Exam 3: Cost-Volume-Profit Analysis

Answer the following question(s)using the information below.Kaiser's Kraft Korner sells a single product.7,000 units were sold resulting in $70,000 of sales revenue, $28,000 of variable costs, and $12,000 of fixed costs. -Contribution margin per unit is

Determine the breakeven point in units based on the following information: Assume a constant mix of 3 units of Small for every 1 unit of Large.Total fixed costs: $48,000

Symbol Manufacturing Inc.makes component parts for automobile navigation systems.For component A14 direct materials cost $47, and the assembly technicians are paid $42 per hour.A technician can produce two components per hour.Fixed manufacturing costs for A14 are $70,000 per unit based on current production of 12,000 units.Non-manufacturing costs are fixed at $120,000 per period.Each A14 component sells for $195.Required: a.Prepare an income statement in gross margin format. b.Calculate the dollar sales required to generate an operating profit of $1,500,000 and prepare an income statement in contribution margin format. c.What actions could Symbol Manufacturing Inc.management take to lower the required number of units sold necessary to generate the desired operating profit?

Answer the following question(s)using the information below.Kaiser's Kraft Korner sells a single product.7,000 units were sold resulting in $70,000 of sales revenue, $28,000 of variable costs, and $12,000 of fixed costs. -Following is the Becker Company Ltd.partial income statement for the most recent year: Less operating expenses: What would the Becker Company sales have to be in order for the company to have an operating income of $500,000?

The gross margin is revenue minus all variable manufacturing costs.

The degree of operating leverage at a specific level of sales helps the managers calculate the effect that potential changes in sales will have on operating income.

Total revenues less total fixed costs equal the contribution margin.

Samuel Linkletter is an importer of clay gardening pots.He has a six-month agreement with a local gardening store, West City Gardening, to set up a display to sell his product.Samuel can return any unsold items at no cost.The average selling price for the pots is $18 and on average, they cost Samuel $7 each.The owner of West City Gardening has proposed two options: 1.A fixed payment of $375 per month 2.A fixed payment of $125 per month; and, 20% of sales revenues earned during the term of the agreement Required: a.Calculate the degree of operating leverage for both options at sales of 540 units b.Explain the results from part a.in terms of risk c.What number of units must be sold to generate the same operating income for both options? Which option is favourable below this point, and which option is favourable above this point?

Changes in product quality could be considered an example of a revenue driver.

Popcorn Inc.currently sells plain popcorn at the ballpark.During a typical month the stand reports a profit of $18,000 with sales of $100,000 and fixed costs of $42,000 and variable costs of $0.64 per box.Next year the company plans to start selling candy-coated popcorn for $3 a box.The candy-coated popcorn will have a variable cost of $0.72.The new equipment and personnel to handle the popcorn will increase monthly fixed costs by $17,616.Two boxes of candy-coated popcorn are expected to sell for every box of plain popcorn.Required: a.Determine the monthly break-even sales in units before adding the candy-coated popcorn product. b.Determine the monthly break-even sales in units of each product during the first year of candy-coated popcorn sales assuming a constant sales mix.

CVP analysis assumes that the behaviour of total costs is non-linear.

Which of the following statements about sensitivity analysis is TRUE?

Blankinship, Inc., sells a single product.The company's most recent income statement is given below. Required:

Use the information below to answer the following question(s).The following information is for Winnie Company: -A hospital receives $1,000,000 monthly in funding from various sources.Annual fixed costs are projected to be $5,000,000 and the variable cost per patient, across all departments is projected to be $534.80.Last year they treated 11,500 patients.The hospital expects a 5% increase in patients this year.A governing bylaw requires that the hospital be run as a non-profit organization.What is the maximum number of patients the hospital can expect to be able to treat assuming the operating income is zero?

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%.Required: a.What is the breakeven point in units for each product assuming the sales mix is 2 units of Product A for each unit of Product B? b.What is the breakeven point if Mount Carmel's tax rate is reduced to 25%, assuming the sales mix is 2 units of Product A for each unit of Product B? c.How many units of each product would be sold if Mount Carmel desired an after-tax net income of $73,500, facing a tax rate of 30%?

Red Ruby, Inc., sells a single product.The company's most recent income statement is given below. Required:

Use the information below to answer the following question(s).Dr.Mickey Finn performs a certain procedure for $400.00.The fixed costs are $8,000 and variable costs are $200.00 per procedure. -What is the margin of safety in units assuming the procedure is performed 200 times?

If the tax rate is t, it is possible to calculate planned operating income by

Sensitivity analysis is a "what-if" technique that managers use to examine how a result will change if the originally predicted data are not achieved or if an underlying assumption changes.

Seamless Gutter sells 10 metre sections of eaves trough for $12.The unit variable costs per section are $8.80.Fixed costs total $4,800.Required: a.What is the contribution margin per section? b.What is the break-even point in sections? ...in dollars? c.How many sections must be sold to earn a pre-tax income of $4,000? d.What is the margin of safety assuming 1,800 sections are sold?