Exam 3: Fundamentals of Cost-Volume-Profit Analysis

Lincoln, Inc. is considering the introduction of a new music player with the following price and cost characteristics: Sales price \ 125 each Variable costs 75 each Fixed costs 180,000 per year Projected sales are 7,500 units per year. Required: (consider each question independent of each other): (a) What will the operating profit be? (b) What is the impact on operating profit if the selling price per unit decreases by 15%? (c) What is the net income if variable costs per unit increase by 15% and Lincoln has a 38% tax rate?

Rudy Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling price \ 150 100\% Variable costs 60 40\% Contribution margin \ 90 60\% Fixed costs are $355,000 per month. The company is currently selling 5,000 units per month. Required: The marketing manager believes that a $12,000 increase in the monthly advertising budget would result in a 160-unit increase in monthly sales. What should be the overall effect on the company's monthly operating profit of this change?

Break-even analysis assumes that:

The total contribution margin is the unit contribution margin multiplied by the number of units minus the fixed component of the total costs (TC).

The sales manager of Thompson Sales 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 will be produced from three different qualities of materials. After reviewing the sales forecasts, the sales department feels that 70% of units sold will be the original product, 20% will be new model #1 and the remainder will be new model #2. The following information has been assembled by the sales department and the production department. Original Model \#1 Model \#2 Sales price (per unit) \ 50.00 \ 35.00 \ 25.00 Material cost 22.50 15.00 10.00 Direct labor 10.00 7.50 5.00 Variable overhead 7.00 5.25 3.50 The fixed costs associated with the manufacture of these three products are $250,000 per year. Required: (a) Determine the number of units of each product that would be sold at the break-even point. (b) Determine the break-even point if the sales estimates are instead 50% original product, 30% model #1, and the remainder model #2.

Lamar has the following data: Selling Price \ 40 Variable manufacturing cost quad22 Fixed manufacturing cost \ 150,000 per month Variable selling \& administrative costs \ 6 Fixed selling \& administrative costs \ 120,000 per month - If Lamar produces and sells 30,000 units, what is the margin of safety in units?

Fairmount Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling price \ 120 100\% Variable costs 36 30\% Contribution margin \ 4 70\% Fixed costs are $516,000 per month. The company is currently selling 7,000 units per month. Required: The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $9 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $55,000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 200 units. What should be the overall effect on the company's monthly operating profit of these changes?

Bargain Company's contribution margin ratio is 15%. If the degree of operating leverage is 12 at the $150,000 sales level, operating profit at the $150,000 sales level must equal:

The contribution margin ratio is 25% for Crowne Company and the break-even point in sales is $200,000. If Crowne Company's target operating profit is $60,000, sales would have to be:

The management of Toro Corporation expects sales in August to be $130,000. The company's contribution margin ratio is 65% and its fixed monthly costs are $54,000. Required: Estimate the company's operating profit for August, assuming that the fixed monthly costs do not change.

Artis Sales has two store locations. Store A has fixed costs of $125,000 per month and a variable cost ratio of 60%. Store B has fixed costs of $200,000 per month and a variable cost ratio of 30%. -What is the break-even sales volume for Store B?

If the average selling price is $0.60 per unit, the average variable cost is $0.36 per unit, and the total fixed costs are $1,500, then sales of 15,000 units will result in operating profits of $3,600.

Dorcan Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for $7.50 each, and the variable cost to manufacture them was $2.25 per unit. The company needed to sell 20,000 shirts to break-even. The after tax net income last year was $5,040. Donnelly's expectations for the coming year include the following: (CMA adapted) ∙ The sales price of the T-shirts will be $9. ∙ Variable cost to manufacture will increase by one-third. ∙ Fixed costs will increase by 10%. ∙ The income tax rate of 40% will be unchanged. Sales for the coming year are expected to exceed last year's by 1,000 units. If this occurs, Dorcan's sales volume in the coming year will be:

The following pertains to Upton Co. for the year ending December 31, 2019: Budgeted Sales \1 ,000,000 Break-even Sales 700,000 Budgeted Contribution Margin 600,000 Cash flow Break-even 200,000 Upton's margin of safety is: (CPA adapted)

If the fixed costs are $2,400, targeted operating profits is $1,200, selling price per unit is $2, and the contribution margin ratio is 40%, then the required sales volume is 9,000 units.

The contribution margin ratio is the contribution margin per unit divided by the selling price per unit.

Before-tax operating profits are equal to the after-tax operating profits divided by (1 - tax rate).

Lake Sales had $2,200,000 in sales last month. The contribution margin ratio was 30% and operating profits were $180,000. -What is Lake's break-even sales volume?

Microsoft Excel® cannot be used to find break-even points.

Break-even analysis assumes that over the relevant range: (CPA adapted)