Exam 9: Break-Even Point and Cost-Volume-Profit Analysis

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Alford,Brooks,and Fitch Companies Below are income statements that apply to three companies: Alford,Brooks,and Fitch: AlfordCo. BrooksCo. FitchCo Sales \ 100 \ 100 \ 100 Variable costs () () () Contribution margin \ 90 \ 80 \ 70 Fixed costs () () () Profit before taxes: \ 60 \ 60 \ 60 Refer to Alford,Brooks,and Fitch Companies.At sales of $100,which firm has the highest margin of safety?

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What major assumption do multi-product firms need to make in using CVP analysis that single-product firms need not make?

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Ideal Company Ideal Company produces and sells a single product.Information on its costs follow: Variable costs: \nobreakspace\nobreakspace SG\&A \ 2 per unit \nobreakspace\nobreakspace Production \ 4 per unit Fixed costs: \nobreakspace\nobreakspace SG\&A \ 12,000 per year \nobreakspace\nobreakspace Production \ 15,000 per year Refer to Ideal Company.Assume Ideal Company produced and sold 5,000 units.At this level of activity,it produced a profit of $18,000.What was Ideal Company's sales price per unit?

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Total fixed costs vary inversely with levels of production.

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The following information pertains to Mercury Company's cost-volume-profit relationships: Break-ever point in units sold 1,000 Variable costs per unit \ 500 Total fixed costs \ 150,000 How much will be contributed to profit before taxes by the 1,001st unit sold?

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Break-even point may be expressed in terms of units or dollars.

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Teal Company The following information relates to financial projections of Teal Company: Projected sales 60,000 units Projected variable costs \ 2.00 per unit Projected fixed costs \ 50,000 per year Projected unit salesprice \ 7.00 Refer to Teal Company.How many units would Teal Company need to sell to earn a profit before taxes of $10,000?

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Teal Company The following information relates to financial projections of Teal Company: Projected sales 60,000 units Projected variable costs \ 2.00 per unit Projected fixed costs \ 50,000 per year Projected unit salesprice \ 7.00 Refer to Teal Company.If Teal Company achieves its projections,what will be its degree of operating leverage?

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Ford Company The following information relates to financial projections of Ford Company: Projected sales 75,000 units Projected variable costs \ 3.00 per unit Projected fixed costs \ 60,000 per year Projected unit sales price \ 8.00 Refer to Ford Company.If Ford Company achieves its projections,what will be its degree of operating leverage?

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In CVP analysis,linear functions are assumed for

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Sunglo Corporation Sunglo Corporation manufactures and sells two products: A and BThe operating results of the company are as follows: Product A Product B Sales in units 3,000 4,000 Sales price per unit \ 12 \ 7 Variable costs per unit 6 4 In addition,the company incurred total fixed costs in the amount of $10,000. Refer to Sunglo Corporation.How many total units would the company have needed to sell to break even?

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Fixed costs per unit vary inversely with levels of production.

(True/False)
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Break-even analysis assumes over the relevant range that

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Incremental analysis focuses on factors that change from one decision to another.

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Price Corporation Price Corporation manufactures and sells two products: A and B.The projected information on these two products for the coming year is presented below: Product\nobreakspaceA Product\nobreakspaceB Sales in units 4,000 1,000 Sales price per unit \ 12 \ 8 Variable costs per unit 8 4 Total fixed costs for the company are projected at $10,000. Refer to Price Corporation.Compute Price Corporation's projected break-even point in total units.

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Dividing total fixed costs by the contribution margin ratio yields break-even point in sales dollars.

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A firm estimates that it will sell 100,000 units of its sole product in the coming period.It projects the sales price at $40 per unit,the CM ratio at 60 percent,and profit at $500,000.What is the firm budgeting for fixed costs in the coming period?

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What are the major assumptions of CVP analysis?

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Moonbeam Corporation Moonbeam Corporation manufactures and sells two products: A and B The operating results of the company are as follows: Product A Product B Sales in units 2,000 3,000 Sales price per unit \ 10 \ 5 Variable costs per unit 7 3 In addition,the company incurred total fixed costs in the amount of $9,000. Refer to Moonbeam Corporation.How many total units would the company have needed to sell to break even?

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What important information is conveyed by the margin of safety calculation in CVP analysis?

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