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Exam 18: Cost-Volume-Profit Analysis

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Question 21

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Curvilinear costs always increase:

A) With decreases in volume.
B) In constant proportion to changes in production levels.
C) When management performs break-even analysis.
D) When volume increases but not at a constant rate.
E) On a per unit basis when volume of activity goes down.

F) All of the above
G) A) and E)

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Question 22

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Jet Company's break-even point is 5,000 units.The company's fixed costs are $240,000,and its total variable costs are $85,000.The unit sales price is:

A) $20
B) $40
C) $60
D) $65
E) $100

F) A) and B)
G) B) and E)

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Question 23

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The following information describes a product expected to be produced and sold by Hadley Company: $\begin{array}{ll}\text { Selling price } & \$ 80 \text { per unit } \\\text { Variable costs } & \$ 32 \text { per unit } \\\text { Total fixed costs } & \$ 630,000\end{array}$ Required: a.Calculate the contribution margin ratio. b.Calculate the break-even point in dollar sales. c.What dollar amount of sales would be necessary to achieve a pretax income of $120,000?

The relevant range of operations excludes extremely high and low levels of production that are not likely to occur.

The relevant range of operations includes extremely high and low levels of production that are unlikely to occur.

Assume Moe's Southwest Grill has a break-even point of 24,000 units.At this point,total sales are $1,800,000 and total variable costs are $1,200,000.Compute total fixed costs at the break-even point.

Define variable cost,fixed cost,and mixed cost.

A firm provides the following sales data: $\begin{array} { l r r r } \text { Expected unit sales } & 5,000 & \text { Unit variable cost } & \$ 10 \\\text { Unit selling price } & \$ 16 & \text { Total fixed cost } & \$ 12,000\end{array}$ Required: a.Calculate the break-even point in dollar sales. b.Calculate the margin of safety in dollar sales.

__________________ is the amount by which the unit selling price of a product exceeds its per unit variable cost.

Cost-volume-profit analysis is based on three basic assumptions.Which of the following is not one of these assumptions?

Reference: 18_01 Willco Inc. manufactures electronic parts. They are analyzing their monthly maintenance costs to determine the best way to budget these costs in the future. They have collected the following data for the last six months: $\begin{array} { | l | c | c | } \hline { \text { Month } } & \text { Machine Hours } & \text { Maintenance Costs } \\\hline \text { January } & 30,000 & \$ 62,000 \\\hline \text { February } & 40,000 & \$ 74,500 \\\hline \text { March } & 37,500 & \$ 65,900 \\\hline \text { April } & 39,000 & \$ 68,750 \\\hline \text { May } & 42,300 & \$ 74,000 \\\hline \text { June } & 35,000 & \$ 64,500 \\\hline\end{array}$ -Using the high-low method and the Willco data,calculate the variable maintenance cost per machine hour (round to three decimal places) .

The high-low method of deriving an estimated cost line uses all the data points available.

Break-even analysis is a special case of cost-volume-profit analysis.

Mueller Corp.manufactures compact discs that sell for $5.Fixed costs are $28,000 and variable costs are $3.60 per unit.Mueller can buy a newer production machine that will increase fixed costs by $8,000 per year but will decrease variable costs by $0.40 per unit.What effect would the purchase of the new machine have on Mueller's break-even point in units?

A graph used to analyze past cost behaviors by displaying costs and volume levels for each period as points on the diagram is called a:

A company's normal operating range,which excludes extremely high and low volumes that are not likely to occur,is called the:

When using the high-low method for estimating cost behavior,the slope,or variable cost per sales dollar,is calculated by ___________________________________.

Conan Company has total fixed costs of $112,000.Its product sells for $35 per unit and variable costs amount to $25 per unit.Next year Conan Company wishes to earn a pretax income that equals 10% of fixed costs.How many units must be sold to achieve this target income level?

Reference: 18_05 Thomas Company has total fixed costs of $360,000 and variable costs of $14 per unit. If the unit sales price is reduced from $24 to $20 and advertising is increased by $10,000, sales will increase from 40,000 to 65,000 units. -What are the contribution margin and net income under the revised conditions?

Unit contribution margin is the amount a product's unit selling price exceeds its total variable cost.