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Exam 21: Cost-Volume-Profit Analysis

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Question 111

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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) $90,000.
B) $55,000.
C) $380,000.
D) $125,000.
E) $150,000.

F) B) and D)
G) B) and C)

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Question 112

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The sales mix of Desert Springs Company is 5 units of A, 3 units of B, and 1 unit of C. Per unit sales prices for each product are $30, $40, and $50, respectively. Variable costs per unit are $14, $24, and $34, respectively. Fixed costs are $597,600. What is the break-even point in composite units and in units of A, B, and C?

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\[\begin{array} { l | l }
5 \text { uni...

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Question 113

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Parker Co. is preparing next period's forecasts. Total fixed costs are expected to be $300,000 and the contribution margin ratio is expected to be 30%. (a) Calculate the company's break-even point in dollar sales. (b) If sales are $1,800,000 above the break-even point, what will Parker's pretax income be?

Use the following information to determine the margin of safety in dollars: $\begin{array} { l c } \text { Unit sales } & 50,000 \text { Units } \\\text { Dollar sales } & \$ 500,000 \\\text { Fixed costs } & \$ 204,000 \\\text { Variable costs } & \$ 187,500\end{array}$

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 per unit is the price at which a unit must be sold in order for the company to break even.

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

The high-low method is used to derive the variable cost per unit and total fixed costs using just the highest and lowest volume levels.

The contribution margin ratio is the percent of each sales dollar that remains after deducting the total unit variable cost.

A firm produces and sells a product with a contribution margin of $32 per unit. The firm is presently selling 90,000 units and earning $320,000 in pre-tax income. If the firm desires to increase its pre-tax income to $ 400,000, how many more units must it sell?

To determine the slope of the variable cost from a scatter diagram, divide the change in cost by the change in units.

Johnston Co. anticipates total fixed costs of $120,000 and variable costs equal to 40% of sales. What is the pretax income if sales are $650,000?

Madison Corporation sells three products (M, N, and O) in the following mix: 3:1:2. Unit price and cost data are: $\begin{array}{lrrrr}&\text {M}&\text {N}&\text {O}\\\text { Unit sales price } & \$ 7 & \$ 4 & \$ 6 \\\text { Unit variable costs } & 3 & 2 & 3\end{array}$ Total fixed costs are $340,000. -The contribution margin per composite unit for the current sales mix (round to the nearest cent) is:

The dollar amount of sales needed to achieve a target income is computed by dividing the sum of fixed costs plus the target pretax income by the contribution margin ratio.

The ratio (proportion) of the sales volumes of the various products sold by a company is called the ________.

Discuss how CVP analysis can be useful in planning.

Scatter diagrams plot volume (units) on the horizontal axis and cost on the vertical axis.

Portal Manufacturing has total fixed costs of $520,000. A unit of product sells for $15 and variable costs per unit are $11. a) Prepare a contribution margin income statement showing predicted net income (loss) if Portal sells 100,000 units for the year ended December 31. b) At a minimum, how many units must Portal sell in order not to incur a loss?

Three important assumptions in cost-volume-profit analysis is that (1) ________ per unit is constant, (2) ________ per unit is constant, and (3) ________ are constant in total.

Which of the following costs are most likely to be classified as fixed?