Exam 3: Cost-Volume-Profit Analysis

Gates Rubber Company sells cases of hydraulic hoses for $80.The unit variable costs per case are $40 plus a selling commission of 10 percent of sales.Fixed manufacturing costs total $1,000 per month,while fixed selling and administrative costs total $2,000.The company has a tax rate of 40%. Required: a.What is the contribution margin per case? b.What is the break-even point in cases? c.How many cases must be sold to earn pre-tax profit of $6,000? d.How many cases must be sold to earn an after-tax income of $6,000?

Determine the breakeven point in units based on the following information: Assume a constant mix of 3 units of Small for every 1 unit of Large. Total fixed costs: $48,000

In cost-volume-profit analysis (CVP)it is assumed that both the product mix and the volume sold are dynamic variables.

At the break-even point of 200 units,variable costs total $400 and fixed costs total $600.The 201st unit sold will contribute ________ to profits.

CVP analysis assumes that the behaviour of total costs is non-linear.

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: 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?

Which of the following formulae is correct when using the contribution margin method to determine the break-even point?

Which of the following factors would be relevant in classifying costs as fixed or variable in a specific decision situation?

Revenues less all costs that vary with respect to an output level is the gross margin.

Use the information below to answer the following question(s). The following information is for Winnie Company: -What is the operating income assuming actual sales are 300,000 units,and the sales mix is one unit of Product A and two units of Product B?

What is the "operating income" assuming 250 people attend and option one is chosen?

Answer the following question(s)using the information below. Kaiser's Kraft Korner sells a single product.7,000 units were sold resulting in $70,000 of sales revenue,$28,000 of variable costs,and $12,000 of fixed costs. -Break-even point in units is

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

A social agency receives a budget appropriation of $11,000 monthly from the municipality.Annual fixed costs are projected to be $20,000 and the variable cost per client was $238.50 last year.Although the agency projects its case load to increase by the usual 15% this year (as it has done historically),the municipality appropriated funds based on last year's case load.Which of the following strategies would be ineffective in dealing with the expected shortfall in budget appropriation for the agency?

Karen's Klothes sells blouses for women and girls.The average selling price and variable cost for each product are as follows: Fixed costs are $30,000 and cannot be separated evenly between the two products. 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?

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

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.

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: 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?

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

Margin of safety measures the difference between budgeted or actual revenues,and break-even revenues.