Exam 22: Cost-Volume-Profit Analysis

Winthrop Manufacturing produces a product that sells for $50.00. Fixed costs are $260,000 and variable costs are $24.00 per unit. Winthrop can buy a new production machine that will increase fixed costs by $11,400 per year, but will decrease variable costs by $3.50 per unit. What effect would the purchase of the new machine have on Winthrop's break-even point in units?

Discuss how CVP analysis can be useful in planning.

The margin of safety can be expressed in units of product, in dollars, or as a percent of sales.

What are the unit contribution margin and the contribution margin ratio? What do these measures reveal about a company's cost structure?

A target income refers to:

Assume that sales are predicted to be $3,750, the expected contribution margin is $1,500, and a net loss of $250 is anticipated. The break-even point in sales dollars is:

The difference between the unit sales price and the unit variable cost of an item is defined as the ________________________.

Mueller Corp. manufactures compact discs that sell for $5.00. Fixed costs are $28,000 and variable costs are $3.60 per unit. Mueller can buy a newer production machine that will increase fixed costs by $8,000 per year, but will decrease variable costs by $0.40 per unit. What effect would the purchase of the new machine have on Mueller's break-even point in units?

What is an important feature that must be remembered when using cost identifying and behavior methods?

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

A cost that remains constant over a limited range of volume, but increases by a lump sum when volume increases beyond a maximum amount, is a(n):

On a typical cost-volume-profit graph, unit sales are shown on the horizontal axis and both dollars of sales and dollars of costs are represented on the vertical axis.

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.

Thomas Co. produces and sells Ultra, Super, and Mega, and has total fixed costs of $52,000. Sales and cost data follow: Calculate the break-even point in composite units.

Magee Windows manufactures two standard size windows, F and M, in the ratio of 5:3. F has a selling price of $150 and M has a selling price of $200. The variable cost of F is $75.00 and the variable cost of M is $90.00. Fixed costs are $352,500. Compute the (a) weighted average contribution margin, (b) break-even point in units, (c) number of units of each product that will be sold at the break-even point.

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.)

A product has a contribution margin per unit of $17 and sells at $25 per unit. If the break-even point is 82,000 units, calculate (a) the variable costs per unit and (b) the total fixed costs.

The contribution margin ratio:

Winthrop Manufacturing produces a product that sells for $50.00. Fixed costs are $260,000 and variable costs are $24.00 per unit. Winthrop can buy a new production machine that will increase fixed costs by $11,400 per year, but will decrease variable costs by $3.50 per unit. Compute break-even point in dollars with the purchase of the new machine.

A company has a goal of earning $100,000 in after-tax income. The company must pay $28,000 in income tax if it achieves the goal. The contribution margin ratio is 30%. What dollar amount of sales must be achieved to reach the goal if fixed costs are $64,000?