Exam 18: Cost Behavior and Cost-Volume-Profit Analysis

Curvilinear costs increase as volume of activity increases,but at a nonconstant rate.

Three important assumptions in cost-volume-profit analysis are that (1)________ per unit is constant,(2)________ per unit is constant,and (3)________ are constant in total.

The unit contribution margin divided by the selling price per unit is the ________.

Briefly describe a CVP chart,including its major components.

Philadelphia Co.is considering the production and sale of a new product with the following sales and cost data: unit sales price,$300; unit variable costs,$180; total fixed costs,$270,000; and projected sales,$900,000.What is the margin of safety: (a)In dollar sales? And (b)As a percent of sales?

As production volume increases,fixed cost per unit of output remains constant.

A method that estimates cost behavior by using just the highest and lowest volume levels is called the:

Magnolia Company is considering the production and sale of a new product with the following sales and cost data: unit sales price,$350; unit variable costs,$180; total fixed costs,$399,500; and projected sales,$910,000.Round your answers to the nearest whole unit or dollar. (a)Calculate break-even in units. (b)Calculate break-even in dollars (use four decimal places when calculating the contribution margin ratio). (c)Calculate number of units that would need to be sold to generate an after-tax profit of $420,000 assuming a 30% tax rate. (d)Calculate dollar sales that would be needed to generate the same profit as above. (e)Calculate the margin of safety stated as a percentage using the $910,000 projected sales level. Be sure to label each calculation and show all calculations.

Which of the following costs are most likely to be classified as fixed?

The ________ is the sales level at which a company neither earns a profit nor incurs a loss.

The excess of expected sales over the sales level at the break-even point is known as the:

The high-low method is used to derive the variable cost per unit and total fixed costs using just the highest and lowest volume levels.

A company manufactures and sells searchlights.Each searchlight sells for $345.The variable cost per unit is $198,and the company's total fixed costs are $635,000.Predicted sales are 15,000 units.What is the contribution margin per unit?

Clockworks Co.reports the following data for the current year: Required: (a)Calculate Clockworks' pretax income. (b)Calculate Clockworks' degree of operating leverage.

The extent,or relative size,of fixed costs in the total cost structure is known as operating leverage.

A break-even point can be calculated either in units or in dollars of sales.

Under absorption costing,fixed overhead costs are excluded from product costs.

The budgeted income statement presented below is for Burkett Corporation for the coming fiscal year.Compute the number of units that must be sold in order to achieve a target pretax income of $130,000.

Barclay Bikes manufactures and sells three distinct styles of bicycles: the Youth model sells for $300 and has a unit contribution margin of $105; the Adult model sells for $850 and has a unit contribution margin of $450; and the Recreational model sells for $1,000 and has a unit contribution margin of $500.The company's sales mix includes: 5 Youth models; 9 Adult models; and 6 Recreational models.If the firm's annual fixed costs total $6,500,000,calculate the firm's contribution margin ratio per composite unit (rounded to the nearest whole percentage).

Benjamin Co.has three products A,B,and C,and its fixed costs are $69,000.The sales mix for its products are 3 units of A,4 units of B,and 1 unit of C.Information about the three products follows: (a)Calculate the company's break-even point in composite units and sales dollars. (b)Calculate the number of units of each individual product to be sold at the break-even point.