Exam 21: Cost-Volume-Profit Analysis

When the total fixed costs increase,the contribution margin per unit ________.

A CVP graph shows how changes in the level of sales will affect profits.

Zeke was a professional classical guitar player until a motorcycle accident left him disabled.After long months of therapy,he hired an experienced luthier 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 \ 700 Wages and benefits to luthier 2300 Other expenses 479 Zeke's accountant told him about contribution margin ratios,and Zeke understood clearly that for every dollar of sales,$0.75 went to cover his fixed costs,and anything above that point was profit. Zeke wishes to earn $5100 of operating profit each month.Calculate the amount of sales revenue required to achieve the target profit.(Round your answer to the nearest dollar.)

Which of the following is a variable cost?

Target profit is the operating income that results when sales revenue minus variable and fixed costs equals management's profit goal.

In its first year of business,Talula,Inc.produced and sold 600 units.If Talula uses variable costing,________.

The degree of operating leverage can be measured by ________.

When all units produced are sold,there is no difference in operating income between absorption costing and variable costing.

Under absorption costing,all product costs are first recorded as assets in inventory accounts,and later transferred to the Cost of Goods Sold account when sold.

Sales mix,or product mix,is the combination of products that make up total sales.

Managers' decisions may cause costs to behave differently than predicted by CVP analysis.

Cinnabar,Inc.has provided the following data for the year: Direct materials \ 10 per unit Direct labor \ 15 per unit Variable manufacturing overhead \ 20 per unit Fixed manufacturing overhead \ 25,000 per year Fixed selling and administrative costs \ 15,000 per year Sales price \ 75 per unit Beginning Finished Goods Inventory 500 units Units produced 5,000 units Units sold 4,500 units Requirements: a)Compute Cinnabar's unit product cost under absorption costing and variable costing. b)Prepare income statements for Cinnabar using absorption costing and variable costing. c)Calculate the balance in Finished Goods Inventory using absorption costing and variable costing. Assume that the production level,costs,and sales prices were the same in the previous year.

When all the units produced are sold,the operating income calculated under absorption costing is higher when compared to the operating income calculated under variable costing.Assume that there is no beginning Finished Goods Inventory.

Bernard Company shows the following manufacturing costs for the first six months of the year: Production in Units Total Costs January 1600 \ 33,636 February 1450 \ 31,000 March 1770 \ 35,436 April 2400 \ 43,636 May 2840 \ 45,780 June 2850 \ 45,900 Using the high-low method,the total fixed costs are ________.(Round intermediate calculations to two decimal places,and the final calculation to the nearest dollar.)

Fixed costs divided by contribution margin per unit equals the breakeven point in unit sales.

Ajax was a professional classical guitarist until a motorcycle accident left him disabled.After long months of therapy,he hired an experienced luthier 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 \ 600 Wages and benefits to luthier 2300 Other expenses 479 Ajax's accountant told him about contribution margin ratios,and Ajax understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and anything above that point was profit. How many guitars does Ajax need to sell each month to break even? (Round your answer up to the nearest whole guitar.)

A company's proportion of fixed costs to variable costs is called its ________.

Carolina Timber,Inc.produces flooring material.The monthly fixed costs are $10,000 per month.The unit sales price is $75,and variable cost per unit is $35.How many units should Carolina sell in order to earn $10,000 as operating income?

Louie's Music produces harmonicas that it sells for $12 each.The company computes a new monthly fixed manufacturing overhead allocation rate based on the planned number of harmonicas to be produced that month.Assume all costs and production levels are exactly as planned.The following data are from Louie's Music's first month in business: January 2019 Units produced and sold: 1,200 Sales in units 1,400 Production in units \ 4 Sariable manufacturing cost per harmonica \ 1 Total fixed manufacturing overhead \ 2,800 Total fixed selling and administrative costs \ 2,100 Requirements 1.Compute the product cost per harmonica produced under absorption costing. 2.Prepare an income statement for January,2019

Under absorption costing,the more units added to ending Finished Goods Inventory,the less fixed manufacturing overhead is '"hidden" in ending Finished Goods Inventory at the end of the accounting period.