Exam 16: Cost-Volume-Profit Analysis

Projected Profit A company can determine its projected profit by using the following equation: profit = total income - (total fixed costs + total variable costs) Based on market research, CSO Corporation feels its product will sell for $200 / unit. At that price, CSO can sell 150 units per month. Currently, CSO incurs the following costs on a per unit basis: direct material, $10; direct labour, $60; variable overhead, $20. Its total fixed costs per month are $3 300.

A break-even point occurs when:

If the break-even point is 300 units and the contribution margin is $30 per unit, then every unit sold above 300 will contribute $30 to profit.

To calculate the break-even point, that is, where neither a profit nor a loss is made, the formula Sx = VCx + FC + P can be used, but only if P is equal to zero.

Sweet Things, Inc. had the following results for the year ended 31 December. Volume was 60 000 units this year. What is Sweet Things, Inc.'s break-even sales volume in dollars?

If a company's sales price for its product is $40, its variable cost percentage is 30%, its sales are $200 000, and its fixed costs are $100 000, what will be its contribution margin per unit?

Able Company sells a product for $50 per unit, its variable costs are $35 per unit and its total fixed costs are $45 000. What is Able's break-even point?

Winter Sales, Inc. sells many kinds of winter sports equipment, primarily through telemarketing. Its sales staff are paid 15% of all sales dollars generated. In order to decrease the uncertainty of this arrangement for its staff and increase loyalty, the company is considering a change in the method of payment. The company would like to pay its 100 employees $1000 per month plus 10% of sales. Using cost-volume-profit analysis, what volume of sales dollars does the company need to exceed per month to make this new method more profitable for the company than the old method?

On a break-even graph, the break-even point is the point on the graph where the:

Discuss the concept of the 'relevant range' as it applies to cost-volume-profit analysis.

Breakeven point analysis is one of the most common uses of cost-volume-profit analysis. What is the breakeven point and why is it useful for managers to know what it is for their company?

A firm sells a product for $250. Variable costs are $100 per unit and total fixed costs are $120 000. The break-even point will be 800 units.

Cost-volume-profit (CVP) analysis is a technique that examines the interrelationship between cost, volume and profit at constant activity levels.

Heath Ltd owns and operates a textile manufacturing plant. Garments are sold for $40 each. The fixed plant and equipment costs are $51 600 per annum. Producing each garment incurs $15 of labour costs and $7.80 of material costs. What is the break-even point for Heath Ltd?

If fixed costs for a company are $65 000 and variable costs are 20% of sales, what do total sales need to be to achieve a target net profit of $35 000?

All of the following are assumptions made in cost-volume-profit analysis except:

The contribution margin ratio is equal to the contribution margin divided by sales, and shows the proportion of each sales dollar available to cover fixed costs and contribute to profit.

Extra Extra Newspaper Company had the following results in this year. What is Extra Extra's breakeven sales in units?

A company has net profit of $10 000, sales price per unit of $25 and fixed costs of $40 000. The company would like to increase profits by 50%. What percentage increase in sales volume would be needed to achieve this goal?

Which of the following situations would be most likely to violate cost-volume-profit assumptions about variable costs?