Exam 3: Cost-Volume-Profit Analysis

The agency supervisor of a non-profit organization wants to know how many individuals may receive financial assistance during the year. The organization has fixed costs of $600,000. They aid the unemployed by supplementing their incomes by $8,000 annually, while they seek new employment skills. The budgeted appropriation for the year is $2,000,000.

Gross margin in a merchandising organization is considered to be

Berhannan's Cellular sells phones for $100. The unit variable cost per phone is $50 plus a selling commission of 10%. Fixed manufacturing costs total $1,250 per month, while fixed selling and administrative costs total $2,500. Required: a. What is the contribution margin per phone? b. What is the break-even point in phones? c. How many phones must be sold to earn pretax income of $7,500?

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. -How many people must purchase tickets assuming option two is chosen, and Big Sports expects to raise $4,820 for the athletic fund? Assume no one pays more than the cost of his/her ticket.

A profit-volume graph shows the impact on operating income from changes in the output level.

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. -The break-even point in tickets sold of option two?

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.

Which of the following statements about contribution margin and gross margin in CVP analysis is true?

Bonnie and Clyde started the BC Restaurant a few years ago. They rented a building, bought equipment, and hired two employees to work full time at a fixed monthly salary. Utilities and other operating charges remain fairly constant during each month. During the past two years the business has grown with average sales increasing one percent a month. This situation pleases both Bonnie and Clyde, but they do not understand how sales can grow by one percent a month while profits are increasing at an even faster pace. They are afraid that one day they will wake up to increasing sales but decreasing profits. Required: Explain why the profits have increased at a faster rate than sales.

Suppose a company decided to automate a production line. Explain what effects this would have on a company's cost structure using CVP terminology. Could these changes have any possible negative effect on the firm?

The key to applying CVP analysis in non-profit and service organizations is to measure their output.

If the tax rate is t, it is possible to calculate planned operating income by

Sensitivity analysis may be used to determine how a result will change if the original data are changed or if the original results are not achieved.

What is the margin of safety in units assuming the procedure is performed 200 times?

Answer the following question(s) using the information below. Southwestern College is planning to hold a fund raising 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 least amount of risk?

Lobster Liquidators will make $500,000 if the fishing season weather is good, $200,000 if the weather is fair, and would actually lose $50,000 if the weather is poor during the season. If the weather service gives a 40% probability of good weather, a 25% probability of fair weather, and a 35% probability of poor weather, what is the expected monetary value for Lobster Liquidators?

Snowmobile Inc. manufactures two colours of snowmobiles: White and Black. Marketing believes that it can sell between 12,000 and 18,000 of either product during the upcoming year. Due to the overall economic slowdown, the company is preparing to produce only one model for next year. The following information has been provided by the accounting department: For next year, fixed costs will total $9,450,000 if White is produced and $11,640,000 if Black is produced. Plant capacity allows up to 107,800 direct manufacturing hours. White takes 9.8 hours to produce and Black requires 11 hours. The company is subject to a 30 percent income tax rate. Required: Which model should Snowmobile Inc. produce, assuming the marketing manager believes annual demand of either model will exceed production capacity? Why?

Karen's Klothes sells blouses for women and girls. The average selling price and variable cost for each product are as follows: Required: a. What is the break-even point in units for each type of blouse assuming the sales mix is 2:1 in favour of women's blouses? Total sales cannot exceed 7,000 units due to space constraints. b. What is the operating income assuming the sales mix is 2:1 in favour of women's blouses, and sales total 9,900 blouses?

An expected value is the weighted-average of the outcomes based on the percentage combinations of the incomes.

Operating costs include