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Exam 6: Cost-Volume-Profit Analysis

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Question 51

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Holly Inc. sells a single product for $40. Variable costs include $22 for each unit plus a 10% sales commission. Fixed costs are $105,000 per month. a. What is the contribution margin percentage? b. What is the breakeven sales revenue? c. What sales revenue is needed to achieve a $140,000 per month profit?

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a. 35% = ($40 - $22 - 10% × $4...

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Question 52

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Cost structure refers to:

A) a company's break-even point.
B) whether fixed costs are covered by the contribution margin.
C) how a company uses variable versus fixed costs to perform operations.
D) where funds are storeD.
Cost structure refers to how a company uses variable versus fixed costs to perform operations.

E) None of the above
F) A) and D)

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Question 53

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Degree of operating leverage is calculated as:

Maggie Corp. has a selling price of $20 per unit, variable costs of $10 per unit, and fixed costs of $140,000. How many units must be sold to break even?

The formula for break-even point in terms of units is:

Rollag Corp. has a selling price of $30 and variable costs of $20 per unit. When 14,000 units are sold, profits equaled $45,000. What is the margin of safety?

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

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?

At the break-even point, the margin of safety will be:

Glade, Inc. is trying to decide whether to increase the commission-based pay of its salespeople. Currently, each of its five salespeople earns a 15% commission on the units they sell for $100 each, plus a fixed salary of $40,000 per person. Glade hopes that by increasing commissions to 20% and decreasing each salesperson's salary to $25,000, sales will increase because salespeople will be more motivated. Currently, sales are 13,000 units. Glade's other fixed costs, NOT including the salespeople's salaries, total $580,000. Glade's other variable costs, NOT including commissions, total $20 per unit. a. What is current profit? b. What is the current break-even point in units? c. What would the break-even point in units be if commissions are increased and salaries decreased? d. If sales increase by 4,000 units, what will profit be under the new plan? e. At what sales level would Glade be indifferent between the lower-commission plan and the higher-commission plan?

Profit is indicated on a cost-volume-profit graph by:

Raven Inc. sells a single product for $45. Variable costs include $26 for each unit plus a $10 selling expense per unit. Fixed costs are $200,000 per month. a. What is the contribution margin percentage? b. What is the breakeven sales revenue? c. What sales revenue is needed to achieve a $175,000 per month profit?

Belle Corp. has a selling price of $50 per unit, variable costs of $40 per unit, and fixed costs of $100,000. What sales revenue is needed to break-even?

The degree of operating leverage can be multiplied by a change in sales to determine the change in profit

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

Degree of operating leverage is used to:

Last month Angus Company had a $30,000 loss on sales of $250,000. Fixed costs are $60,000 a month. What sales revenue is needed for Angus to break even?

Chelsea Company has sales of $400,000, variable costs of $10 per unit, fixed costs of $100,000, and a target profit of $60,000. How many units were sold?

Harvest Corp. has a contribution margin ratio of 30%, fixed costs of $45,000, and a profit of $60,000. What are total sales?

Knoll, Inc. currently sells 15,000 units a month for $50 each, has variable costs of $20 per unit, and fixed costs of $300,000. Knoll is considering increasing the price of its units to $60 per unit. This will not affect costs, but demand is expected to drop 20%. Should Knoll increase the price of its product?