Exam 5: Cost Behavior Analysis

A retail manager is preparing a budget for the coming year and is considering the various costs of the retail store. What is the best approach for the manager to take when budgeting for the cost of the store's merchandise?

You have calculated, using the high-low method, a variable cost per machine hour of $0.80 for your production power costs. Power costs at 6,000 machine hours are $5,400; at 9,000 machine hours, they are $7,800. What are the total fixed costs that you would use to estimate production power costs for your company at any level within your relevant range?

a. What is the formula for breakeven units? b. How is knowledge of the contribution margin of a product helpful? In your answer, explain two possible benefits of computing the contribution margin of a product.

Ben & Harry Co. sold 100,000 units last year with the following results: Sales revenue \ 400,000 Variable costs 160,000 Contribution margin \ 240,000 Fixed costs 100,000 Operating income \ 140,000 a. Management thinks that a 5 percent reduction in the unit sales price and a $31,000 increase in fixed advertising costs will create a 30 percent increase in unit sales. Assess this proposal and make a recommendation on what action should be taken. b. Assume that the marketing manager thinks that the unit sales price should not be changed. Instead, he recommends a $0.40 per unit increase in sales commissions coupled with some increase in advertising to generate the 30 percent increase in unit sales and a 20 percent increase in operating income. Assess this proposal and determine the maximum amount of money that can be spent on advertising if the targeted profit is to be achieved.

Projected cost information for a new product to be produced by Kolier Manufacturing is as follows: Expected variable unit costs: Direct materials \ 10.90 Direct labor 7.18 Overhead 1.92 Selling costs 4.00 Ammual fixed costs: T axes on property used \ 8,870 Depreciation on building and equipment 18,920 Advertising 38,840 Other 2,070 The product is to be sold for $49. a. Compute the number of units that must be sold to earn a profit of $80,000. b. Compute the number of units that must be sold if advertising costs rise by $12,000 and a targeted profit of $120,000 is to be obtained. c. Use the original information and sales of 10,000 units to compute the new selling price that the company must use to obtain a profit of $200,000. d. The most in annual sales that could be projected is 20,000 units. Determine the added amount that could be spent on fixed advertising costs if the highest possible selling price that management believes can be charged is $50 and if there is a targeted profit of $225,000.

An insurance company pays its employees a commission of 6 percent on each sale. What is the proper classification of the cost of sales commissions?

The graphical approach to cost-volume-profit analysis generally yields more precise results than using a formula.

As production increases, what should you expect to happen to the fixed costs per unit?

In cost-volume-profit analysis, sales revenue is computed by multiplying units sold by the selling price per unit, and the targeted profit is projected by management.

Which of the following is a fixed cost?

If fixed costs are $24,000, variable costs are $25 per unit, and the product sells for $45, the total contribution margin at the breakeven point is $1,200.

Repair bills for large machinery may include a flat fee for the visit to the company's premises plus additional labor charges per hour of repair work and various costs of replacement parts needed. What type of cost is the repair?

Breakeven, simply, is when total costs equal total revenues.

Cost-volume-profit analysis assumes costs and revenues have a close linear approximation.

The equation that will provide the breakeven point in units (SP = selling price) is

An increase in the unit sales price will cause the breakeven point to increase.

Indicate whether each of the following costs of productive output is usually variable (V) or fixed (F): a. Machine operator's hourly wages b. City operating license c. Machine helper's wages d. Wiring used in radios e. Indirect materials f. Property insurance g. Gasoline for delivery truck h. Real estate taxes

When fixed costs are $46,500, the variable cost is $12 per unit, and the product sells for $22 per unit, the breakeven point is

When fixed costs are $18,000 and the contribution margin per unit is $4, the breakeven point is

Dilly LLC, wants to make a profit of $30,000. It has variable costs of $66 per unit and fixed costs of $20,000. How much must it charge per unit if 5,000 units are sold?