Question 1

Assume that the company sells two products,X and Y,with contribution margins per unit of $12 and $10,respectively.What happens to the break-even point if the sales mix shifts to favor product X? (In other words,sales of product X will make up a higher percentage of the sales mix.)

Accepted Answer

A)  Break-even point increases. 
B)  Break-even point decreases. 
C)  Break-even point stays the same. 
D)  None of these answers is correct.

Question 2

Which of the following is not one of the assumptions underlying cost-volume-profit analysis?

Accepted Answer

A)  Costs are linear. 
B)  Production equals sales. 
C)  All costs can be segregated into fixed and variable components. 
D)  The selling price increases or decreases with changes in sales volume.

Question 3

Canton Company produces and sells toasters.The following unit cost information assumes a production and sales volume of 15,000 units:
 $\begin{array}{lrr}
  \text {  Direct materials} &\$9\
 \text { Direct labor } &6\
 \text { Variable overhead } &2\
 \text { Fixed overhead } &3\
 \text { Variable selling and administrative costs } &1\
 \text { Fixed selling and administrative costs } &4\
\end{array}$
 Required:
1)Compute the budgeted selling price per unit assuming Canton uses a cost-plus pricing strategy and a markup equal to 75% of production cost.
2)Compute the firm's total fixed costs.
3)Compute the firm's contribution margin per unit given the budgeted selling price you computed in Requirement 1.
4)Compute the firm's break-even point in units and dollars,using the selling price you calculated in Requirement 1.
5)Using the unit contribution margin,compute the firm's estimated profit if 15,000 units are sold.

Accepted Answer

The answer of Canton Company produces and sells toasters.The following...

Question 4

Jasper Company has variable costs per unit of $20,fixed costs of $300,000,and a break-even point of 60,000 units.What will be the new break-even point in units if variable costs decrease by $3 per unit and fixed costs increase by $100,000?

Accepted Answer

A)  93,333 units 
B)  33,333 units 
C)  50,000 units 
D)  200,000 units

Question 5

Can cost-volume-profit analysis be useful for a company that sells more than one product? If so,how? If not,why not?

Accepted Answer

The answer of Can cost-volume-profit analysis be useful for a...

Question 6

Fox Company believes that a market exists for an electronic game with a sales price of $40 per unit.The annual fixed costs are estimated at $700,000.
Required:
Fox forecasts sales of 50,000 units and wants to earn a profit of $200,000 per year.What is the maximum amount of variable costs per unit that will allow it to achieve its profit goal?

Accepted Answer

The answer of Fox Company believes that a market exists...

Question 7

For a company using target costing,market price minus profit equals target price.

Accepted Answer

A) True 
 B)False

Question 8

Target costing begins with determining the cost of the product and then focusing on developing ways to sell the product at a price that will enable the company to achieve its desired profit margin.

Accepted Answer

A) True 
 B)False

Question 9

Bleeker Street Company produces and sells two lines of business suits,the Contemporary and the Traditionalist.The following monthly data are provided:
 $$\begin{array} { l c c } 
& \text { Contemporary } & \text { Traditionalist } \
\text { Estimated unit sales per month } & 500 & 1,000 \
\text { Selling price } & \$ 200 & \$ 175 \
\text { Variable marnufacturing costs } & 110 & 100 \
\text { Variable selling and adrninistrative costs } & 10 & 10
\end{array}$$ Budgeted net income is $45,000 per month.
Required:
1)Calculate the monthly break-even sales in units and dollars based on the budgeted sales mix.
2)Calculate the firm's overall margin of safety in dollars.
3)Compute the firm's profit assuming 1,500 units are sold in a 1:1 sales mix.
4)Explain any difference between the firm's budgeted net income of $35,000 and your answer to Requirement 3.

Accepted Answer

The answer of Bleeker Street Company produces and sells two...

Question 10

Ng Company sells one product that has a sales price of $20 per unit,variable costs of $12 per unit,and total fixed costs of $300,000.What is the amount of sales volume in dollars necessary to attain a desired profit of $100,000?

Accepted Answer

A)  $250,000 
B)  $750,000 
C)  $1,000,000 
D)  $666,667

Question 11

Bates Company currently produces and sells 4,000 units of a product that has a contribution margin of $5 per unit.The company sells the product for a sales price of $20 per unit.Fixed costs are $20,000.The company has recently invested in new technology and expects the variable cost per unit to fall to $12 per unit.The investment is expected to increase fixed costs by $15,000.After the new investment is made,how many units must be sold to break even?

Accepted Answer

A)  2,917 units 
B)  4,375 units 
C)  7,000 units 
D)  4,000 units

Question 12

Lush Lawn,Inc.produces and sells electric lawn trimmers for $120 each.The variable costs of each mower total $80 while total monthly fixed costs are $6,000.Current monthly sales are $48,000.The company is considering a proposal that will decrease the selling price by 10%,increase monthly fixed costs by 50%,and increase unit sales to 450 units per month.
Required:
1)Compute the company's current break-even point in units and dollars.
2)What is the company's current margin of safety in units,dollars,and percentage?
3)Compute the company's margin of safety in units assuming the proposal is accepted.
4)Compute the increase or decrease in profit assuming the proposal is accepted.

Accepted Answer

The answer of Lush Lawn,Inc.produces and sells electric lawn trimmers...

Question 13

Phillips Company can sell 15,000 units of its new product at a selling price of $116.The unit cost is $72.The company's target profit is 40% of sales.The Vice President of Marketing has learned that a competitor plans to introduce a similar product for $104.The Vice President has recommended that Phillips match the competitor's price.She believes the lower selling price will increase sales volume by 20%.
Required:
1)Compute the company's net income assuming the product is sold for $116 and the costs remain at $72.Assume there were no additional costs.
2)Compute the product's target cost if it is sold at a $116 selling price.
3)Compute the company's net income if the target cost computed in Requirement 2 is achieved.
4)Compute the change in income from Requirement 1 if the product is sold for $104,costs remain at $72,and volume is increased by 20%.

Accepted Answer

The answer of Phillips Company can sell 15,000 units of...

Question 14

The following information is for a product manufactured and sold by Richards Corporation:
Sales price per unit,$70
Variable cost per unit,$40
Total fixed costs,$600,000
Last year,Richards earned a profit of $30,000.
Required:
1)How many units did Richards sell last year?
2)Richards' managers are considering decreasing the sales price to $60 in an effort to increase market share.Also,the company wants a profit of $60,000.How many units would it have to sell at the lower selling price to achieve this target?

Accepted Answer

The answer of The following information is for a product...

Question 15

Techpro has a selling price of $10 and variable costs of $6.If both the selling price and the variable costs increase by 10%,the break-even point will not change.

Accepted Answer

A) True 
 B)False

Question 16

How can contribution margin per unit be used to find the break-even point in units?

Accepted Answer

The answer of How can contribution margin per unit be...

Question 17

During the current year,Fairview Corporation sold 100,000 units of its product for $20 each.The variable cost per unit was $14,and Fairview's margin of safety was 40,000 units.What was the amount of Fairview's total fixed costs?

Accepted Answer

A)  $240,000 
B)  $560,000 
C)  $840,000 
D)  $360,000

Question 18

How would a company use target pricing to identify the desired cost for a product or service?

Accepted Answer

The answer of How would a company use target pricing...

Question 19

The following information is for a product of Lanier Company:
Last year,the variable cost per unit was $25.Total fixed costs were $800,000.At a volume of 170,000 units,the company achieved a profit of $50,000.
Required:
What was the unit sales price for the product last year?

Accepted Answer

The answer of The following information is for a product...

Question 20

Chicago Company incurs annual fixed costs of $80,000.Variable costs are $3.00 per unit,and the sales price is $10 per unit.Chicago desires to earn an annual profit of $60,000.
Required:
Use the contribution margin ratio approach to determine the sales volume in dollars and units needed to earn the desired profit.

Accepted Answer

The answer of Chicago Company incurs annual fixed costs of...

Exam 3: Analysis of Cost, volume, and Pricing to Increase Profitability

Assume that the company sells two products,X and Y,with contribution margins per unit of $12 and $10,respectively.What happens to the break-even point if the sales mix shifts to favor product X? (In other words,sales of product X will make up a higher percentage of the sales mix.)

Which of the following is not one of the assumptions underlying cost-volume-profit analysis?

Jasper Company has variable costs per unit of $20,fixed costs of $300,000,and a break-even point of 60,000 units.What will be the new break-even point in units if variable costs decrease by $3 per unit and fixed costs increase by $100,000?

Can cost-volume-profit analysis be useful for a company that sells more than one product? If so,how? If not,why not?

For a company using target costing,market price minus profit equals target price.

Target costing begins with determining the cost of the product and then focusing on developing ways to sell the product at a price that will enable the company to achieve its desired profit margin.

Ng Company sells one product that has a sales price of $20 per unit,variable costs of $12 per unit,and total fixed costs of $300,000.What is the amount of sales volume in dollars necessary to attain a desired profit of $100,000?

Techpro has a selling price of $10 and variable costs of $6.If both the selling price and the variable costs increase by 10%,the break-even point will not change.

How can contribution margin per unit be used to find the break-even point in units?

During the current year,Fairview Corporation sold 100,000 units of its product for $20 each.The variable cost per unit was $14,and Fairview's margin of safety was 40,000 units.What was the amount of Fairview's total fixed costs?

How would a company use target pricing to identify the desired cost for a product or service?

The following information is for a product of Lanier Company: Last year,the variable cost per unit was $25.Total fixed costs were $800,000.At a volume of 170,000 units,the company achieved a profit of $50,000. Required: What was the unit sales price for the product last year?