteries? b.What is the margin of safety, assuming sales total $32,000? c.What is the breakeven level in batteries, assuming variable costs increase by 20%? d.What is the breakeven level in batteries, assuming the selling price goes up by 10%, fixed selling costs decline by 10%, and other fixed costs decline by $1,000?

The contribution margin method can be used to verify a break-even calculation.

The Holiday Card Company, a producer of specialty cards, has asked you to complete several calculations based upon the following information: Required: a.What is the break-even point in cards? b.What sales volume is needed to earn an after-tax net income of $13,028.40? c.How many cards must be sold to earn an after-tax net income of $18,480?