Exam 3: Cost-Volume-Profit Analysis

Dolph and Evan started the DE Restaurant in 2015.They rented a building,bought equipment,and hired two employees to work full time at a fixed monthly salary.Utilities and other operating charges remain fairly constant during each month. During the past two years,the business has grown with average sales increasing 1% a month.This situation pleases both Dolph and Evan,but they do not understand how sales can grow by 1% a month while profits are increasing at an even faster pace.They are afraid that one day they will wake up to increasing sales but decreasing profits. Required: Explain why the profits have increased at a faster rate than sales.Use the terms variable costs and fixed costs in your response.

Sparkle Jewelry sells 600 units resulting in $75,000 of sales revenue,$32,000 of variable costs,and $26,000 of fixed costs. Breakeven point in units is ________.(Round to the nearest whole unit. )

Bell Company sells several products.Information of average revenue and costs is as follows: Selling price per unit \ 29 Variable costs per unit: Direct material \ 6 Direct manufacturing labor \ 1.75 Manufacturing overhead \ 0.25 Selling costs \ 2 Annual fixed costs \ 111,000 The company sells 13,000 units. What is the proportion of variable costs to total costs?

Ruben is a travel agent.He intends to sell his customers a special round-trip airline ticket package.He is able to purchase the package from the airline for $170 each.The round-trip tickets will be sold for $200 each and the airline intends to reimburse Ruben for any unsold ticket packages.Fixed costs include $5,500 in advertising costs.What is the contribution margin per ticket package?

What is meant by the term breakeven point? Why should a manager be concerned about the breakeven point and what helps them study the breakeven analysis?

If a company has a degree of operating leverage of 4.0,that means a 10% increase in sales will result in a 40% increase in operating income.

If the contribution margin ratio is 0.60,targeted operating income is $50,000,and fixed costs are $75,000,then sales volume in dollars is ________.(Round the final answer to the nearest dollar. )

To calculate the breakeven point in a multiproduct situation,one must assume that the sales mix of the various products remains constant.

Contribution margin equals ________.

Which of the following is true of CVP analysis?

Assume the following cost information for Fernandez Company: What minimum volume of sales dollars is required to earn an after-tax net income of $40,000? (Do not round interim calculations and round the final answer to the nearest dollar. )

The breakeven point is the activity level where ________.

All else being equal,an increase in advertising expenditures will ________.

Contribution margin = Total revenues - Total manufacturing costs

Lauren had been a manager of a major hotel chain for 15 years.Due to a hotel owner's illness,Lauren was offered the opportunity to purchase a hotel near a vacation area she had often visited.It was a great place surrounded by mountains and known for its scenic beauty.After obtaining a lawyer and an accountant to assist her,Lauren did an analysis of the business and evaluated several contingencies relating to various scenarios.Since the expected monetary value of the various scenarios was much higher than the price of the hotel,she decided to purchase the hotel.She resigned her position,obtained a loan,and purchased the hotel.The following year,there was a severe economic downturn and also a very bad weather season that reduced the number of guests and also caused a resulting mold situation in the hotel building that required expensive repair work.Lauren ran short of cash,became emotionally distraught,and eventually had to sell the hotel at a significant loss.Was it a bad decision for her to purchase the hotel instead of keeping her other managerial position? Explain.

The contribution margin per unit equals .

Burgandy Manufacturing produces a single product that sells for $80.Variable costs per unit equal $35.The company expects total fixed costs to be $90,000 for the next month at the projected sales level of 2,500 units.In an attempt to improve performance,management is considering a number of alternative actions.Each situation is to be evaluated separately.What is the current breakeven point in terms of number of units?

What is the breakeven point in units,assuming a product's selling price is $300,fixed costs are $18,000,unit variable costs are $20,and operating income is $6,000?

Which of the following statements is true?

Answer the following questions using the information below: Southwestern College is planning to hold a fund raising banquet at one of the local country clubs.It has two options for the banquet: Southwestern College has budgeted $1,800 for administrative and marketing expenses.It plans to hire a band which will cost another $800.Tickets are expected to be $30 per person.Local business supporters will donate any other items required for the event. -Which option provides the greatest degree of operating leverage if 600 people attend?