Exam 18: Cost Volume Profit Analysis

Which of the following are assumptions of cost volume profit analysis? i. Sales mix is constant. ii. External factors do not change. iii. Fixed costs change with sales volume. iv. Variable costs are constant per unit of sales.

Your local pizza parlour has annual fixed costs of $20 000, the pizza price is $8 and the unit variable cost $4. What is the contribution margin ratio?

i. Explain how cost volume profit (CVP) analysis can be used by management. ii. One of the assumptions underlying CVP analysis is a constant sales mix over the relevant range of activity. What are the other assumptions underlying CVP analysis? iii. The Bygon Company Ltd makes major household appliances such as refrigerators, stoves and dishwashers. Sales are heavily dependent upon the number of housing starts and the level of disposable income. Next year the number of housing starts in Victoria is expected to be the same as this year; however, about two-thirds of these starts will be for rental units compared to a historical average of one-third. The remaining housing starts will be for single-family homes and up market units. Bygon generally makes two levels of each product: the economy model (fully functional, but with few special features) and the prestige model (with the most popular special features). Bygon assumes a product mix of 40 per cent economy and 60 per cent prestige. Describe how the change in the percentage of rental units in housing starts could create a problem with the stable product mix assumption.

If the contribution margin is $10, the selling price per unit is $25 and the fixed costs are $45 000, to earn a targeted net profit of $50 000 the total dollar value of sales must be at least

In general, an increase in fixed cost while the contribution margin remains unchanged will

To calculate the breakeven point, the equation (SP-VC)X - FC = 0 where SP = selling price per unit, VC = variable cost per unit, FC = fixed costs and X = the units at breakeven, can be used.

For a firm that would break even at $200 000 sales and earn a profit of $30 000 at sales of $250 000, which of the following statements is always true?

Cost volume profit analysis, including customer-related costs, must incorporate which of the following costs: i. market level costs ii. customer level costs iii. order level costs iv. batch level costs

Econ Pty Ltd produced and sold 45 000 units of a single product last year. Data concerning the year's profit and loss statement is as follows: What was Econ's break-even point (rounded) in unit sales?

Cost volume profit applied to the service industry. A hotel has 10 000 room nights available per annum, charges $50 per room per night, pays fixed costs of $150 000 per annum and variable costs of $16 for each night a room is occupied. If the price per room per night is increased by 5 per cent, the break-even occupancy rate as a percentage (rounded) is

A firm makes and sells three standard products in a specific product mix. All three products are made using the same production facilities. The following budgeted data for the coming year is available. Total annual fixed costs $348 000 Tax rate 40% What sales revenue would be required for each of the three products to earn a profit of $139 200 after tax?

Cost volume profit applied to the service industry A nursing home has the following annual budget: Calculate the budgeted contribution margin ratio.

Maxie Pty Ltd makes and sells two types of shoes, Plain and Fancy. Product data is as follows: Sixty per cent of the sales in units are Plain and annual fixed expenses are $45 000 and the sales mix remains constant. Determine the number of units of Plain and Fancy respectively that Maxie Pty Ltd must sell to break even.

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 contribution margin per 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.)

Alclear Pool & Spa presently provides a weekly maintenance service to 150 homes. Variable costs amount to approximately $12 per week for labour, mileage, chemicals and other supplies. 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). Determine the number of customers (rounded) to break even.

Nesto sells two products: X and Y. The contribution margin ratio for X is 40 per cent and for Y is 50 per cent. If the proportion of sales of X decreases, what will happen to the weighted average contribution margin?

Chelonia Ltd manufactures small robot toys. It plans to introduce a new product, Spunkie, which is a solar-powered robot jellyfish. The break even point for Spunkie is 1500 units at $100 per unit. Assuming that the safety margin is $2000, what are the budgeted sales (in units)?

Maxie Pty Ltd makes and sells two types of shoes, Plain and Fancy. Product data is as follows: Sixty per cent of the sales in units are Plain and annual fixed expenses are $45 000 and the sales mix remains constant. Assume an income tax rate of 20 per cent. How many units of Plain must Maxie Pty Ltd sell to earn an after tax profit of $18 000?

Maxie Pty Ltd makes and sells two types of shoes, Plain and Fancy. Product data is as follows: Sixty per cent of the sales in units are Plain and annual fixed expenses are $45 000. Determine the weighted average unit contribution margin.

Cost volume profit analysis is based on certain general assumptions. Which of the following statements about these assumptions is/are true?