Exam 3: Defining and Using Cost Estimates

An example of an "unavoidable" cost is depreciation on a machine that is no longer used.

Rogers Company has the following data for 2018: -What would breakeven be in units if fixed costs increased by 20%?

A company uses cost-volume-profit analysis to evaluate a new product. The total fixed costs of production per year are $160,000. The unit variable cost is $50. Which one of the following combinations of unit selling price and breakeven number of units sold per year is correct?

Rogers Company has the following data for 2018: -How many units must be sold to reach a target profit of $100,000, after tax assuming a 30% tax rate?

Holloway Company's contribution ratio is 24%. Total fixed costs are $84,000. Variable costs are $18 per unit. How many units must Holloway Company sell to break even?

Thompson Company produces scientific and business calculators. For the coming year, Thompson expects to sell 200,000 scientific calculators and 100,000 business calculators. A segmented income statement for the two products is given below: -Compute the sales revenue that must be generated for the company to break even.

Wilkinson Company sells its single product for $30 per unit. The contribution margin ratio is 45% and Wilkinson has fixed costs of $10,000 per month. If 3,000 units are sold in the current month, Wilkinson's income would be:

Nochance.com has not reported a profit in five years. This year, the company would like to narrow its loss to ($10,000). Assuming the selling price of its single product is $36.50 per unit and its variable costs per unit are $24, how many units must be sold to achieve its target given that total fixed costs are $60,000?

Specialty Cakes Inc. produces two types of cakes, a 2-pound round cake and a 3-pound heart-shaped cake. Total fixed costs for the firm are $94,000. Variable costs and sales data for the two types of cakes are presented below. If the product sales mix were to change to three heart-shaped cakes for each round cake, the breakeven volume for each of these products would be:

What is the relationship between a cost and a price, if any?

Starlight Theater stages a number of summer musicals at its theater in northern Ohio. Preliminary planning has just begun for the upcoming season, and Starlight has developed the following estimated data. ¹ Represent payments to production companies and are based on tickets sold. ² Costs directly associated with the entire run of each production for costumes, sets, and artist fees. Starlight will also incur $565,000 of common fixed operating charges (administrative overhead, facility costs, and advertising) for the entire season, and is subject to a 30% income tax rate. These common charges are allocated based on total attendance for each production. Required: a. What is Starlight's product mix? b. What is Starlight's package contribution margin? c. If Starlight's schedule of musicals is held, as planned, how many patrons would have to attend for Starlight to break even during the summer season? How many tickets for each type of musical does it need to sell in order to break even? d. What is Starlight Theater's current profit for the business? e. What is Starlight Theater's current margin of safety in terms of revenue dollars? f. Starlight Theater wants to make a profit of $1,500,000 for the season before taxes. How many patrons would have to attend now? What is the required revenue dollars of sales? g. Now Starlight Theater wants this profit in after-tax dollars. How many patrons would have to attend now? What are the required revenue dollars of sales?

Cell Company has discovered that the cost of processing customer invoices is strictly variable within the relevant range. Which of the following statements concerning the cost of processing customer invoices is incorrect?

Thompson Company produces scientific and business calculators. For the coming year, Thompson expects to sell 200,000 scientific calculators and 100,000 business calculators. A segmented income statement for the two products is given below: -Compute the number of scientific calculators and the number of business calculators that must be sold to break even.

A firm's cost structure is its mix of fixed, variable, and mixed costs, but not stepped costs.

Carson Inc. manufactures only one product and is preparing its budget for next year based on the following information. Selling price per unit $ 100 Variable costs per unit 75 Fixed costs 250,000 Effective tax rate 35% If Carson wants to achieve a net income of $1.3 million next year, its sales must be:

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

Rogers Company has the following data for 2018: -If sales increase by 5%, by what percent will profits increase?

Rogers Company has the following data for 2018: -Suppose the company can increase sales revenue by $50,000 if an advertising campaign is launched. If the advertising campaign will cost $27,000, is advertising a good idea? Support your answer with appropriate computations.

Roberta Johnson is the manager of SleepWell Inn, one of a chain of motels located throughout the United States. An example of an operating cost at SleepWell that is mixed is:

The marketing manager of Ames Company has learned the following about a new product that is being introduced by Ames. Sales of this product are planned at $100,000 for the first year. Sales commission expense is budgeted at 8% of sales plus the marketing manager's incentive budgeted at an additional half of a percent. The preparation of a product brochure will require 20 hours of marketing salaried staff time at an average rate of $100 per hour, and 10 hours, at $150 per hour, for an outside illustrator's effort. The variable marketing cost for this new product will be: