Exam 4: Cost-Volume-Profit Relationships

Hirt Corporation sells its product for $12 per unit.Next year,fixed expenses are expected to be $400,000 and variable expenses are expected to be $8 per unit.How many units must the company sell to generate net operating income of $80,000?

Gaudy Inc.produces and sells a single product.The company has provided its contribution format income statement for May. If the company sells 4,300 units,its net operating income should be closest to:

Southwest Industries produces a sports glove that sells for $15 per pair. Variable expenses are $8 per pair and fixed expenses are $35,000 annually. -The contribution margin ratio is closest to:

Turner Company's contribution margin ratio is 15%.If the degree of operating leverage is 12 at the $150,000 sales level,net operating income at the $150,000 sales level must equal:

For a given level of sales,a low contribution margin ratio will produce less net operating income than a high contribution margin ratio.

The following is Allison Corporation's contribution format income statement for last month: The company has no beginning or ending inventories. The company produced and sold 10,000 units last month. -What is the company's contribution margin ratio?

Almo company manufactures and sells adjustable canopies that attach to motor homes and trailers.Almo developed its budget for the current year assuming that the canopies would sell at a price of $400 each.The variable expenses for each canopy were forecasted to be $200 and the annual fixed expenses were forecasted to be $100,000.Almo had targeted a profit of $400,000. While Almo's sales usually rise during the second quarter,the May financial statements reported that sales were not meeting expectations.For the first five months of the year,only 350 units had been sold at the established price,with variable expense as planned,and it was clear that the target profit for the year would not be reached unless some actions were taken.Almo's president assigned a management committee to analyze the situation and develop several alternative courses of action.The following three alternatives were presented to the president,only one of which can be selected. 1.Reduce the selling price by $40.The marketing department forecasts that with the lower price,2,700 units could be sold during the remainder of the year. 2.Lower variable expenses per unit by $25 through the use of less expensive materials.Because of the difference in materials,the selling price would have to be lowered by $30 and sales of 2,200 units for the remainder of the year are forecast. 3.Cut fixed expenses by $10,000 and lower the selling price by 5 percent.Sales of 2,000 units would be expected for the remainder of the year. Required: a.If no changes are made to the selling price or cost structure,estimate the number of units that must be sold during the year to break even. b.If no changes are made to the selling price or cost structure,estimate the number of units that must be sold during the year to attain the target profit of $400,000. c.Determine which of the alternatives Almo's president should select to maximize profit.

Incremental analysis is an analytical approach that focuses only on those revenues and costs that will change as a result of a decision.

Titlow,Inc. ,produces and sells a single product.The product sells for $220.00 per unit and its variable expense is $57.20 per unit.The company's monthly fixed expense is $713,064. Required: Determine the monthly break-even in unit sales.Show your work!

Laro Corporation produces and sells a single product with the following characteristics:The company is currently selling 5,000 units per month. Fixed expenses are $302,000 per month. Consider each of the following questions independently. -This question is to be considered independently of all other questions relating to Laro Corporation.Refer to the original data when answering this question. Management is considering using a new component that would increase the unit variable cost by $7.Since the new component would increase the features of the company's product,the marketing manager predicts that monthly sales would increase by 500 units.What should be the overall effect on the company's monthly net operating income of this change?

Weinreich Corporation produces and sells a single product.Data concerning that product appear below: The company is currently selling 2,000 units per month.Fixed expenses are $131,000 per month.The marketing manager believes that an $18,000 increase in the monthly advertising budget would result in a 170 unit increase in monthly sales.What should be the overall effect on the company's monthly net operating income of this change?

The margin of safety percentage is computed as:

Rothe Company manufactures and sells a single product that it sells for $90 per unit and has a contribution margin ratio of 35%.The company's fixed expenses are $46,800.If Rothe desires a monthly target net operating income equal to 15% of sales,the amount of sales in units will have to be (rounded):

Smith Company sells a single product at a selling price of $30 per unit.Variable expenses are $12 per unit and fixed expenses are $41,400.Smith's break-even point is:

Mark Corporation produces two models of calculators. The Business model sells for $60, and the Math model sells for $40. The variable expenses are given below: The fixed expenses are $75,000 per month. The expected monthly sales of each model are: Business, 1,000 units; Math, 500 units. -The contribution margin ratio for the Business model is:

Candice Corporation has decided to introduce a new product.The product can be manufactured using either a capital-intensive or labor-intensive method.The manufacturing method will not affect the quality or sales of the product.The estimated manufacturing costs of the two methods are as follows: The company's market research department has recommended an introductory selling price of $30 per unit for the new product.The annual fixed selling and administrative expenses of the new product are $500,000.The variable selling and administrative expenses are $2 per unit regardless of how the new product is manufactured. Required: a.Calculate the break-even point in units if Candice Corporation uses the: 1.capital-intensive manufacturing method. 2.labor-intensive manufacturing method. b.Determine the unit sales volume at which the net operating income is the same for the two manufacturing methods. c.Assuming sales of 250,000 units,what is the degree of operating leverage if the company uses the: 1.capital-intensive manufacturing method. 2.labor-intensive manufacturing method. d.What is your recommendation to management concerning which manufacturing method should be used?

Zumpano Inc.produces and sells a single product.The selling price of the product is $170.00 per unit and its variable cost is $73.10 per unit.The fixed expense is $125,001 per month. The break-even in monthly dollar sales is closest to:

The February contribution format income statement of Caines Corporation appears below: -The degree of operating leverage is closest to:

Jalonen Inc. ,which produces and sells a single product,has provided the following contribution format income statement for October: Required: Redo the company's contribution format income statement assuming that the company sells 4,500 units.

To facilitate decision-making,fixed expenses should be expressed on a per-unit basis.