Exam 2: Introduction to Cost Behavior and Cost Volume Relationships

An assumption of the CVP analysis is that the difference in inventory level at the beginning and at the end of a period is insignificant.

All variable costs divided by sales.

Executive Ambience Company sells desks at $480 per desk. The costs associated with each desk are as follows: Direct materials \ 195 Direct labor 126 Variable factory overhead 51 Total fixed costs for the period are $456,840. The contribution- margin ratio is:

The following information is for Wood Products Corporation Tot al fixed costs \ 345,700 Unit variable costs \ 50.95 Unit s elling price \ 68.50 Required: a. Compute the contribution margin per unit. b. Compute the contribution- margin ratio. c. Compute the break- even point in units. d. Compute the break- even volume in dollars.

Operating leverage is the ratio of fixed costs to variable costs.

Only managers of profit- seeking organizations find that the cost- volume- profit analysis is useful.

Assume the following cost information for Donald Company: Selling price per unit \ 144 Variable costs per unit \ 95 Total fixed costs \ 80,000 Tax rate 40\% The break- even point in units is

The break- even point is the level of sales at which revenue equals fixed costs.

Suppose a Holiday Inn hotel has annual fixed costs applicable to its rooms of $1.2 million for its 300- room hotel, average daily room rents of $50, and average variable costs of $10 for each room rented. It operates 365 days per year. The amount of net income on rooms that will be generated if the hotel is completely full throughout the entire year is:

On the CVP graph, where the total expenses line crosses the sales line

Managers should focus their efforts on managing:

A cost that does not change in total as the volume increases, assuming the volume is within the relevant range

The following information is for Albion Corporation: Total fixed costs \ 313,500 Variable costs per unit \ 99 Selling price per unit \ 154 If management has a targeted net income of $46,200 (ignore income taxes), then the number of units that must be sold is:

If the sales price per unit is $180, variable cost per unit is $96, targeted net income is $52,800, and total fixed costs are $39,600, the number of units that must be sold is:

A good example of a cost driver for production supervisor salaries is the number of people supervised.

is not an underlying assumption of the cost- volume- profit graph.

On the CVP graph, the horizontal difference between the sales line and the total expenses line measures the net income or net loss.

A key factor in controlling costs is associating costs with activities.

At the break- even point, net income may be positive.

The CVP graph shows how costs behave over multiple relevant ranges.