Exam 3: Cost-Volume-Profit Analysis

Sensitivity analysis is a "what-if" technique that managers use to examine how a result will change if the originally predicted data are NOT achieved or if an underlying assumption changes.

Margin of safety measures the difference between budgeted revenues and breakeven revenues.

When fixed costs are $40,000 and variable costs are 20% of the selling price, then breakeven sales are:

Service sector companies will never report gross margin on an income statement.

What is the breakeven point in units, assuming a product's selling price is $100, fixed costs are $8,000, unit variable costs are $20, and operating income is $3,200?

If a company has a degree of operating leverage of 4.0, that means a 10% increase in sales will result in a 40% increase in variable costs.

The breakeven point decreases if:

Black Pearl, Inc., sells a single product. The company's most recent income statement is given below. Required:

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. -Gross margin is:

Breakeven point is NOT a good planning tool since the goal of business is to make a profit.

It is assumed in CVP analysis that the unit selling price, unit variable costs, and unit fixed costs are known and constant.

The breakeven point is the activity level where:

Answer the following questions using the information below: Assume the following cost information for Fernandez Company: -The Marietta Company has fixed costs of $40,000 and variable costs are 75% of the selling price. To realize profits of $10,000 from sales of 50,000 units, the selling price per unit:

Lauren had been a manager of a major hotel chain for 15 years. Due to a hotel owner's illness, Lauren was offered the opportunity to purchase a hotel near a vacation area she had often visited. After obtaining a lawyer and an accountant to assist her, Lauren did an analysis of the business and evaluated several contingencies relating to various scenarios that might occur based on economic and weather season circumstances. Since the expected monetary value of the various scenarios was much higher than the price of the hotel, she decided to purchase the hotel. She resigned her position, obtained a loan, and purchased the hotel. The following year, there was a severe economic downturn and also a very bad weather season that reduced the number of guests and also caused a resulting mold situation in the hotel building that required expensive repair work. Lauren ran short of cash, became emotionally distraught, and eventually had to sell the hotel at a significant loss. Was it a bad decision for her to purchase the hotel instead of keeping her other managerial position? Explain.

Produce Company needs to know the pounds of apples to have on hand each day. Each pound of apples costs $0.50 and can be sold for $0.80. Unsold apples are worthless at the end of the day. The following demands were found after studying the last six months' sales: Required: Determine whether Produce Company should order 200, 300, or 400 pounds of apples.

Sprint Manufacturing Company produces two products, X and Y. The following information is presented for both products: Total fixed costs are $292,500. Required: a. Calculate the contribution margin for each product. b. Calculate breakeven point in units of both X and Y if the sales mix is 3 units of X for every unit of Y. c. Calculate breakeven volume in total dollars if the sales mix is 2 units of X for every 3 units of Y.

Answer the following questions using the information below: The following information is for the Jeffries Corporation: -What is the breakeven point, assuming the sales mix consists of three units of Product A and one unit of Product B?

A company with sales of $50,000, variable costs of $35,000, and fixed costs of $25,000 will reach its breakeven point if sales are increased by $20,000.

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. -What is the Bridal Shoppe's operating income when 200 dresses are sold?

A nonprofit organization aids the unemployed by supplementing their incomes by $3,200 annually, while they seek new employment skills. The organization has fixed costs of $240,000 and the budgeted appropriation for the year totals $800,000. How many individuals can receive financial assistance this year?