Exam 4: Costvolumeprofit Analysis

Answer the following questions using the information below: Dr Charles Hunter,MD,performs a certain outpatient procedure for $1000.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 break-even point for the month assuming that Dr Hunter plans to perform the procedure 200 times?

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.

Assume only the specified parameters change in a cost-volume-profit analysis.If the contribution margin increases by $2 per unit,then operating profits will:

Answer the following questions using the information below: Warne's Flipper Company sells several products.Information of average revenue and costs is as follows: Selling price per unit \ 25.00 Variable costs per unit: Direct material \ 5.00 Direct manufacturing labour \ 1.80 Manufacturing overhead \ 0.80 Selling costs \ 2.00 Annual fixed costs \ 96000 -The number of units that Warne's Flipper must sell each year to break even is:

If break-even point is 100 units,each unit sells for $30,and fixed costs are $1000,then on a graph the:

Answer the following questions using the information below: Patrick Ross has three booth rental options at the country fair where he plans to sell his new product.The booth rental options are: Option 1: $1000 fixed fee,or Option 2: $750 fixed fee + 5% of all revenues generated at the fair,or Option 3: 20% of all revenues generated at the fair. The product sells for $37.50 per unit.He is able to purchase the units for $12.50 each. -Margin of safety is reported on the contribution income statement.

When making net profit evaluations,CVP calculations for target profit must be stated in terms of net profit after tax.

Assume there is a reduction in the selling price and all other CVP parameters remain constant.This change will:

If the selling price per unit of a product is $50,variable costs per unit are $40,and total fixed costs are $50 000,a company must sell 6000 units to make a target operating profit of $10 000.

Tom's Tyres Inc. ,sells tyres for $110.The unit variable cost per tyre is $85.Fixed costs total $475 000. Required: a.What is the contribution margin per tyre? b.What is the break-even point in tyres? c.How many tyres must be sold to earn a pre-tax profit of $300 000? d.What is the margin of safety,assuming 23 000 tyres are sold? _____________________________________________________________________________________________ _____________________________________________________________________________________________

If operating profit before tax is $70 000 and the income tax rate is 30%,then net profit after tax will be $49 000.

Gabba Catering currently sells hot dogs.During a typical month,the stand reports a profit of $9000 with sales of $50 000,fixed costs of $21 000,and variable costs of $0.64 per hot dog. Next year,the company plans to start selling nachos for $3 per unit.Nachos will have a variable cost of $0.72 and new equipment and personnel to produce nachos will increase monthly fixed costs by $8808.Initial sales of nachos should total 5000 units.Most of the nacho sales are anticipated to come from current hot dog purchasers,therefore,monthly sales of hot dogs are expected to decline to $20 000. After the first year of nacho sales,the company CEO believes that hot dog sales will increase to $33 750 a month and nacho sales will increase to 7500 units a month. Required: a.Determine the monthly break-even sales in dollars before adding nachos. b.Determine the monthly break-even sales during the first year of nachos sales,assuming a constant sales mix of 1 hotdog and 2 units of nachos. _____________________________________________________________________________________________ _____________________________________________________________________________________________

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.

Expected monetary value may be defined as:

Lindwall Electrical reported the following: Revenues \ 6000 Variable manufacturing costs \ 1200 Variable nonmanufacturing costs \ 1080 Fixed manufacturing costs \ 840 Fixed nonmanufacturing costs \ 727 Required: a.Compute contribution margin. b.Compute contribution margin percentage. c.Compute gross margin. d.Compute gross margin percentage. e.Compute operating profit. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Answer the following questions using the information below: Warne's Flipper Company sells several products.Information of average revenue and costs is as follows: Selling price per unit \ 25.00 Variable costs per unit: Direct material \ 5.00 Direct manufacturing labour \ 1.80 Manufacturing overhead \ 0.80 Selling costs \ 2.00 Annual fixed costs \ 96000 -All of the following are assumed in the above analysis EXCEPT:

If a company's break-even revenue is $100 and its budgeted revenue is $125,then its margin of safety percentage is 25%.

A revenue driver is defined as a variable that causes changes in prices.

If the tax rate is t,it is possible to calculate planned profit before tax by:

Marsha Marsh is going to sell Christmas tree lights for $20 a box.The lights cost Marsha $5 a unit and any unsold lights can be returned for a full refund.She is planning to rent a booth at the upcoming Baggy Green's Christmas Convention,which offers three options: 1.paying a fixed fee of $1500,or 2.paying a $500 fee plus 10% of revenues made at the convention,or 3.paying 25% of revenues made at the convention. Which of the following statements is FALSE?