Exam 7: Cost-Volume-Profit Analysis

The Braggs & Strutting' Company manufactures an engine for carpet cleaners called the "Snooper." Budgeted cost and revenue data for the "Snooper" are given below, based on sales of 40,000 units. Sales \ 1,600,000 Less: Cost of goods sold 1,120,000 Gross margin \ 480,000 Less: Operating expenses 100,000 Income \3 80,000 Cost of goods sold consists of $810,000 of variable costs and $310,000 of fixed costs. Operating expenses consist of $30,000 of variable costs and $70,000 of fixed costs. Required: A. Calculate the break-even point in units and sales dollars. B. Calculate the safety margin (in dollars). C. Braggs & Struttin' received an order for 6,000 units at a price of $25.00. There will be no increase in fixed costs, but variable costs will be reduced by $0.54 per unit because of cheaper packaging. Determine the projected increase or decrease in profit from the order, assuming there is no opportunity costs.

The following information relates to Dazie Company: Sales revenue \ 12,000,000 Contribution margin 4,800,000 Income 800,000 Dazie's operating leverage factor is closest to:

The break-even point is that level of activity where:

Hitchcock Company is studying the impact of the following: 1. An increase in sales price. 2. An increase in the variable cost per unit. 3. An increase in the number of units sold (note: each unit produces a $6 contribution margin). 4. A decrease in fixed costs. 5. A proposed change in the method of compensation for salespeople, away from commissions based on gross sales dollars and toward higher monthly salaries. Required: Determine the impact of each of these operating changes on Hitchcock's per-unit contribution margin and break-even point by completing the chart that follows. Your responses should be Increase (INC), Decrease (DEC), No Effect (NE), or Insufficient Information to Judge (II).

Which of the following does not typically appear on an income statement prepared by using a traditional format?

Which of the following statements is (are) true regarding a company that has implemented flexible manufacturing systems and activity-based costing? I. The company has erred, as these two practices used in conjunction with one another will severely limit the firm's ability to analyze costs over the relevant range. II. Costs formerly viewed as fixed under traditional-costing systems may now be considered variable with respect to changes in cost drivers such as number of setups, number of material moves, and so forth. III. As compared with the results obtained under a traditional-costing system, the concept of break-even analysis loses meaning.

Strayer has a break-even point of 120,000 units. If the firm's sole product sells for $40 and fixed costs total $480,000, the variable cost per unit must be:

The difference between budgeted sales revenue and break-even sales revenue is the operating leverage.

At a volume of 20,000 units, Dries reported sales revenues of $1,000,000, variable costs of $300,000, and fixed costs of $260,000. The company's contribution margin per unit is:

Assuming no change in sales volume, an increase in company's per-unit contribution margin would:

Thomlinson Company is considering the development of two products: no. 65 or no. 66. Manufacturing cost information follows. Annual fixed costs \ 220,000 \ 340,000 Variable cost per unit 33 25 Regardless of which product is introduced, the anticipated selling price will be $50 and the company will pay a 10% sales commission on gross dollar sales. Thomlinson will not carry an inventory of these items. Required: A. What is the break-even sales volume (in dollars) on product no. 66? B. Which of the two products will be more profitable at a sales level of 25,000 units? C. At what unit-volume level will the profit/loss on product no. 65 equal the profit/loss on product no. 66?

Orion recently reported sales revenues of $800,000, a total contribution margin of $300,000, and fixed costs of $180,000. If sales volume amounted to 10,000 units, the company's variable cost per unit must have been:

A recent income statement of Yang Corporation reported the following data: Sales revenue \ 2,500,000 Variable costs 1,500,000 Fixed costs 800,000 If these data are based on the sale of 5,000 units, the break-even sales would be:

The following information relates to Paternus Company: Sales revenue \ 10,000,000 Contribution margin 4,000,000 Income 1,000,000 If a manager at Paternus desired to determine the percentage impact on income of a given percentage change in sales, the manager would multiply the percentage increase/decrease in sales revenue by:

Many firms are moving toward flexible manufacturing systems and adopting the just-in-time (JIT) philosophy. Required: A. How is cost behavior altered in the typical flexible manufacturing environment as compared to a traditional manufacturing system? What is the impact on the break-even point? Explain. B. One of the assumptions underlying cost-volume profit analysis is that sales volume and production volume are equal. Stated another way, inventories are assumed to remain constant. Is this assumption likely to be violated under an ongoing JIT philosophy? Explain.

Which of the following calculations can be used to measure a company's degree of operating leverage?

Sanderson sells a single product for $50 that has a variable cost of $30. Fixed costs amount to $5 per unit when anticipated sales targets are met. If the company sells one unit in excess of its break-even volume, profit will be:

Narchie sells a single product for $50. Variable costs are 60% of the selling price, and the company has fixed costs that amount to $400,000. Current sales total 16,000 units. If Narchie sells 24,000 units, its safety margin will be:

The contribution-margin ratio is calculated as unit contribution margin divided by the selling price per unit.

The break-even point is that level of activity where total revenue equals total cost.