Exam 3: Cost-Volume-Profit Analysis

In CVP analysis, an assumption is made that the total revenues are linear with respect to output units, but that total costs are non-linear with respect to output units.

Total revenues less total fixed costs equal the contribution margin.

Answer the following questions using the information below: Southwestern College is planning to hold a fundraising banquet at one of the local country clubs. It has two options for the banquet: Southwestern College has budgeted $1,800 for administrative and marketing expenses. It plans to hire a band which will cost another $800. Tickets are expected to be $30 per person. Local business supporters will donate any other items required for the event. -Which option provides the greatest degree of operating leverage if 600 people attend?

Answer the following questions using the information below: Sherry's Custom Jewelry sells a single product. 700 units were sold resulting in $7,000 of sales revenue, $2,800 of variable costs, and $1,200 of fixed costs. -Breakeven point in units is:

Contribution margin equals:

Answer the following questions using the information below: Nancy's Niche sells a single product. 8,000 units were sold resulting in $80,000 of sales revenue, $20,000 of variable costs, and $10,000 of fixed costs. -To determine contribution margin use:

Alex Miller, Inc., sells car batteries to service stations for an average of $30 each. The variable cost of each battery is $20 and monthly fixed manufacturing costs total $10,000. Other monthly fixed costs of the company total $8,000. Required: a. What is the breakeven point in batteries? b. What is the margin of safety, assuming sales total $60,000? 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 manufacturing costs decline by 10%, and other fixed costs decline by $100?

Answer the following questions using the information below: Martha Manufacturing produces a single product that sells for $80. Variable costs per unit equal $32. The company expects total fixed costs to be $72,000 for the next month at the projected sales level of 2,000 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately. -Suppose management believes that a $16,000 increase in the monthly advertising expense will result in a considerable increase in sales. Sales must increase by how much to justify this additional expenditure?

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%?

If the selling price per unit of a product is $30, variable costs per unit are $20, and total fixed costs are $10,000 and a company sells 5,000 units, operating income would be $40,000.

Answer the following questions using the information below: Patrick Ross has three booth rental options at the county fair where he plans to sell his new product. The booth rental options are: The product sells for $37.50 per unit. He is able to purchase the units for $12.50 each. -Which option should Patrick choose to maximize income assuming there is a 40% probability that 70 units will be sold and a 60% probability that 40 units will be sold?

Gross Margin will always be greater than contribution margin.

Answer the following questions using the information below: Stephanie's Bridal Shoppe sells wedding dresses. The average selling price of each dress is $1,000, variable costs are $400, and fixed costs are $90,000. -How many dresses are sold when operating income is zero?

Pounds of yeast used by a bake shop is a potential measure of output for the bakery industry.

If the contribution margin ratio is 0.25, targeted operating income is $25,000, and targeted sales volume in dollars is $200,000, then total fixed costs are:

Breakeven point is:

For merchandising firms, contribution margin will always be a lesser amount than gross margin.

Gross margin is reported on the contribution income statement.

Which of the following is true about the assumptions underlying basic CVP analysis?

Answer the following questions using the information below: Assume the following cost information for Fernandez Company: -What minimum volume of sales dollars is required to earn an aftertax net income of $30,000?