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

Bruce Company recently reduced its advertising budget. All other costs and revenues were unchanged. Select the response that indicates the impact of the advertising cuts on the company's break-even point and margin of safety. Breakeven Point Margin of Safety A) Increase Increase B) Decrease Decrease C) Increase Decrease D) Decrease Increase

An increase in total fixed costs increases the break-even point.

How is weighted average contribution margin calculated, and how can it be used in cost-volume-profit analysis?

Consider the following cost-volume-profit graph: The line designated by the letter (B) represents which of the following?

Once sales reach the break-even point, each additional unit sold will:

Ruiz Company produces and sells a product that has variable costs of $50 and a selling price of $90. Its current sales total $270,000 per month. Fixed manufacturing costs total $40,000 per month and fixed selling and administrative costs total $35,000 per month. The company is considering a proposal that will increase the selling price by 10%, increase the fixed manufacturing costs by 10%, and increase the fixed selling and administrative costs by $1,500.Required: 1) Compute the company's current break-even point in units.2) Compute the company's current income and margin of safety in dollars.3) Compute the break-even point in units assuming the proposal is accepted.4) Compute the company's income assuming the proposal is accepted and sales total 3,300 units. Should the proposal be accepted?

Assuming a company uses a markup equal to 25% of cost, the cost of a product that sells for $100 is $75.