Exam 3: Cost-Volume-Profit Analysis

The selling price per unit less the variable cost per unit is the:

If unit outputs exceed the breakeven point:

Sensitivity analysis helps to evaluate the risk associated with decisions.

________ is the process of varying key estimates to identify those estimates that are the most critical to a decision.

If a company increases fixed costs, then the breakeven point will be lower.

If the selling price per unit of a product is $50, variable costs per unit are $40, and total fixed costs are $50,000, a company must sell 6,000 units to make a target operating income of $10,000.

To perform cost-volume-profit analysis, a company must be able to separate costs into fixed and variable components.

Sales total $200,000 when variable costs total $150,000 and fixed costs total $30,000. The breakeven point in sales dollars is:

Answer the following questions using the information below: Bush Manufacturing produces a single product that sells for $100. Variable costs per unit equal $25. The company expects total fixed costs to be $60,000 for the next month at the projected sales level of 1,000 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately. -Suppose that management believes that a 20% reduction in the selling price will result in a 20% increase in sales. If this proposed reduction in selling price is implemented:

Berhannan's Cellular sells phones for $100. The unit variable cost per phone is $50 plus a selling commission of 10%. Fixed manufacturing costs total $1,250 per month, while fixed selling and administrative costs total $2,500. Required: a. What is the contribution margin per phone? b. What is the breakeven point in phones? c. How many phones must be sold to earn pretax income of $7,500?

What is meant by the term breakeven point? Why should a manager be concerned about the breakeven point?

Freddie's company has mostly fixed costs and Valerie's company has mostly variable costs. Which company has the greatest risk of a net loss? Explain why

To calculate the breakeven point in a multiproduct situation, one must assume that the sales mix of the various products remains constant.

Answer the following questions using the information below: Northenscold Company sells several products. Information of average revenue and costs is as follows: -All of the following are assumed in the above analysis EXCEPT:

Assume there is a reduction in the selling price and all other CVP parameters remain constant. This change will:

Answer the following questions using the information below: Northenscold Company sells several products. Information of average revenue and costs is as follows: -The contribution margin per unit is:

Explain when a manager would use cost-volume-profit analysis and sensitivity analysis.

Dolph and Evan started the DE Restaurant in 20X3. They rented a building, bought equipment, and hired two employees to work full time at a fixed monthly salary. Utilities and other operating charges remain fairly constant during each month. During the past two years, the business has grown with average sales increasing 1% a month. This situation pleases both Dolph and Evan, but they do not understand how sales can grow by 1% a month while profits are increasing at an even faster pace. They are afraid that one day they will wake up to increasing sales but decreasing profits. Required: Explain why the profits have increased at a faster rate than sales. Use the terms variable costs and fixed costs in your response.

Answer the following questions using the information below: The following information is for Nichols Company: -The number of units that Nichols Company must sell to reach targeted operating income of $30,000 is:

Expected monetary value may be defined as: