Exam 3: Analysis of Cost, Volume, and Pricing to Increase Profitability

A company can use target profit analysis to determine the level of sales required to earn a target loss.

M and M, Inc. produces a product that has a variable cost of $3.00 per unit. The company's fixed costs are $30,000. The product is sold for $5.00 per unit and the company desires to earn a target profit of $20,000. What is the amount of sales that will be necessary to earn the desired profit?

The following information is for a product manufactured and sold by Drake Company: Sales price per unit: $100 Variable cost per unit: $30 Total annual fixed costs: $350,000 Required: 1) Calculate the contribution margin per unit.2) How many units must Crane sell to break-even? 3) How many units must Crane sell to achieve a profit of $35,000?

Phillips Company can sell 15,000 units of its new product at a selling price of $116. The unit cost is $72. The company's target profit is 40% of sales. The Vice President of Marketing has learned that a competitor plans to introduce a similar product for $104. The Vice President has recommended that Phillips match the competitor's price. She believes the lower selling price will increase sales volume by 20%.Required: 1) Compute the company's net income assuming the product is sold for $116 and the costs remain at $72. Assume there were no additional costs.2) Compute the product's target cost if it is sold at a $116 selling price.3) Compute the company's net income if the target cost computed in Requirement 2 is achieved.4) Compute the change in income from Requirement 1 if the product is sold for $104, costs remain at $72, and volume is increased by 20%.

Select the correct statement regarding the contribution margin ratio.

Zeus, Inc. produces a product that has a variable cost of $9.50 per unit. The company's fixed costs are $40,000. The product sells for $12.00 a unit and the company desires to earn a $20,000 profit. What is the volume of sales in units required to achieve the target profit? (Do not round intermediate calculations.)

Sensitivity analysis acknowledges that profitability is often affected by multidimensional forces.

What are the assumptions on which cost-volume-profit analysis is based? Are there any additional assumptions for a multiproduct company?

Harris Company produces a product whose cost is $10. Assuming the company uses a cost-plus pricing system, what selling price would the company set to earn a profit margin of 20% of cost?

Company A makes and sells a single product, unless otherwise indicated. What happens to the break-even point when variable cost per unit increases and total fixed costs decrease?

Fox Company believes that a market exists for an electronic game with a sales price of $40 per unit. The annual fixed costs are estimated at $700,000.Required: Fox forecasts sales of 50,000 units and wants to earn a profit of $200,000 per year. What is the maximum amount of variable costs per unit that will allow it to achieve its profit goal?

Cooper Company sells a product at $50 per unit that has unit variable costs of $20. The company's break-even sales point in sales dollars is $150,000. How much profit will the company make if it sells 4,000 units?

Anton Company produces and sells bicycles for $500. The variable costs per unit are $300 plus a sales commission of 15% of the selling price. Total fixed costs consist of $16,000 in fixed overhead and $9,000 in fixed selling and administrative costs.Required: 1) Compute the contribution margin per unit.2) Compute the break-even point in units and dollars.3) How many units must be sold to earn a profit of $20,000? 4) What would be the break-even point in units if the sales commission is reduced to $20 per unit sold?

Which of the following is not an assumption made when performing cost-volume-profit analysis?

Beacon Company makes a product that has a variable cost of $25 per unit and a selling price of $45 per unit. Annual fixed costs total $860,000. Beacon's net income last year was $240,000. Beacon's management is considering lowering the selling price to $40.Required: 1) How many units did Beacon sell last year? 2) If Beacon Company wants to maintain the same level of income that it had last year, how many units would it have to sell at the new selling price of $35?

Consider the following cost-volume-profit graph: What is the approximate amount of fixed costs in this organization?

Chesterfield Corporation has been operating well above its break-even point. What will happen to Chesterfield's margin of safety if the variable cost per unit increases?

Jasper Company has variable costs per unit of $20, fixed costs of $300,000, and a break-even point of 60,000 units. What will be the new break-even point in units if variable costs decrease by $3 per unit and fixed costs increase by $100,000?

The accuracy of cost-volume-profit analysis is limited because it assumes a strictly linear relationship between the variables.

Which of the following statements about a cost-volume-profit graph is correct?