Exam 22: Cost-Volume-Profit

Mays Company had $125,000 of net income in 2010 when the selling price per unit was $100, the variable costs per unit were $60, and the fixed costs were $475,000. Management expects per unit data and total fixed costs to remain the same in 2011. The president of Mays Company is under pressure from stockholders to increase net income by $75,000 in 2011. Instructions (a) Compute the number of units sold in 2010. (b) Compute the number of units that would have to be sold in 2011 to reach the stockholders' desired profit level. (c) Assume that Mays Company sells the same number of units in 2011 as it did in 2010. What would the selling price have to be in order to reach the stockholders' desired profit level.

Lomax Company makes student book bags that sell for $20 each. For the coming year, management expects fixed costs to be $240,000. Variable costs are $15 per unit. Instructions (a) Compute break-even sales in dollars using the mathematical equation. (b) Compute break-even sales using the contribution margin ratio. (c) Compute margin of safety ratio assuming actual sales are $1,200,000. (d) Compute the sales required to earn net income of $120,000, using the mathematical equation.

_________________ divided by the contribution margin ratio will give the amount of _________________ to break even.

A CVP graph does not include a

Mitchell Cabinets has fixed costs totaling $96,000. Its contribution margin per unit is $1.50, and the selling price is $5.50 per unit. Instructions Compute the break-even point in units.

At the break-even point,

Paulsen Company sells 100,000 units for $15 a unit. Fixed costs are $350,000 and net income is $250,000. What should be reported as variable expenses in the CVP income statement?

If volume increases, all costs will increase.

Dieker Goods Company has a unit selling price of $500, variable cost per unit $300, and fixed costs of $170,000. Instructions Compute the break-even point in units and in sales dollars.

The break-even point cannot be determined by

Ace Company makes 2 products, footballs and baseballs. Additional information follows: Instructions Ace has unlimited demand for both products. Therefore, which product should Ace tell his sales people to emphasize?

The following monthly data are available for Lyle, Inc. which produces only one product: Selling price per unit, $42; Unit variable expenses, $14; Total fixed expenses, $70,000; Actual sales for the month of June, 4,000 units. How much is the margin of safety for the company for June?

Simon Company's high and low level of activity last year was 60,000 units of product produced in May and 20,000 units produced in November. Machine maintenance costs were $78,000 in May and $30,000 in November. Using the high-low method, determine an estimate of total maintenance cost for a month in which production is expected to be 45,000 units.

Within the relevant range, the variable cost per unit

Unit contribution margin is the amount that each unit sold contributes towards the recovery of fixed costs and to income.

Which of the following is not a mixed cost?

For planning purposes, mixed costs are generally grouped with fixed costs.

A company has total fixed costs of $120,000 and a contribution margin ratio of 20%. The total sales necessary to break even are

For an activity base to be useful in cost behavior analysis,

Prentice Manufacturing's sales slumped badly in 2010 due to so many people purchasing gifts online. The company's income statement showed the following results from selling 500,000 units of product: net sales $2,125,000; total costs and expenses $2,500,000; and net loss $375,000. Costs and expenses consisted of the following: Management is considering the following alternative for 2011: Purchase new automated equipment that will change the proportion between variable and fixed expenses sold to 45% variable and 55% fixed. Instructions (a) Compute the break-even point in dollars for 2010. (b) Compute the break-even point in dollars under the alternative course of action.