Exam 3: Fundamentals of Cost-Volume-Profit Analysis

The Cornish Corporation has budgeted fixed costs of $125,000 and an estimated selling price of $16.50 per unit. The contribution margin ratio is 40% and the company plans to sell 25,000 units in 2021. Required: (a) Compute the break-even point in dollars. (b) Compute the margin of safety for 2021. (c) Compute the expected operating profit for 2021.

An increase in the selling price per unit will decrease an organization's operating leverage, assuming sales unit volume doesn't change and there are no other changes in its cost structure.

A company's break-even point will not be changed by:

In November, Townhouse Corporation sold 2,100 units of its only product. Its total sales were $195,300, its total variable costs were $84,000, and its total fixed costs were $98,700. Required: a. Construct the company's contribution format income statement for November in good form. b. Redo the company's contribution format income statement assuming that the company sells 2,300 units.

Winters Company sells three products. Sales and contribution margin ratios for the three products follow: Product A Product B Produet C Sales in dollars \ 20,000 \ 40,000 \ 100,000 Contribution margin ratio 45\% 40\% 15\% Given these data, the contribution margin ratio for the company as a whole would be:

The Skyways Company is currently selling its single product for $15. Variable costs are estimated to remain at 70% of the current selling price and fixed costs are estimated to be $4,800 per month. If Skyways increases its selling price by 10%, its variable cost ratio will:

The following monthly data in contribution format are available for the Feta Company and its only product, Product Gamma: Total Per Unit Sales \ 83,700 \ 279 Variable costs 32,700 109 Contribution margin 51,000 \ 170 Fixed costs 40,000 Operating profit \ 11,000 The company produced and sold 300 units during the month and had no beginning or ending inventories. Required: a. Without resorting to calculations, what is the total contribution margin at the break-even point? b. Management is contemplating the use of plastic gearing rather than metal gearing in Product Gamma. This change would reduce variable costs by $18 per unit. The company's sales manager predicts that this would reduce the overall quality of the product and, thus, would result in a decline in sales to a level of 250 units per month. Should this change be made? c. Assume that Feta Company is currently selling 300 units of Product Gamma per month. Management wants to increase sales and feels this can be done by cutting the selling price by $22 per unit and increasing the advertising budget by $20,000 per month. Management believes that these actions will increase unit sales by 50 percent. Should these changes be made? d. Assume that Feta Company is currently selling 300 units of Product Gamma. Management wants to automate a portion of the production process for Product Gamma. The new equipment would reduce direct labor costs by $20 per unit but would result in a monthly rental cost for the new robotic equipment of $10,000. Management believes that the new equipment will increase the reliability of Product Gamma thus resulting in an increase in monthly sales of 12%. Should these changes be made?

The president of Equipment Enterprises is considering expanding sales by producing three different versions of its product. Each will be targeted by the marketing department to different income levels and, hence, will be produced from three different qualities of materials. After reviewing the sales forecasts, the sales department feels that for every item of Large sold, 4 of Medium can be sold, and 8 of Small can be sold. The following information has been assembled by the sales department and the production department. Large Mediurn Small Sales price (per unit) \ 15.00 \ 10.00 \ 5.00 Material cost 5.00 4.00 2.00 Direct labor 2.00 1.50 1.25 Variable Overhead 2.00 1.50 1.25 The fixed costs associated with the manufacture of these three products are $75,000 per year. Required: Determine the number of units of each product that would be sold at the break-even point.

Explain the difference between total contribution margin and gross margin.

Market Sales had $1,200,000 in sales last month. The variable cost ratio was 60% and operating profits were $80,000. -What sales volume does Market's need to yield a $200,000 operating profit?

The following information pertains to Tiller Co.: Sales \ 800,000 Variable Costs 160,000 Fixed Costs 40,000 What is Tiller's break-even point in sales dollars? (CPA adapted)

The Windsome Corporation has budgeted fixed costs of $225,000 and an estimated selling price of $24 per unit. The variable cost ratio is 40% and the company plans to sell 48,000 units in 2021. Required: (a) Compute the break-even point in units. (b) Compute the margin of safety in units for 2021. (c) Compute the expected operating profit for 2021.

Evergreen Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below. Sales \3 ,500,000 Cost of sales: Direct Material \ 500,000 Direct labor 250,000 Variable Overhead 275,000 Fixed Overhead 600,000 1,625,000 Gross Profit \1 ,875,000 Selling and General \& Admin. Exp. Variable 750,000 Fixed 250,000 1,000,000 Operating Income \8 75,000 - For the coming year, the management of Evergreen Corporation anticipates a 5 percent decrease in sales, a 10 percent increase in variable costs, and a $45,000 increase in fixed costs. The break-even point for next year would be:

Carrie sells three products. Last month's results are as follows: 1 2 Reverues \ 150,000 \ 225,000 \ 225,000 Variable costs 60,000 210,000 120,000 Total fixed costs are $100,000 marketing and $125,000 administrative. Required: (a) What was the contribution margin ratio? (b) What sales volume does Carrie need to achieve a $100,000 monthly profit? (c) What will profit be if Carrie increases sales by 20%?

You have been provided with the following information: Total Sales \ 90,000 Less Variable expenses 54,000 Contribution margin 36,000 Less fixed expenses 24,000 Operating profit \ 12,000 - If sales increase by 10%, what level of fixed costs will yield a 20% increase in profits?

Dartmount Corporation has provided its contribution format income statement for June. The company produces and sells a single product. Sales (2,900 units) \ 269,700 Variable costs 107,300 Contribution margin 162,400 Fixed costs 137,100 Operating profit \ 25,300 If the company sells 3,100 units, its total contribution margin should be closest to:

Cost-volume-profit (CVP) analysis is a simple but powerful tool to assist management in making operating decisions. Which of the following does not represent a potential use of CVP analysis?

Why is the time period so important for the definition of fixed costs?

Drum Co. has provided the following data concerning its only product: Selling Price 200per unit Current sales 18,800 nits Break-even sales 14,288 units Required: Compute the margin of safety in both dollars and as a percentage of sales.

Lake Sales had $2,200,000 in sales last month. The contribution margin ratio was 30% and operating profits were $180,000. -What sales volume does Lake's need to yield a $240,000 operating profit?