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Exam 22: Cost-Volume-Profit

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Question 21

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Maddox Company had sales in 2010 of $1,200,000 on 60,000 units. Variable costs totaled $720,000, and fixed costs totaled $400,000. A new raw material is available that will decrease the variable costs per unit by 20% (or $2.40). However, to process the new raw material, fixed operating costs will increase by $50,000. Management feels that one-half of the decline in the variable costs per unit should be passed on to customers in the form of a sales price reduction. The marketing department expects that this sales price reduction will result in a 5% increase in the number of units sold. Instructions Prepare a CVP income statement for 2010, assuming the changes are made as described.

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Question 22

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Sonoma Winery has fixed costs of $10,000 per year. Its warehouse sells wine with variable costs of 80% of its unit selling price. How much in sales does Sonoma need to break even per year?

A) $8,000
B) $2,000
C) $12,500
D) $50,000

E) B) and D)
F) None of the above

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Question 23

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The range over which a company expects to operate is referred to as the _____________ range.

Parvin Company produces flash drives for computers, which it sells for $20 each. Each flash drive costs $6 of variable costs to make. During April, 700 drives were sold. Fixed costs for April were $4 per unit for a total of $2,800 for the month. How much does Parvin's operating income increase for each $1,000 increase in revenue per month?

Match the items in the two columns below by entering the appropriate code letter in the space provided. A. Activity index G. Break-even point B. Variable costs H. Contribution margin C. Fixed costs I. Margin of safety D. High-low method J. Contribution margin ratio E. Relevant range K. Variable costing F. Mixed costs L. Absorption costing ____ 1. The amount of revenue remaining after deducting variable costs. ____ 2. Costs that contain both a variable and a fixed element. ____ 3. The percentage of sales dollars available to cover fixed costs and produce income. ____ 4. Identifies the activity which causes changes in the behavior of costs. ____ 5. The difference between actual or expected sales and sales at the break-even point. ____ 6. Costs that vary in total directly and proportionately with changes in the activity level. ____ 7. The level of activity at which total revenues equal total costs. ____ 8. The range over which the company expects to operate during the year. ____ 9. Costs that remain the same in total regardless of changes in the activity level. ____ 10. A costing approach in which all manufacturing costs are charged to the product. ___?_ 11. A method that uses the total costs incurred at the high and low levels of activity. ____ 12. A costing approach in which only variable manufacturing costs are product costs and fixed manufacturing costs are period costs (expenses).

Fixed costs normally will not include

The following monthly data are available for Heffernan, Inc. which produces only one product: Selling price per unit, $42; Unit variable expenses, $14; Total fixed expenses, $42,000; Actual sales for the month of June, 4,000 units. How much is the margin of safety for the company for June?

Jordan Company developed the following information for 2010: Instructions Answer the following questions. (a) What would be the amount of the cost of goods sold under the absorption costing approach? (b) What would be the cost of the ending inventory under the variable costing approach? (c) Which approach would show the greater income for 2010 and by how much?

If more units are produced than are sold during a period, variable costing income

Noble Company produces only one product. Monthly fixed expenses are $12,000, monthly unit sales are 2,000, and the unit contribution margin is $10. How much is monthly net profit?

In using the high-low method, the fixed cost

Oliver Company earned net income of $350,000 last year. This year it wants to earn net income of $400,000. The company's fixed costs are expected to be $300,000, and variable costs are expected to be 60% of sales. Instructions (a) Determine the required sales to meet the target net income of $400,000 using the mathematical equation. (b) Using a CVP income statement format, prove your answer.

The equation which reflects a CVP income statement is

In applying the high-low method, what is the fixed cost?

The income statement for Nyland Company for 2010 appears below. Instructions Answer the following independent questions and show computations using the contribution margin technique to support your answers: 1. What was the company's break-even point in sales dollars in 2010? 2. How many additional units would the company have had to sell in 2011 in order to earn net income of $30,000? 3. If the company is able to reduce variable costs by $2.50 per unit in 2011 and other costs and unit revenues remain unchanged, how many units will the company have to sell in order to earn a net income of $35,000?

Fillmore Cookery reported actual sales of $2,000,000, and fixed costs of $400,000. The contribution margin ratio is 25%. Instructions Compute the margin of safety in dollars and the margin of safety ratio.

The break-even point is equal to the fixed costs plus net income.

Norman Company sells MP3 players for $60 each. Variable costs are $40 per unit, and fixed costs total $60,000. What sales are needed by Norman to break even?

In applying the high-low method, which months are relevant?

Contribution margin