Exam 6: How Is Cost-Volume-Profit Analysis Used for Decision Making

Exhibit 6-8 Perry,Inc.produced 15,000 units during the year.Of these,12,000 were sold for $50 each.Other Perry,Inc.data are as follows: Direct materials \ 8.00 per unit Direct labor \ 6.00 per unit Variable manufacturing overhead \ 2.00 per unit Variable selling and administrative costs \ 1.00 per unit Fixed manufacturing overhead \7 5,000 Fixed selling and administrative costs \5 0,000 -Refer to Exhibit 6-8.Calculate Perry's operating profit assuming the company uses absorption costing.

Exhibit 6-5 Estrada Incorporated produces two different products with the following monthly data. Charcoal Gas Total Barbecues Barbecues Selling price per unit \ 150 \ 600 Variable cost per unit \ 60 \ 360 Expected unit sales 1,400 600 2,000 Sales mix 70\% 30\% 100\% Fixed costs \ 180,000 -Refer to Exhibit 6-5.Management believes that pushing sales of the Gas Barbecue would maximize company profits because of the high contribution margin per unit.However,only 20,000 labor hours are available each year and the Gas Barbecue requires 5 labor hours per unit while the Charcoal Barbecue requires 2 labor hours per unit. If the company sells everything it produces,what is the contribution margin per unit of the constrained resource for the Gas Barbecue?

Exhibit 6-5 Estrada Incorporated produces two different products with the following monthly data. Charcoal Gas Total Barbecues Barbecues Selling price per unit \ 150 \ 600 Variable cost per unit \ 60 \ 360 Expected unit sales 1,400 600 2,000 Sales mix 70\% 30\% 100\% Fixed costs \ 180,000 -Refer to Exhibit 6-5.What would be the operating profit if the Charcoal Barbecue sales volume increases 100 units with a corresponding decrease of 100 units in Gas Barbecue sales?

A decrease in variable costs will reduce the margin of safety.

Paddleboard Incorporated builds three products: River,Lake,and Ocean.Information for these three products is shown below: River Lake Ocean Total Selling price per unit \ 300 \ 250 \ 275 Variable cost per unit \ 175 \ 150 \ 125 Expected unit sales (annual) 14,000 2,000 4,000 20,000 Sales mix 70\% 10\% 20\% 100\% Total annual fixed costs are $765,000.Assume the sales mix remains the same at all levels of sales. (1) a.How many products in total must be sold to break even? b.How many units of each product must be sold to break even? (2)a.How many products in total must be sold to earn an annual profit of $1,275,000? b.How many units of each product must be sold to earn an annual profit of $1,275,000?

If the number of units produced is less than the number of units sold,which of the following statements is true when comparing operating profit under absorption versus variable costing?

An advantage of using absorption costing is that it prevents managers from increasing production solely for the purpose of inflating profit.

Exhibit 6-4 Sanchez Company produces two different remote control products with the following monthly data for the most recent month: Plane Boat Total Selling price per unit \ 300 \ 100 Variable cost per unit \ 240 \ 60 Expected unit sales 28,000 7,000 35,000 Sales mix 80\% 20\% 100\% Fixed costs \ 1,400,000 -Refer to Exhibit 6-4.Assume the sales mix remains the same at all levels of sales. How many units of each product must be sold to break even?

Exhibit 6-2 Victor Company makes a single product.The company has monthly fixed costs totaling $200,000 and variable costs of $20 per unit.Each unit of product is sold for $35.Brevard expects to sell 25,000 units each month. -Refer to Exhibit 6-2.What would be the operating profit if the unit sales price increases 10 percent?

Exhibit 6-5 Estrada Incorporated produces two different products with the following monthly data. Charcoal Gas Total Barbecues Barbecues Selling price per unit \ 150 \ 600 Variable cost per unit \ 60 \ 360 Expected unit sales 1,400 600 2,000 Sales mix 70\% 30\% 100\% Fixed costs \ 180,000 -Refer to Exhibit 6-5.Management believes that pushing sales of the Gas Barbecues product would maximize company profits because of the high contribution margin per unit.However,only 20,000 labor hours are available each year and the Gas Barbecue requires 5 labor hours per unit while the Charcoal Barbecue model requires 2 labor hours per unit. If the company sells everything it produces,what is the contribution margin per unit of the constrained resource for the Charcoal Barbecue?

Management of Raley Company would like to achieve a target profit after taxes of $80,000.The company's income tax rate is 20 percent.What target profit before taxes is required to earn $80,000 in after tax profit?

A change in the sales mix will always decrease the break-even point.

Capri Incorporated has annual fixed costs totaling $3,000,000 and variable costs of $450 per unit.Each unit of product is sold for $850.Assume a tax rate of 30 percent.How many sales dollars are required to earn an annual profit of $210,000 after taxes?

Exhibit 6-4 Sanchez Company produces two different remote control products with the following monthly data for the most recent month: Plane Boat Total Selling price per unit \ 300 \ 100 Variable cost per unit \ 240 \ 60 Expected unit sales 28,000 7,000 35,000 Sales mix 80\% 20\% 100\% Fixed costs \ 1,400,000 -Refer to Exhibit 6-4.Assume the sales mix remains the same at all levels of sales. What is the weighted average contribution margin per unit?

The contribution margin per unit is the amount each unit sold contributes to covering fixed costs and increasing profit.

Exhibit 6-4 Sanchez Company produces two different remote control products with the following monthly data for the most recent month: Plane Boat Total Selling price per unit \ 300 \ 100 Variable cost per unit \ 240 \ 60 Expected unit sales 28,000 7,000 35,000 Sales mix 80\% 20\% 100\% Fixed costs \ 1,400,000 -Refer to Exhibit 6-4.Assume the sales mix remains the same at all levels of sales. How many units of each product must be sold to earn a monthly profit of $504,000?

Exhibit 6-1 Larimer Company has monthly fixed costs totaling $90,000 and variable costs of $5 per unit.Each unit of product is sold for $20. -Refer to Exhibit 6-1.Assume that Larimer Company expects to sell 5,000 units of product this coming month.What is the margin of safety in sales dollars?

Exhibit 6-4 Sanchez Company produces two different remote control products with the following monthly data for the most recent month: Plane Boat Total Selling price per unit \ 300 \ 100 Variable cost per unit \ 240 \ 60 Expected unit sales 28,000 7,000 35,000 Sales mix 80\% 20\% 100\% Fixed costs \ 1,400,000 -Refer to Exhibit 6-4.If the sales mix shifts to 50 percent planes and 50 percent boats,what happens to the break-even point in units?

Exhibit 6-4 Sanchez Company produces two different remote control products with the following monthly data for the most recent month: Plane Boat Total Selling price per unit \ 300 \ 100 Variable cost per unit \ 240 \ 60 Expected unit sales 28,000 7,000 35,000 Sales mix 80\% 20\% 100\% Fixed costs \ 1,400,000 -Refer to Exhibit 6-4.Assume the sales mix remains the same at all levels of sales. What is the weighted average contribution margin ratio (rounded)?