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Exam 21: Cost-Volume-Profit Analysis

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Question 31

True/False

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

A) True
B) False

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Question 32

Multiple Choice

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During its most recent fiscal year,Dover,Inc.had total sales of $3,200,000.Contribution margin amounted to $1,500,000 and pretax income was $400,000.What amount should have been reported as fixed costs in the company's contribution margin income statement for the year in question?

A) $1,900,000.
B) $2,800,000.
C) $1,300,000.
D) $1,100,000.
E) $1,700,000.

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

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Question 33

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Flannigan Company manufactures and sells a single product that sells for $450 per unit;variable costs are $300.Annual fixed costs are $870,000.Current sales volume is $4,200,000.Compute the break-even point in units.

The margin of safety can be expressed in units of product,in dollars,or as a percent of sales.

Zola Co.has a contribution margin ratio of 40% and would like to determine whether an additional advertising expenditure of $4,000 would increase sales by $8,000.Calculate the increase or decrease in net income that would result from this change,and comment on whether Zola should purchase the additional advertising.

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 _________________. Answers must appear in this order.

A company has fixed costs of $320,000 and a contribution margin per unit of $15.If the firm wants to earn a target $40,000 pretax income,how many units must be sold (rounded to the nearest whole unit) ?

The break-even point is the sales level at which a company neither earns a profit nor incurs a loss.

McCoy Brothers manufactures and sells two products,A and Z in the ratio of 4:2.Product A sells for $75;Z sells for $95.Variable costs for product A are $35;for Z $40.Fixed costs are $418,500.Compute the number of units of Product Z McCoy must sell to break even.

Flannigan Company manufactures and sells a single product that sells for $450 per unit;variable costs are $300.Annual fixed costs are $870,000.Current sales volume is $4,200,000.Compute the break-even point in dollars.

Glover Headgear produces specialty logo baseball caps for a variety of customers.Selected cost data for Glover 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 Glover sells 6,100 caps at an average price of $12 for each cap,what is the company's contribution margin?

Fielder Productions reports the following information: Required: (a)Calculate Fielder's degree of operating leverage (DOL). (b)Fielder Productions forecasts a 6% increase in sales.What is the expected effect in percent on pretax income?

When graphing cost-volume-profit data on a CVP chart:

The basic form of cost-volume-profit analysis is often called break-even analysis.

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

Kent Manufacturing produces a product that sells for $50.00.Fixed costs are $260,000 and variable costs are $24.00 per unit.Kent 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 revised break-even point in dollars with the purchase of the new machine.

Management anticipates fixed costs of $72,500 and variable costs equal to 40% of sales.What will pretax income equal if sales are $325,000?

A product sells for $200 per unit,and its variable costs are 65% of sales.The fixed costs are $420,000.What is the break-even point in sales dollars?

Which one of the following statements is not true?

A _______________ cost is one that remains unchanged despite variations in the volume of activity within a relevant range.A ______________ cost is one that changes in proportion to changes in volume of activity. Answers must appear in this order.