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Exam 22: Cost-Volume-Profit Analysis

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Question 71

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The contribution margin per unit is equal to the sales price per unit minus the variable costs per unit.

A) True
B) False

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Question 72

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The budgeted income statement presented below is for Griffith Corporation for the coming fiscal year. If Griffith Corporation is able to achieve the budgeted level of sales, its margin of safety in dollars would be:

A) $172,420.
B) $150,000.
C) $262,500.
D) $275,862.
E) $310,115.

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

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Question 73

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Spruce 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.

A firm expects to sell 25,000 units of its product at $11 per unit. Pretax income is predicted to be $60,000. If the variable costs per unit are $5, total fixed costs must be:

Solving problems to determine the relationship of cost, volume, and profit often commences with the measurement of the _____________ point. Further analysis emphasizing profitability may be accomplished by measuring the _______________ and ________________.

The contribution margin ratio is the percent by which the margin of safety exceeds the break-even point.

The budgeted income statement presented below is for Griffith Corporation for the coming fiscal year. If Griffith Corporation's income tax rate is 40%, compute the number of units that must be sold in order to achieve a target pretax income of $130,000.

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

Mueller Corp. manufactures compact discs that sell for $5.00. 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:

Duxbury Co. reports the following data for the current year: Required: (a) Calculate Duxbury's pretax income. (b) Calculate Duxbury's degree of operating leverage.

Winthrop Manufacturing produces a product that sells for $50.00. Fixed costs are $260,000 and variable costs are $24.00 per unit. Winthrop can buy a new production machine that will increase fixed costs by $11,400 per year, but will decrease variable costs by $3.50 per unit. Compute the contribution margin per unit if the machine is purchased.

Total contribution margin in dollars divided by pretax income is the:

The contribution margin ratio:

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

Select cost information for Winfrey Enterprises is as follows: Based on this information:

During its most recent fiscal year, Simon Enterprises sold 200,000 electric screwdrivers at a price of $15 each. Fixed costs amounted to $400,000 and pretax income was $600,000. What amount should have been reported as variable costs in the company's contribution margin income statement for the year in question?

The Haskins Company manufactures and sells radios. Each radio sells for $23.75 and the variable cost per unit is $16.25. Haskin's total fixed costs are $25,000, and budgeted sales are 8,000 units. What is the contribution margin per unit?

Yamaguchi Company's break even point in units is 1,000. The sales price per unit is $10 and variable cost per unit is $7. If the company sells 2,500 units, what will net income be?

There are only two methods to derive an estimated line of cost behavior; the high-low method and the scatter diagram.