Exam 10: Cost Analysis for Management Decision Making

The Gaylord Company has sales of $800,000, variable costs of $400,000, and fixed costs of $250,000. Compute the following: a.Contribution margin ratio b.Break-even sales volume c.Margin of safety ratio d.Net income as a percentage of sales

Nolan Company has two segments: Audio and Video. Sales for the Audio Segment were $500,000, and variable costs were 40% of sales. The Video Segment also had sales of $500,000, but variable costs were 60% of sales. Fixed costs directly traceable to the Audio and Video segments were $150,000 and $120,000, respectively. Common fixed costs of $200,000 were arbitrarily allocated equally to each segment. What was the segment margin of the Video Segment.

Mobile, Inc., manufactured 700 units of Product A, a new product, during the year. Product A's variable and fixed manufacturing costs per unit were $5.00 and $2.00, respectively. The inventory of Product A on December 31 of the year consisted of 100 units. There was no inventory of Product A on January 1 of the year. What would be the change in the dollar amount of inventory on December 31 if the variable costing method was used instead of the absorption costing method?

The basic assumption made in a variable costing system with respect to fixed costs is that all fixed costs are:

The Blue Saints Band is holding a concert in Toronto. Fixed costs relating to staging a concert are $350,000. Variable costs per patron are $5.00. The selling price for a tickets $25.00. The Blue Saints Band has sold 23,000 tickets so far. At the current level of sales, what is the margin of safety in dollars?

Which of the following would cause the break-even point to change?

Hoctor Industries wishes to determine the profitability of its products and asks the cost accountant to make a comparative analysis of sales, cost of sales and distribution costs of each product for the year. The accountant gathers the following information which will be useful in preparing the analysis: Advertising expenses total $100,000, with 60% being expended to advertise the Deluxe model. The representatives commissions are 5% and 7% for the standard and deluxe models, respectively. The sales manager's salary of $50,000 is allocated evenly between products. Other miscellaneous selling costs are estimated to be $6 per order received. (a) Compute the selling cost per unit. (b) Prepare an analysis for Hoctor Industries that will show in comparative form the income derived from the sale of each unit for the year.

Consider the income statement for Pickbury Farm: What is the margin of safety ratio (to the nearest percentage point)?

Consider the income statement for Pickbury Farm: What is the break-even point in sales dollars (rounded to the nearest dollar)?

Sherpa Manufacturing has the following income statement for 6,000 units: (a) At what sales volume (in sales dollars) does Sherpa break even? (b) At what sales volume (in units) does Sherpa break even? (c) Given the income statement above, compute the margin of safety. (d) What level of sales volume must be attained to reach net income of $200,000? (e) What level of sales volume must be attained to reach net income of $180,000, assuming Sherpa had to pay income taxes at a rate of 40%?

If the selling price and the variable cost per unit both increase 10 percent and fixed costs do not change, what is the effect on the contribution margin per unit and the contribution margin ratio?

A company increased the selling price for its product from $1.00 to $1.20 a unit when total fixed costs increased from $400,000 to $450,000 and variable cost per unit remained unchanged. How would these changes affect the break-even point?

Which of the following is a more descriptive term of the type of cost accounting often called "direct costing"?

Another term for cost incurred to sell and deliver products is:

A traditional break-even chart is illustrated below: Identify each letter on the above chart, using the proper terminology.

Busby Company needs 10,000 units of a certain part to use in its production cycle. The following information is available: If Busby buys the part from Thurco instead of making it, Busby could not use the released facilities in another manufacturing activity. However, twenty percent of the fixed overhead would be avoided because one of the supervisors could be let go. (a) In deciding whether to make or buy the part, what are the relevant costs that Busby must consider. (b) What decision should Busby make?

Tennenholtz Company's break-even graph is depicted below. The line labeled "D" is:

Tennenholtz Company's break-even graph is depicted below. Which area indicates the profitability of the company's product?

Cleese Company currently purchases a finished part from Idle Company, but is considering using it excess capacity to make the part. Normal capacity is 20,000 hours, but Cleese is currently running at 17,000 hours. Details about budgeted factory overhead follow: The relevant unit cost Cleese should use to decide whether to make or buy the part is:

Donellan Company produces a special gear used in automatic transmissions. Each gear sells for $30, and the company sells approximately 500,000 gears each year. Unit cost data for the year follows: Donellan has received an offer from a foreign manufacturer to purchase 25,000 gears. Domestic sales would be unaffected by this transaction. If the offer is accepted, variable distribution costs will increase $1.00 per gear for insurance, shipping, and import duties. The relevant unit cost to a pricing decision on this offer is: