Exam 3: Cost-Volume-Profit Analysis

Answer the following questions using the information below: Assume the following cost information for Fernandez Company: -In CVP analysis, focusing on target net income rather than operating income:

Answer the following questions using the information below: Franscioso Company sells several products. Information of average revenue and costs is as follows: -The number of units that Franscioso must sell annually to make a profit of $90,000 is:

In multiproduct situations when sales mix shifts toward the product with the lowest contribution margin, the breakeven quantity will decrease.

One of the first steps to take when using CVP analysis to help make decisions is:

In the graph method of CVP analysis, the total revenue line can be calculated by determining the total revenue at only one real output level because the starting point of the line is always the intersection of the X and Y axes.

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 achieve $100,000 in operating income, sales must total:

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. -Option 1: Fixed costs of $10,000 and a breakeven point of 500 units. Option 2: Fixed costs of $20,000 and a breakeven point of 700 units. Which option should you choose if you are expecting to produce 600 units?

If the contribution margin ratio is 0.40, targeted operating income is $80,000, and targeted sales volume in dollars is $500,000, then total fixed costs are:

Ken's Beer Emporium sells beer and ale in both pint and quart sizes. If Ken's sells twice as many pints as it sells quarts, and sells 2,400 items total, it will sell 800 quarts of ale.

Answer the following questions using the information below: Holly's Ham, Inc. sells hams during the major holiday seasons. During the current year 11,000 hams were sold resulting in $220,000 of sales revenue, $55,000 of variable costs, and $24,000 of fixed costs. -The number of hams that must be sold to achieve $75,000 of operating income is:

Jennifer's Stuffed Animals reported the following: Required: a. Compute contribution margin. b. Compute gross margin. c. Compute operating income.

Companies with a greater proportion of fixed costs have a greater risk of loss than companies with a greater proportion of variable costs.

Answer the following questions using the information below: Dr. Charles Hunter, MD, performs a certain outpatient procedure for $1,000. His fixed costs are $20,000, while his variable costs are $500 per procedure. Dr. Hunter currently plans to perform 200 procedures this month. -What is the margin of safety assuming 100 procedures are budgeted?

Query Company sells pillows for $25.00 each. The manufacturing cost, all variable, is $10 per pillow. The company is planning on renting an exhibition booth for both display and selling purposes at the annual crafts and art convention. The convention coordinator allows three options for each participating company. They are: Required: a. Compute the breakeven sales in pillows of each option. b. Which option should Query Company choose, assuming sales are expected to be 800 pillows?

Pennsylvania Valve Company makes three types of valves: Speedy Flow, Sure Flow, and Fine Flow. Each of the three products has a different contribution margin, and the proportions of the three products sold have remained steady over the years. How could Pennsylvania valve compute a breakeven point given this situation?

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 has the lowest breakeven point?

Answer the following questions using the information below: Holly's Ham, Inc. sells hams during the major holiday seasons. During the current year 11,000 hams were sold resulting in $220,000 of sales revenue, $55,000 of variable costs, and $24,000 of fixed costs. -Contribution margin per ham is:

Assume there is an increase in advertising expenditures and all other CVP parameters remain constant. This change will:

In CVP analysis, variable costs include direct variable costs, but do NOT include indirect variable costs.

Auto Tires has been in the tire business for four years. It rents a building but owns all of its equipment. All employees are paid a fixed salary except for the busy season (April-June), when temporary help is hired by the hour. Utilities and other operating charges remain fairly constant during each month except those in the busy season. Selling prices per tire average $75 except during the busy season. Because a large number of customers buy tires prior to winter, discounts run above average during the busy season. A 15% discount is given when two tires are purchased at one time. During the busy months, selling prices per tire average $60. The president of Auto Tires is somewhat displeased with the company's management accounting system because the cost behavior patterns displayed by the monthly breakeven charts are inconsistent; the busy months' charts are different from the other months of the year. The president is never sure if the company has a satisfactory margin of safety or if it is just above the breakeven point. Required: a. What is wrong with the accountant's computations? b. How can the information be presented in a better format for the president?