Exam 20: Cost Behavior Analysis

The Raquet Business is considering the manufacture of a new type of tennis ball.Each tennis ball would sell for $3.75 and would require $1.75 in variable costs.In addition,annual fixed costs associated with the project would total $64,000. a. Use the contribution margin approach to calculate: (1) the breakeven point in units (2) the breakeven point in dollars b. Determine the operating income or loss at a sales volume of 30,000 tennis balls. c. Determine the number of tennis balls that must be sold to earn a profit of $80,000.

"Breakeven" is the point at which a company will begin to earn a profit.

Contribution margin equals sales minus

Neverlate is world famous for its precision pocket watches.The company has estimated that variable manufacturing costs and variable selling costs per watch will be $72 and $43,respectively,for 20xx.Also during 20xx,the company is expecting fixed manufacturing costs to total $291,600 and fixed general and administrative expenses to amount to $253,175.The anticipated selling price of each watch is $500.Compute (a)the breakeven point in sales units and (b)the breakeven point in sales dollars.

Identify the following as fixed costs,variable costs,or mixed costs: _____________a.Direct materials _____________b.Electricity _____________c.Factory building rent _____________d.Advertising expense _____________e.Shipping expense _____________f.Insurance on the factory building _____________g.Cost of goods sold _____________h.Direct labor

Cost-volume-profit analysis is not appropriate for service businesses.

The engineering method of separating costs is sometimes called a time and motion study.

Excerpts from a cost-volume-profit analysis indicate fixed costs of $30,000,a variable cost per unit of $36,a selling price of $60,and a sales level of $125,000.The targeted level of profit must be

Cost-volume-profit analysis assumes a constant sales mix.

Using the contribution margin approach,find the contribution margin ratio for Consumer Products if the selling price per unit is $12,the variable cost per unit is $3,and the fixed costs are $8,040.

Which of the following statements most accurately explains the behavior of costs?

A product line's contribution margin represents its contribution to paying off variable costs and to generating a profit.

In terms of cost behavior,telephone expense and direct materials are classified as

Breakeven sales in dollars can be obtained without knowing the contribution margin per unit.

Trawest,Inc.,has prepared the following data: Unit Sales Price Unit Variable Costs Unit Sales Product A \ 34.00 \ 20.00 35,000 Praduct B 26.00 14.50 7,000 Praduct C 18.00 10.50 14,000 The sales mix for Products A,B,and C is

a.Provide two different ways of computing breakeven units: one with the contribution margin in the computation and one without the contribution margin. b.Compare and contrast the two different methods of computing breakeven units.Does the use of the contribution margin alter the resulting number of breakeven units? Why or why not? c.Comment on how the contribution margin affects the computation of breakeven units.Would an increase in the contribution margin increase or decrease the number of breakeven units required?

The breakeven point is the point at which

Cost behavior analysis is not useful to a service business.

Service businesses do not have any overhead costs.

In terms of cost behavior,supervisory salaries and direct labor are classified as