Exam 3: Cost-Volume-Profit Analysis

Auto Tires Inc. sells tires to service stations for an average of $45 each. The variable costs of each tire are $30 and monthly fixed manufacturing costs total $15,000. Other monthly fixed costs of the company total $12,000. Required: a. What is the break-even level in tires? b. What is the margin of safety assuming sales total $90,000? c. What is the break-even level in tires assuming variable costs increase by 20 percent? d. What is the break-even level in tires assuming the selling price goes up by 10 percent, fixed manufacturing costs decline by 10 percent and other fixed costs decline by $150?

Variable operating costs and fixed operating costs constitute total operating costs.

The contribution margin method of CVP analysis uses the equation: break-even units = unit contribution margin/fixed costs.

An increase in the tax rate will increase the break-even point.

There is no unique break-even point when there are multiple cost drivers.

The total costs line includes all variable costs and all fixed costs when using the graph method of CVP analysis.

"Uncertainty" may be defined as

How many actions and alternatives exist in this situation?

Use the information below to answer the following question(s). Big Sports University is planning to hold a fund raising banquet at one of the local country clubs. It has two options for the banquet: 1. Foothills Country Club 2. Downhill Country Club Big Sports has budgeted $900 for administrative and marketing expenses. It plans to hire a band, which will cost another $400. Tickets are expected to be $40 per person. Any other items required for the event will be donated by its local business supporters. -What is the break-even point in tickets sold of option one?

Use the information below to answer the following question(s). The following information is for Winnie Company: -A hospital receives $1,000,000 monthly in funding from various sources. Annual fixed costs are projected to be $5,000,000 and the variable cost per patient, across all departments is projected to be $534.80. Last year they treated 11,500 patients. The hospital expects a 5% increase in patients this year. A governing bylaw requires that the hospital be run as a non-profit organization. What is the maximum number of patients the hospital can expect to be able to treat assuming the operating income is zero?

Which of the following statements about using the equation method to determine the break-even point is true?

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

Use the information below to answer the following question(s). Big Sports University is planning to hold a fund raising banquet at one of the local country clubs. It has two options for the banquet: 1. Foothills Country Club 2. Downhill Country Club Big Sports has budgeted $900 for administrative and marketing expenses. It plans to hire a band, which will cost another $400. Tickets are expected to be $40 per person. Any other items required for the event will be donated by its local business supporters. -What is the "operating income" assuming 250 people attend and option two is chosen?

Expected monetary value may be defined as

What is the margin of safety assuming 100 procedures are performed?

If planned net income is $21,000 and the tax rate is 30%, then planned operating income would be $27,300.

Break-even point in units is

The break-even point in CVP analysis is defined as the point

Widget Company sells widgets for $20.00 each. The manufacturing costs, all variable, are $6 each. The company is planning on renting an exhibition booth ,for both display and selling purposes, at the annual candy convention. The company's sales manager will earn a vacation bonus if she can earn a target net income of $150,000, for the sales operation at the convention. The convention organizers provide the advertising and guarantee a certain level of traffic, in exchange for 15% of the net income. The 15% surcharge operates like a tax on net income. The company absorbs all of the fixed costs of production for the sales made at the convention. How many widgets does the sales manager have to sell to earn the vacation bonus?

Answer the following question(s) using the information below. The following information is for the Jeffries Corporation: -If the sales mix shifts to four units of Product A and one unit of Product B, then the break-even point will