Exam 21: Cost-Volume-Profit Analysis

Which of the following is considered a period cost in absorption costing?

Under variable costing,the units in the beginning Finished Goods Inventory contain fixed manufacturing overhead costs.

If a company reduces its fixed costs,the operating income will increase by the same amount as the cost reduction.

Caty Couture sells designer shirts for $43 per shirt.It incurs monthly fixed costs of $7,000.The contribution margin ratio is calculated to be 20%.What is the breakeven point in units?

Which of the following costs remains the same irrespective of the changes in production?

Kumar produces large decorative tiles used in home decor.The tiles sell for $720 and the fixed monthly operating costs are as follows: Rent and utilities \ 840 Management salaries 2,800 Other expenses 510 Kumar's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and that anything past that point was pure profit. Kumar's is planning to increase the selling price to $840.What impact will the increase in selling price have on the breakeven point in units?

Steven was a professional classical guitar player until his motorcycle accident that left him disabled.After long months of therapy,he hired an experienced luthier (maker of stringed instruments)and started a small shop to make and sell Spanish guitars.The guitars sell for $800 and the fixed monthly operating costs are as follows: Rent and utilities \ 1,250 Wages and benefits to luthier 2,500 Other expenses 490 Steven's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales,$0.65 went to cover his fixed costs,and that anything past that point was pure profit. Steven wishes to earn $6,000 of operating profit each month.Calculate the number of guitars Steven will have to sell to achieve the target profit.

Within the relevant range,the total fixed costs and the variable cost per unit remain the same.

Answer the following absorption costing questions: Question Absorption Costing Which costs are included as product costs? Which costs are included as period costs?

Which of the following statements is true of the behavior of total variable costs,within the relevant range?

Iversen Company has provided the following information: Price per unit \ 42 Variable cost per unit 15 Fixed costs per month \ 16,000 What are the required sales in units for Iversen to break even?

Rustic Replicas is owned and operated by a craftsman who makes replicas of historic firearms for museums,sportsmen,and collectors.He is currently producing 43 flintlock muskets per month.The cost data for the muskets are as follows: Price per unit \ 750 Variable costs per unit 480 Fixed costs per month 8,100 If Rustic expects to sell 40 units per month,what is his margin of safety expressed in units per month?

If the selling price of Product A1 is $10.50 per unit and unit fixed cost is $5.50,its contribution margin per unit is $5.00.

Adam was a professional classical guitar player until his motorcycle accident that left him disabled.After long months of therapy,he hired an experienced luthier (maker of stringed instruments)and started a small shop to make and sell Spanish guitars.The guitars sell for $900 and the fixed monthly operating costs are as follows: Rent and utilities \ 800 Wages and benefits to luthier 3,000 Other expenses 500 Adam's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and that anything past that point was pure profit. How many guitars does Adam have to sell each month to break even?

An increase in selling price per unit decreases the contribution margin per unit.

Clausen Company sells a product for $70 per unit.Variable costs are $25 per unit and fixed costs are $8,000 per month.Clausen sold 1,000 units in April,2017.Prepare an income statement for April using the contribution margin format.

When the variable cost per unit increases,the contribution margin on each unit decreases.

Absorption costing is required by the Generally Accepted Accounting Principles (GAAP)for financial statements issued to investors,creditors,and other external users.

Contribution margin is calculated by deducting ________ from sales revenue.

Mendoza Company's highest point of total cost was $85,000 in June.Their point of lowest cost was $60,000 in January.The company makes a single product.Production volume in June was 14,000 units; production volume in January was 8,000 units.What is the variable cost per unit?