Exam 2: Introduction to Cost Behavior and Cost Volume Relationships

Break- even volume in units = fixed costs / unit contribution margin.

The relationship between an organization's activities and its costs

Andrew Company has the following information: Income tax rate 40\% Selling price per unit \ 7.50 Variable cost per unit \ 2.50 Total fixed costs \ 100,000 If the tax rate decreases to 30%, _ fewer units can be sold to retain the same net income of $42,000.

Costs may behave in a linear and nonlinear way.

Clare Company currently sells 19,000 units. Total fixed costs are $84,000, and the contribution margin per unit is $6.00. Clare's tax rate is 40%. The margin of safety in units is:

A classmate is having difficulty understanding two sets of accounting terms, variable and fixed costs, as opposed to period and product costs. He understands that variable costs change during an accounting period while fixed costs do not. However, he explains that a period cost implies that it is for a period of time and is, therefore, also fixed. Does his assumption imply that all product costs are then variable? Required: Assist your classmate in being able to distinguish between these terms.

The range of activity over which the relationship between cost and activity is valid.

The vertical axis of the CVP graph 99)

The CVP graph shows profit and loss at any rate of activity.

Dodger Company produces two products, X and Y. The following information is presented for both products: Selling pric e per unit \ 46 \ 36 Variable cost p er unit \ 38 \ 24 Total fixed costs are $234,000. Dodger Company plans to sell 21,000 units of product X and 7,000 units of product Y. Compute: a. Contribution margin for each product b. Current net income c. Break- even point in units of both X and Y if the sales mix is 3 units of X for every unit of Y d. Break- even volume in total dollars if the sales mix is 2 units of X for every 3 units of Y

At any given volume, this distance on the CVP graph measures the net income or net loss

Days of Our Lives Hospital has total variable costs of 90% of total revenues and fixed costs of $50 million per year. There are 50,000 patient- days estimated for next year. What is the break- even point expressed in total revenue?

If the sales price per unit is $20, the unit contribution margin is $8, and total fixed costs are $24,000, the break- even point in units is:

Shows how far sales can fall below the planned level of sales before losses occur