Exam 23: Cost Behavior Analysis

J & C Stacy Enterprises is expecting to earn a profit of $180,000 in 20xx. The company manufactures wrought iron lamps. Each lamp requires variable costs of $13 for direct materials, $9 for direct labor, and $12 for overhead. Total variable costs are thus $34 per lamp. Fixed costs for 20xx are expected to be $630,000. Each lamp will sell for $79. a. Determine how many lamps the company must sell to earn its targeted profit, and convert this amount to sales dollars. b. Compute breakeven sales in dollars. c. Explain the dollar difference between breakeven sales dollars and the sales dollars necessary to earn the targeted profit. Use the contribution margin as part of your explanation.

Which of the following statements is true regarding fixed and variable costs?

"Breakeven" is the point at which a company will begin to earn a profit.

Dapper Hat Makers is in the business of designing and producing specialty hats. The material used for derbies costs $4.50 per unit, and Dapper pays each of its two full-time employees $250 per week. If the employees make 50 derbies in one week, what is the fixed cost per derby? (Round to two decimal places where necessary.)

As production increases, what should you expect to happen to the fixed costs per unit?

During this past year, a small publishing company sold 60,000 copies of Super Travel paperbacks (its only product) at $5 per book; total fixed costs were $15,000; and total variable costs were $3 per book. What is this company's breakeven point in units?

A new product, an easy to store guitar stand, is being planned, with the following cost estimates: variable cost per unit, $9, and total fixed costs, $58,000. The projected sales price is $13 each. a. Using the contribution margin approach, compute the number of units that must be sold to break even. b. Using the same approach and assuming that fixed costs can be reduced by $8,000, how many units must be sold to produce a profit of $65,000? c. Given the original information and the projection that 50,000 units can be sold, compute the selling price that the producer must use to obtain a profit of $150,000.

The new Corina watch has an expected selling price per watch of $42, the projected variable cost per unit is $24, and estimated fixed costs per month are $24,120. The breakeven point in watches per month is

At the breakeven point, the contribution margin

In a graph of variable costs, the slope of the line is dependent on the variable costs per unit.

Cost-volume-profit analysis assumes a constant sales mix.

The following are monthly totals taken from the log of a color photocopying machine used by the Kinlo's Printing Company. Cost was based on a flat fee plus a declining cost per copy made after a minimum number of copies had been made each month. To differentiate the variable and fixed costs in the use of this machine for future planning, use the high-low method to (a) determine the variable cost per copy and (b) compute the fixed and variable costs for the months of February and June.

Sales mix is the proportion of each product's unit sales relative to the company's total sales dollars.

A retail organization's sales salaries consist of a base amount plus a commission of 5 percent on each sale. Which of the following would properly classify the cost of sales salaries?

Meredith Marshall owns a home inspection business, offering her services to homeowners. She currently charges $180 per inspection but wants to know if her fee should be raised. She has provided the following data from the past six months: Meredith takes her daughter with her on all inspections and pays her $40 per inspection. Due to slower business in the cooler months, Meredith estimates she will average 60 inspections per month for the next six months. Prepare a schedule showing Meredith 's estimated total cost per inspection.

Contribution Margin Income Statement divides costs into product and period costs.

In terms of cost behavior, supervisory salaries and direct labor are classified as

Using the contribution margin approach, find the contribution margin ratio for Consumer Products if the selling price per unit is $12, the variable cost per unit is $3, and the fixed costs are $8,040.

Theoretical capacity reduced by normal and anticipated work stoppages is called

SHARE is trying to determine how many clients must be serviced in order to cover its monthly service overhead. Using the high-low method, it has determined that the variable cost per client is $800 and that the monthly fixed overhead is $28,000. Assuming an average fee of $1,400 per client and a targeted profit of $26,000, the number of clients to be serviced is