Exam 18: Cost Volume Profit Analysis

Assume that selling price is greater than variable cost. Now suppose the selling price and the variable cost per unit increase by $5.00. What effect would these changes have on the contribution margin in dollars and on the contribution margin ratio?

When interpreting the cost volume profit graph, the break-even point is where the total revenue line intercepts the fixed cost line.

Chelonia Ltd manufactures small robot toys. It plans to introduce a new product, Speedie the robot tortoise. The following activity cost information is available: It is expected that each unit of Speedie will sell for $23. The direct material cost for unit is $10. What is the break-even point in units? (For simplicity, assume that you can have partial moves and partial batches - that is, no need to round up the number of batches and the number of moves.)

The break-even point in sales dollars can be calculated by dividing

'What-if' analysis allows financial models to be manipulated in terms of changes to assumptions and data, to determine the changes in outputs.

Would you expect the following to be high or low in an automated firm: (1) level of fixed costs, (2) level of risk and (3) break-even point?

Under activity-based costing systems, break-even point in units treats which costs as included in the numerator? i. Batch costs ii. Product costs iii. Faculty level costs

When calculating a breakeven point with activity-based costing, all costs from unit, batch, product and facility levels are used in the formula.

Which of the following will increase a company's break-even point?

The break-even point is calculated by

The contribution margin per unit is calculated as the difference between

Ribco Company Ltd makes and sells only one product. The unit contribution margin is $6, and the break-even point in unit sales is 24 000. What are the company's fixed expenses?

Which of the following are advantages of an activity-based costing approach to cost volume profit (CVP) analysis as compared to a CVP analysis based on traditional product costing?

The extent to which an organisation uses fixed costs in its cost structure is called

Chelonia Ltd manufactures small robot toys. It plans to introduce a new product, Spunkie, which is a solar-powered robot jellyfish. Initially, Chelonia Ltd plans to sell each unit of Spunkie for $95, with an expectation that 2500 units can be sold. The variable cost per unit is $30. The management accountant at Chelonia Ltd is exploring the idea of making some modification to Spunkie which will cost $2 per unit. This modification can allow them to increase the price to $100. This however will lower the demand to 2000 units. Should Chelonia Ltd reduce the price of Spunkie?

If break-even sales volume is $40 000 and contribution margin $7500, what is the net profit?

The cost volume profit model is a simple model to use because tax is a factor that does not have to be considered.

Would you expect the following to be high or low in a labour-intensive firm: (1) operating leverage, (2) safety margin and (3) profit potential?

Alclear Pool & Spa presently provides a weekly maintenance service to 150 homes. Fixed costs are approximately $13 000 per quarter (13 weeks). Customers pay $270 per quarter for the weekly service. All contracts are written for one quarter (13 weeks). Now assume the contracts with customers are restructured such that the price per quarter is $300 and the contribution margin percentage is 57 per cent. Assume the tax rate is 25 per cent. Determine the sales dollars (to the nearest $100) necessary to obtain an after-tax profit of $9600 per quarter.

Which of the following is the most precise definition of the operating leverage factor? The operating leverage factor measures