Exam 3: Cost-Volume-Profit Analysis

A revenue driver is a variable,such as volume,that causally affects revenues.

Answer the following questions using the information below: Stephanie's Bridal Shoppe sells wedding dresses. The average selling price of each dress is $1,000, variable costs are $400, and fixed costs are $90,000. -What is the Bridal Shoppe's operating income when 200 dresses are sold?

Assume only the specified parameters change in a cost-volume-profit analysis.If the contribution margin increases by $6 per unit,then ________.

Answer the following questions using the information below: Ruben intends to sell his customers a special round-trip airline ticket package. He is able to purchase the package from the airline carrier for $150 each. The round-trip tickets will be sold for $200 each and the airline intends to reimburse Ruben for any unsold ticket packages. Fixed costs include $5,000 in advertising costs. -How many ticket packages will Ruben need to sell in order to achieve $60,000 of operating income?

Blistre Company operates on a contribution margin of 20% and currently has fixed costs of $500,000.Next year,sales are projected to be $3,000,000.An advertising campaign is being evaluated that costs an additional $80,000.How much would sales have to increase to justify the additional expenditure?

The breakeven point decreases if ________.

Helping Hands is a nonprofit organization that supplies electric fans during summer for individuals in need.Fixed costs are $225,000.The fans cost $25.00 each.The organization has a budgeted appropriation of $675,000.How many people can receive a fan during summer?

Answer the following questions using the information below: The following information is for Alex Corp: -What is the operating income,assuming actual sales total 150,000 units,and the sales mix is two units of Product X and one unit of Product Y?

Arthur's Plumbing reported the following: Revenues \ 4,500 Variable manufacturing costs \ 900 Variable nonmanufacturing costs \ 810 Fixed manufacturing costs \ 630 Fixed nonmanufacturing costs \ 545 Required: a.Compute contribution margin. b.Compute contribution margin percentage. c.Compute gross margin. d.Compute gross margin percentage. e.Compute operating income.

Answer the following questions 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 greatest degree of operating leverage if 600 people attend?

The difference between total revenues and total variable costs is called contribution margin.

If the sales mix shifts to one unit of Product X and two units of Product Y,then the weighted-average contribution margin will ________.

Stones Manufacturing,sells a marble slab for $1,000.Fixed costs are $30,000,while the variable costs are $400 per slab.The company currently plans to sell 200 slabs this month.What is the margin of safety assuming 75 slabs are budgeted?

Answer the following questions using the information below: Northern Star sells several products. Information of average revenue and costs is as follows: Selling price per unit \ 20.00 Variable costs per unit: Direct material \ 4.00 Direct manufacturing labor \ 1.60 Manufacturing overhead \ 0.40 Selling costs \ 2.00 Annual fixed costs \ 96,000 $\text { The company sells } 12,000 \text { units at the end of the year. }$ -If direct labor and direct material costs increase by $1 each,contribution margin ________.

When a greater proportion of costs are fixed costs,then ________.

Which of the following forms a part of decision making in CVP analysis?

Dolph and Evan started the DE Restaurant in 20X3.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 1% a month.This situation pleases both Dolph and Evan,but they do not understand how sales can grow by 1% 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.Use the terms variable costs and fixed costs in your response.

Lauren had been a manager of a major hotel chain for 15 years.Due to a hotel owner's illness,Lauren was offered the opportunity to purchase a hotel near a vacation area she had often visited.It was a great place surrounded by mountains and known for its scenic beauty.After obtaining a lawyer and an accountant to assist her,Lauren did an analysis of the business and evaluated several contingencies relating to various scenarios.Since the expected monetary value of the various scenarios was much higher than the price of the hotel,she decided to purchase the hotel.She resigned her position,obtained a loan,and purchased the hotel.The following year,there was a severe economic downturn and also a very bad weather season that reduced the number of guests and also caused a resulting mold situation in the hotel building that required expensive repair work.Lauren ran short of cash,became emotionally distraught,and eventually had to sell the hotel at a significant loss.Was it a bad decision for her to purchase the hotel instead of keeping her other managerial position? Explain.

What is sales mix? How do companies choose their sales mix?

Assuming a constant mix of 3 units of X for every 1 unit of Y. X Y Total Sales \ 25 \ 40 VC 18 22 Total fixed costs \7 8,000 The breakeven point in units would be ________.