Exam 22: Cost-Volume-Profit Analysis

A company manufactures a product and sells it for $120 per unit. The total fixed costs of manufacturing and selling the product are expected to be $155,250, and the variable costs are expected to be $75 per unit. What is the company's break-even point in (a) units and (b) dollar sales?

As the level of output activity increases, the variable cost per unit remains constant.

A cost that can be separated into fixed and variable components is called a:

Thomas Company has total fixed costs of $360,000 and variable costs of $14 per unit. If the unit sales price is reduced from $24 to $20 and advertising is increased by $10,000, sales will increase from 40,000 to 65,000 units. Should Thomas reduce its per unit sales price and pay for the additional advertising? (Support your answer with calculations.)

Herriot Co. has total fixed costs of $180,000 and a contribution margin ratio of 40%. Assume that an additional advertising expenditure of $4,000 would increase sales by $8,000. Should the company spend this additional amount on advertising? (Support your answer with calculations.)

Use the following information to determine the margin of safety in dollars:

The following data relate to a product sold by Nelson Company: (a) Calculate the number of units expected to be sold. (b) Calculate the expected total dollar sales.

A cost that changes with volume, but not at a constant rate, is called a:

The difference between sales price per unit and variable cost per unit is the:

A company is looking into two alternative methods of producing its product. The following information about the two alternatives is available. If the company's expected sales volume is 35,000 units, which alternative should be selected? Prepare forecasted income statements and compute degree of operating leverage to assess the alternatives.

The high-low method of deriving an estimated cost line uses all the data points available.

Cost-volume-profit analysis provides approximate, but not precise, answers to questions about costs, volumes, and profits.

What is a scatter diagram? How is a scatter diagram used to estimate cost behavior?

Ginger Company's product has a contribution margin per unit of $11.25 and a contribution margin ratio of 22.5%. What is the selling price of the product?

A cost-volume-profit (CVP) chart is a graph that plots volume on the horizontal axis and costs and sales on the vertical axis.

The relevant range of operations excludes extremely high and low levels of production that are not likely to occur.

The contribution margin per unit is the price at which a unit must be sold in order for the company to break even.

The high-low method can be used to derive an estimated line of cost behavior.

A cost-volume-profit chart is also known as a(n)

Cost-volume-profit analysis can be used to predict the effects of reduced selling prices, increased fixed costs, and reduced variable costs on break-even points.