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Exam 6: Cost-Volume-Profit Analysis

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Question 1

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Plymouth Corp sells units for $100 each.Variable costs are $75 per unit,and fixed costs are $200,000.If Plymouth leases a new machine,production will be more efficient,saving $5 per unit.If Plymouth plans to sell 12,000 units,at what lease cost will Plymouth be indifferent between leasing and not leasing the new machine?

A) $10,000
B) $40,000
C) $60,000
D) $80,000

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

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Question 2

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Elk Corp has sales of $300,000,a contribution margin ratio of 40%,and a target profit of $30,000.If 20,000 units were sold,what is the variable cost per unit?

A) $22.50
B) $9.00
C) $6.00
D) $2.00

E) A) and B)
F) A) and D)

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Question 3

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Thunder Corp has a selling price of $25 per unit,variable costs of $20 per unit,and fixed costs of $35,000.How many units must be sold to break even?

Last month Stagecoach Company had a $60,000 loss on sales of $300,000.Fixed costs are $120,000 a month.What sales revenue is needed for Stagecoach to break even?

Nancy Company has sales of $100,000,variable costs of $5 per unit,fixed costs of $25,000,and a profit of $15,000.How many units were sold?

Cost-volume-profit analysis can only be performed for companies that sell only one product.Firms that sell more than one product can use multiproduct cost-volume-profit analysis.

Megan,Inc.has fixed costs of $400,000,sales price of $40,and variable cost of $30 per unit.How many units must be sold to earn profit of $80,000?

A firm with a higher degree of operating leverage would be considered less risky than a comparable firm with a lower degree of operating leverage.A company with a higher degree of operating leverage will experience larger swings in profit as a result of changes in sales revenue,and so will be considered more risky.

Dexter Corp has fixed costs of $500,000 and a contribution margin ratio of 25%.Currently,margin of safety is $1,000,000.What are Dexter's current sales?

If production does not equal sales,

Virgil Corp has a selling price of $30 per unit,and variable costs of $20 per unit.When 12,000 units are sold,profits equaled $55,000.How many units must be sold to break-even?

The target sales level equals fixed costs plus variable costs divided by the contribution margin ratio.Target sales level equals fixed costs plus target profit divided by the contribution margin ratio.

The degree of operating leverage can be multiplied by a change in sales to determine change in profit.This is the primary use of degree of operating leverage.

Merlot,Inc.has fixed costs of $200,000,sales price of $50,and variable cost of $30 per unit.How many units must be sold to earn profit of $80,000?

Frontier Corp has fixed costs of $300,000 and profit of $150,000.If sales increase 20%,by how much will profits increase?

Frontier Corp sells units for $50,has unit variable costs of $20,and fixed costs of $300,000.Frontier sells 15,000 units.If sales increase 20%,by how much will profits increase?

Bugle Corp has sales of $400,000,a variable cost ratio of 40%,and a profit of $40,000.If 10,000 units were sold,what is the contribution margin per unit?

Dragon,Inc.has actual sales of $400,000 and a margin of safety of $150,000.What is Dragon's break-even point in sales?

The profit equation is

An important assumption in multiproduct cost-volume-profit analysis is that the sales mix remains constant.The weighted average contribution margin approach assumes a constant sales mix.