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Exam 22: Cost-Volume-Profit Analysis

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Question 21

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Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are $300. Annual fixed costs are $990,000. Current sales volume is $4,200,000. Compute the break-even point in dollars.

A) $2,790,000.
B) $2,640,000.
C) $2,880,000.
D) $2,475,000.
E) $2,500,000.

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

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Question 22

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

A) True
B) False

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Question 23

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

Hanover Hats produces specialty logo baseball caps for a variety of customers. Selected cost data for Hanover follows: direct materials cost $8,000; sales commissions, $9,000; depreciation on factory equipment, $21,000; factory labor, $16,000; factory lease, $24,000. If Hanover Hats sells 6,100 caps at an average price of $12 for each cap, what is the company's contribution margin?

A company has total fixed costs of $200,000. Its product sells for $25 per unit and variable costs amount to $15 per unit. The company wishes to earn an after-tax income of $35,000. Assume that the company has a 30% tax rate. How many units must be sold to achieve this after-tax income level?

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 break-even point in dollars with the purchase of the new machine.

On a typical cost-volume-profit graph, unit sales are shown on the horizontal axis and both dollars of sales and dollars of costs are represented on the vertical axis.

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?

To calculate the break-even point in units, one must know unit fixed cost, unit variable cost, and sales price.

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 break-even point in units if the new machine is purchased.

A product sells for $200 per unit, and its variable costs per unit are $130. The fixed costs are $420,000. What is the break-even point in dollar sales?

In Davis Corporation's most recent fiscal year, the company reported pretax earnings of $215,000. Fixed costs totaled $325,800, the unit selling price of the firm's only product was $60, and the variable costs per unit were 40% of the selling price. Based on this information, the firm's break-even point in units was:

Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are $300. Annual fixed costs are $990,000. Current sales volume is $4,200,000. Compute the break-even point in units.

Davison Company has fixed costs of $315,000 and a contribution margin ratio of 24%. If sales are expected to be $1,500,000, what is the percentage of the margin of safety?

Joseph Co. has three products A, B, and C, and its fixed costs are $69,000. The sales mix for its products are 3 units of A, 4 units of B, and 1 unit of C. Information about the three products follows: (a) Calculate the company's break-even point in composite units and sales dollars. (b) Calculate the number of units of each individual product to be sold at the break-even point.

The sales level at which a company neither earns a profit nor incurs a loss is the:

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

A company manufactures and sells spotlights. Each spotlight sells for $145. The variable cost per unit is $98, and the company's total fixed costs are $235,000. Predicted sales are 15,000 units. What is the contribution margin per unit?

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

A break-even point can be calculated either in units or in dollars.