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Exam 3: Analysis of Cost,Volume,and Pricing to Increase Profitability

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Question 21

Multiple Choice

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Which of the following statements regarding Company A is incorrect?

A) If Company A has fixed costs of $720,000,a selling price of $50 per unit,and contribution margin of $30 per unit,its break-even point in units is 36,000 units.
B) If Company A has fixed costs of $720,000,a selling price of $50 per unit,and contribution margin of $30 per unit,its variable expenses must be $20 per unit.
C) If Company A has fixed costs of $720,000,a selling price of $50 per unit,and contribution margin of $30 per unit,once it has covered its fixed costs,net income will increase by $30 for each additional unit sold.
D) Both if Company A has fixed costs of $720,000,a selling price of $50 per unit,and contribution margin of $30 per unit,its break-even point in units is 36,000 units and if Company A has fixed costs of $720,000,a selling price of $50 per unit,and contribution margin of $30 per unit,its variable expenses must be $20 per unit are incorrect.

E) B) and C)
F) All of the above

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Question 22

Multiple Choice

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A pricing strategy that sets the price at a premium under the assumption that people will pay more for the product because of the product's brand name,media attention,or some other reason that has piqued the interest of the public is known as:

A) cost-plus pricing.
B) contribution margin-based pricing.
C) target pricing.
D) prestige pricing.

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

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Question 23

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For a company that sells several products,different sales mixes generally give rise to different break-even sales levels,even if overall sales volume remains unchanged.

Assume that the company sells two products,X and Y,with contribution margins per unit of $8 and $4,respectively.What happens to the break-even point in sales dollars if the sales mix shifts to favor product Y? (In other words,sales of product Y will make up a higher percentage of the sales mix)

Ecco Company has total fixed costs of $5,000,sells a product whose contribution margin is $50 and selling price per unit is $125,and has current sales of $15,000.The company's margin of safety ratio is 20%.

Falls Company has a contribution margin of $32 per unit and fixed costs of $500,000,and it desires to earn a profit of $100,000.What is the sales volume in units required to achieve this desired profit?

If a company is operating beyond its break-even point,sale of one more unit of product increases the company's profit by the amount of the unit contribution margin.

A product has a contribution margin of $2.50 per unit and a selling price of $25 per unit.Fixed costs are $20,000.Assuming new technology increases the unit contribution margin by 50 percent but increases total fixed costs by $13,750,what is the new breakeven point in units?

Zeus,Inc.produces a product that has a variable cost of $9.50 per unit.The company's fixed costs are $40,000.The product sells for $12.00 a unit and the company desires to earn a $20,000 profit.What is the volume of sales in units required to achieve the target profit? (Do not round intermediate calculations. )

Acme Company has variable costs equal to 30% of sales.The company is considering a proposal that will increase sales by $10,000 and total fixed costs by $7,000.By what amount will net income increase?

Company A makes and sells a single product,unless otherwise indicated.What happens to the break-even point when variable cost per unit increases and total fixed costs decrease?

Bates Company currently produces and sells 4,000 units of a product that has a contribution margin of $5 per unit.The company sells the product for a sales price of $20 per unit.Fixed costs are $20,000.The company has recently invested in new technology and expects the variable cost per unit to fall to $12 per unit.The investment is expected to increase fixed costs by $15,000.After the new investment is made,how many units must be sold to break-even?

If a company changes from a labor-intensive system that incurs significant hourly wage cost to an automated system that increases fixed cost,the total cost line on the company's cost-volume-profit graph will shift up and have a steeper slope.

Select the correct statement regarding the contribution margin ratio.

Gamble Company has contribution margin of $20 per unit and a break-even point of 10,000 units.If Gamble sells 9,999 units,what would be its net income or loss? Explain how you calculated your answer.

If a company experiences an increase in rent expense,the total cost line on the cost-volume-profit graph will:

Techpro has a selling price of $10 and variable costs of $6.If both the selling price and the variable costs increase by 10%,the break-even point will not change.

Once sales reach the break-even point,each additional unit sold will:

Sensitivity analysis is performed in order to determine optimal sales mix.

Cooper Company sells a product at $50 per unit that has unit variable costs of $20.The company's break-even sales point in sales dollars is $150,000.How much profit will the company make if it sells 4,000 units?