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Exam 5: Cost Behavior Cost-Volume-Profit Analysis

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Question 1

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The basic form of cost-volume-profit analysis is often called break-even analysis.

A) True
B) False

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Question 2

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A firm sells two products, Regular and Ultra. For every unit of Regular the firm sells, two units of Ultra are sold. The firm's total fixed costs are $1,612,000. Selling prices and cost information for both products follow. What is the firm's break-even point in units of Regular and Ultra?

A) 31,000 Regular units and 31,000 Ultra units.
B) 31,000 Regular units and 62,000 Ultra units.
C) 10,333 Regular units and 20,667 Ultra units.
D) 36,167 Regular units and 72,333 Ultra units.
E) 62,000 Regular units and 31,000 Ultra units.

F) A) and C)
G) A) and B)

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Question 3

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A firm expects to sell 25,000 units of its product at $11 per unit and to incur variable costs per unit of $6. Total fixed costs are $70,000. The pretax net income is:

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.

McCoy Brothers manufactures and sells two products, A and Z in the ratio of 5:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the break-even point in composite units.

A product sells for $200 per unit, and its variable costs are 65% of sales. The fixed costs are $420,000. What is the break-even point in sales dollars?

McCoy Brothers manufactures and sells two products, A and Z in the ratio of 4:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the number of units of Product Z McCoy must sell to break even.

A manufacturer reports the following information below for its first three years in operation. Income for year 2 using absorption costing is:

In cost-volume-profit analysis, the unit contribution margin is:

While the total amount of variable cost changes with the level of production, variable cost per unit remains constant as volume changes.

A line on a scatter diagram that is intended to reflect the past relation between cost and unit volume is the:

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?

Contribution margin per unit is the amount by which a product's unit selling price exceeds its total variable cost per unit.

The break-even point is the sales level at which a company neither earns a profit nor incurs a loss.

Magnolia Company is considering the production and sale of a new product with the following sales and cost data: unit sales price, $350; unit variable costs, $180; total fixed costs, $399,500; and projected sales, $910,000. Round your answers to the nearest whole unit or dollar. (a) Calculate break-even in units. (b) Calculate break-even in dollars (use four decimal places when calculating the contribution margin ratio). (c) Calculate number of units that would need to be sold to generate an after-tax profit of $420,000 assuming a 30% tax rate. (d) Calculate dollar sales that would be needed to generate the same profit as above. (e) Calculate the margin of safety stated as a percentage using the $910,000 projected sales level. Be sure to label each calculation and show all calculations.

Describe how a cost-volume-profit analysis would be performed for a company that sells more than one product when the sales mix is known.

During a recent fiscal year, Creek Company reported pretax income of $125,000, a contribution margin ratio of 25% and total contribution margin of $400,000. Total variable costs must have been:

Watson Company has monthly fixed costs of $83,000 and a 40% contribution margin ratio. If the company has set a target monthly income of $15,000, what dollar amount of sales must be made to produce the target income?

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:

A company has fixed costs of $320,000 and a contribution margin per unit of $15. If the firm wants to earn a target $40,000 pretax income, how many units must be sold (rounded to the nearest whole unit) ?