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

A firm sells two products,Regular and Ultra.For every unit of Regular sold,two units of Ultra are sold.The firm's total fixed costs are $1,612,000.Selling prices and cost information for both products follow.The contribution margin per composite unit is:

What is operating leverage? How can the degree of operating leverage be used in analyzing changes in sales?

A company has total fixed costs of $200,000.Its product sells for $25 per unit and variable costs amount to $15 per unit.The company has a target pre-tax income of $50,000.How many units must be sold to achieve this pre-tax target income?

While the total amount of variable cost changes with the level of production,variable cost per unit remains constant as volume changes.

Use the following information to determine the margin of safety in dollars:

A manufacturer reports the following costs to produce 10,000 units in its first year of operations: Direct materials,$10 per unit,Direct labor,$6 per unit,Variable overhead,$70,000,and Fixed overhead,$120,000. -The total product cost per unit under absorption costing is:

The difference between sales price per unit and variable cost per unit is the:

Zola Co.has a contribution margin ratio of 40% and would like to determine whether an additional advertising expenditure of $4,000 would increase sales by $8,000.Calculate the increase or decrease in net income that would result from this change,and comment on whether Zola should purchase the additional advertising.

McCoy Brothers manufactures and sells two products,A and Z in the ratio of 5:2.Product A sells for $75; Z sells for $95.Variable costs for product A are $35; for Z $40.Fixed costs are $418,500.Compute the contribution margin per composite unit.

Fixed costs per unit decrease proportionately with increases in volume of activity.

Forrester Company is considering buying new equipment that would increase monthly fixed costs from $120,000 to $150,000 and would decrease the current variable costs of $70 by $10 per unit.The selling price of $100 is not expected to change.Forrester's current break-even sales are $400,000 and current break-even units are 4,000.If Forrester purchases this new equipment,the revised contribution margin ratio would be:

Elk Co.manufactures a product that sells for $12 per unit.Total fixed costs are $96,000 and variable costs are $7 per unit.Elk can buy a newer production machine that will increase total fixed costs by $22,800 and decrease variable costs by $0.40 per unit.What effect would the purchase of the new machine have on Elk's break-even point in units?

An important tool in predicting the volume of activity,the costs to be incurred,the sales to be made,and the profit to be earned is:

Describe how a cost-volume-profit analysis would be performed for a company that sells more than one product when the sales mix is known.

When graphing cost-volume-profit data on a CVP chart:

The following information is available for Alba Company's maintenance cost over the last four months. Use the high-low method to estimate both the fixed and variable component of its maintenance cost.

Wang Co.manufactures and sells a single product that sells for $450 per unit; variable costs are $270 per unit.Annual fixed costs are $800,000.Current sales volume is $4,200,000.Management targets an annual pre-tax income of $1,125,000. -Compute the unit sales to earn the target pre-tax net income.

A firm produces and sells a product with a contribution margin of $32 per unit.The firm is presently selling 90,000 units and earning $320,000 in pre-tax income.If the firm desires to increase its pre-tax income to $ 400,000,how many more units must it sell?

A ________ cost is one that includes both fixed and variable cost components; a ________ cost is one that reflects a step pattern.

Watson Company has monthly fixed costs of $83,000 and a 40% contribution margin ratio.If the company has set a target monthly income of $15,000,what dollar amount of sales must be made to produce the target income?