Exam 18: Cost Behavior and Cost-Volume-Profit Analysis

Outback Products reports the following information: Total Contribution Margin \ 32,000 Total Fixed Costs \ 28,000 Required: (a) Calculate Outback Products' degree of operating leverage (DOL). (b) Outback Products forecasts a 6% increase in sales. What is the expected effect in percent on pretax income?

A company has total fixed costs of $360,000. Its product sells for $40 per unit and variable costs amount to $25 per unit. What is the break-even point in dollar sales?

Total variable costs change proportionately with changes in output activity.

Cost-volume-profit analysis is frequently based on the assumption that the production level is the same as the sales level.

At Flint Company's break-even point of 9,000 units, fixed costs are $180,000 and variable costs are $540,000 in total. The unit sales price is:

Camden Corporation sells three products (M, N, and O) in the following mix: 3:1:2. Unit price and cost data are: M N O Unit sales price \ 7 \ 4 \ 6 Unit variable costs 3 2 3 Total fixed costs are $340,000. The break-even point in sales dollars for the current sales mix is:

Identify items a, b, and c in the cost-volume-profit graph shown below.

Willco Inc. manufactures electronic parts. They are analyzing their monthly maintenance costs to determine the best way to budget these costs in the future. They have collected the following data for the last 6 months: -If Willco Inc. expects to operate the machines for a total of 32,000 hours in the next month, calculate the expected maintenance costs.

The extent, or relative size, of fixed costs in the total cost structure is known as operating leverage.

Lee Company manufactures and sells widgets for $2.00 per unit. Its variable cost per unit is $1.70. Lee's total fixed costs are $10,500. How many widgets must Lee Company sell to break even?

The following information describes a product expected to be produced and sold by Pepin Corporation: Selling price \ 32 per unit Variable costs \ 27 per unit Total Fixed costs \ 850,000 per year Required: (a) Calculate the contribution margin per unit. (b) Calculate the break-even point in units.

The least-squares regression method is:

What is the high-low method? Briefly describe how it is applied.

A company manufactures and sells a product for $150 per unit. The company's fixed costs are $68,200, and its variable costs are $95 per unit. The company's break-even point in units is:

What is a scatter diagram? How is a scatter diagram used to estimate cost behavior?

When using the high-low method for estimating cost behavior, the slope, or variable cost per sales dollar, is calculated by ___________________________________.

A firm sells two different products, A andB. For each unit of B, the firm sells two units of A. Total fixed costs for this firm are $1,260,000. Additional selling prices and cost information for both products follow: Selling Variable Product Price per unit Costs per unit \ 72 \ 40 48 28 Required: (a) Calculate the contribution margin per composite unit. (b) Calculate the break-even point in units of each individual product. (c) If pretax income before taxes of $294,000 is desired, how many units of A and B must be sold?

Thomas Company has total fixed costs of $360,000 and variable costs of $14 per unit. If the unit sales price is reduced from $24 to $20 and advertising is increased by $10,000, sales will increase from 40,000 to 65,000 units. Should Thomas reduce its per unit sales price and pay for the additional advertising? (Support your answer with calculations.)

As the level of output activity increases, the variable cost per unit remains constant.

A product sells for $210 per unit, and its variable costs per unit are $130. The fixed costs are $420,000. If the firm wants to earn $35,000 after tax income (assume a 30% tax rate), how many units must be sold?