Exam 4: Cost Behavior and Cost-Volume-Profit Analysis

Cost behavior refers to the methods used to estimate costs for use in managerial decision making.

Steven Company has fixed costs of $160,000. The unit selling price, variable cost per unit, and contribution margin per unit for the company's two products are provided below.

Define operating leverage. Explain the relationship between a company's operating leverage and how a change in sales is expected to impact profits.

Given the following costs and activities for Downing Company electrical costs, use the high-low method to calculate Downing's variable electrical costs per machine hour.

Carrolton, Inc. currently sells widgets for $80 per unit. The variable cost is $30 per unit and total fixed costs equal $240,000 per year. Sales are currently 20,000 units annually. The company is considering a 20% drop in selling price that they believe will raise units sold by 20%. Assuming all costs stay the same, what is the impact on income if they make this change?

For purposes of analysis, mixed costs are generally:

If direct materials cost per unit decreases, the amount of sales necessary to earn a desired amount of profit will decrease.

The Tom Company reports the following data.

Which of the following statements is true regarding fixed and variable costs?

A company has a margin of safety of 25%, a contribution margin ratio of 30%, and sales of $1,000,000.

Given the following: Variable cost as a percentage of sales = 60% Unit Variable cost = $30 Fixed costs = $200,000 What is the break-even point in units?

As production increases, what would you expect to happen to fixed cost per unit?

Explain how variable costing net income will be different than absorption costing net income under the following situations: (1) A company had no beginning or ending inventory. During the year they produced and sold 10,000 units. (2) A company had no beginning inventory. During the year they produced 10,000 units and sold 8,000 units. (3) A company had 2,000 units in beginning inventory. During the year they produced 10,000 units and sold 12,000 units.

Rusty Co. sells two products, X and Y. Last year Rusty sold 5,000 units of X's and 35,000 units of Y's. Related data are: What was Rusty Co.'s weighted average unit variable cost?

If sales are $914,000, variable costs are $498,130, and operating income is $260,000, what is the contribution margin ratio?

The adoption of variable costing for managerial decision making is based on the premise that fixed factory overhead costs are related to productive capacity of the manufacturing plant and are normally not affected by the number of units produced.

The contribution margin ratio is the same as the profit-volume ratio.

Calzone Co. has budgeted salary increases to factory supervisors totaling 8%. If selling prices and all other cost relationships are held constant, next year's break-even point:

Trail Bikes, Inc. sells three Deluxe bikes for every seven Standard bikes. The Deluxe bike sells for $1,800 and has variable costs of $1,200. The Standard bike sells for $600 and has variable costs of $200. Required: A. If Trail Bikes has fixed costs that total $1,702,000, how many bikes must be sold in order for the company to break even? B. How many of these bikes will be Deluxe bikes and how many will be the Standard bikes? Answer Weighted average contribution margin = (3 x ($1,800 - $1,200) + 7 x ($600 - $200)) / 10 = $460 Break even point = $1,702,000/460 = 3,700 bikes 30% Deluxe = 1,110 70% Standard = 2,590