Exam 3: Cost-Volume-Profit Analysis

Seamless Gutter sells 10 metre sections of eaves trough for $12. The unit variable costs per section are $8.80. Fixed costs total $4,800. Required: a. What is the contribution margin per section? b. What is the break-even point in sections? . . . in dollars? c. How many sections must be sold to earn a pretax income of $4,000? d. What is the margin of safety assuming 1,800 sections are sold?

Which of the following statements about sensitivity analysis is true?

Karen Hefner, a florist, operates retail stores in several shopping malls. The average selling price of an arrangement is $30 and the average cost of each sale is $18. A new mall is opening where Karen wants to locate a store, but the location manager is not sure about the rent method to accept. The mall operator offers the following three options for its retail store rentals: 1. paying a fixed rent of $15,000 a month, or 2. paying a base rent of $9,000 plus 10% of revenue received, or 3. paying a base rent of $4,800 plus 20% of revenue received up to a maximum rent of $25,000. Required: a. For each option, compute the break-even sales and the monthly rent paid at break-even. b. Beginning at zero sales, show the sales levels at which each option is preferable up to 5,000 units.

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.

Cost-Volume-Profit analysis is useful for

A probability distribution describes the likelihood of each of the mutually exclusive and collectively exhaustive set of events.

Yurus Manufacturing Company produces two products, X and Y. The following information is presented for both products: Total fixed costs are $234,000. Required: a. Calculate the contribution margin for each product. b. Calculate break-even point in units of both X and Y if the sales mix is 3 units of X for every unit of Y. c. Calculate break-even volume in total dollars if the sales mix is 2 units of X for every 3 units of Y.

The contribution margin is computed by deducting all costs which vary on the basis of an output-related cost driver from revenues.

Atlanta Radio Supply sells only two products, Product X and Product Y. Atlanta Radio Supply sells three units of Product X for each two units it sells of Product Y; the tax rate is 25%. Required: a. What is the break-even point in units for each product, assuming the sales mix is 3 units of Product X for each two units of Product Y? b. How many units of each product would be sold if Atlanta Radio Supply desired an after-tax net income of $210,000, using its tax rate of 25%?

Comparing contribution margin [CM] to gross margin [GM], which of the following is true?

Which option should Joan choose in order 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?

Fan Inc. is a nonprofit organization that supplies fans during the summer for individuals in need. Fixed costs are $500,000. The fans cost $40.00 each. The organization has a budgeted appropriation of $1,200,000. How many people can receive a fan during the summer?

Cost-volume profit is used to analyze

The contribution margin method can be used to verify a break-even calculation.

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.

A revenue driver is defined as

Schuppener Company sells its only product for $18 per unit; variable production costs are $6 per unit, and variable selling and administrative costs are $3 per unit; fixed costs for 10,000 units are $10,000. The contribution margin is

Which of the following are necessary assumptions when using the contribution margin method of determining the break-even point?

If sales increase by $25,000, operating income will increase by

You have just been hired as the new management accountant for a pool chemical wholesaler. The company sells packages of pool chemicals to retail stores, consisting of all of the chemicals a typical pool would need for a week, for a price of $25, and a variable cost of $8. The company has fixed costs of $125,000. The previous accountant was promoted to an associated company but has left you her working papers for a project she was working on. The project involves advising management whether to accept an advertising arrangement with an industry publication. The arrangement being offered is a contract calling for a set payment per month (amount to be negotiated) for 6 months. The industry is cyclical and has no sales for 4 months [16 weeks] of the year. The previous accountant notes show her projection that this would result an increase of 50 units per week, above the normal 1,000 units per week that the company sells currently. The increased demand would arise from more customers to existing outlets, and from new outlets as well. The advertiser is suggesting a monthly fee of $1,800. What is your advice, based on the previous accountant's notes and your own analysis?