Exam 3: Fundamentals of Cost-Volume-Profit Analysis

You have been provided with the following information regarding the Pharma Manufacturing Company: Sales Price \ 25 Variable manufacturing cost per unit 12 Variable marketing cost per unit 3 Fixed manufacturing costs 180,000 Fixed administrative costs 40,000 This information is based on forecasted sales of 25,000 units.Required: (a)What are the expected operating profits for the upcoming year? (b)What is the break-even point in units? (c)What is the break-even point in dollars? (d)If $80,000 of operating profits is desired,how many units must be sold? (e)How much in sales dollars is required to generate operating profits of $75,000?

Gena Manufacturing Company has a fixed cost of $225,000 for the production of tubes.Estimated sales are 150,000 units.A before tax profit of $125,000 is desired by the controller.If the tubes sell for $5 each,what unit contribution margin is required to attain the profit target?

Liu Sales has two store locations.Sanford has fixed costs of $250,000 per month and a contribution margin ratio of 35%.Orlando has fixed costs of $400,000 per month and a contribution margin ratio of 65%.At what sales volume would the two stores have equal profits or losses?

The contribution margin ratio is 25% for Crowne Company and the break-even point in sales is $200,000.If Crowne Company's target operating profit is $60,000,sales would have to be:

The president of Equipment Enterprises is considering expanding sales by producing three different versions of its product.Each will be targeted by the marketing department to different income levels and,hence,will be produced from three different qualities of materials.After reviewing the sales forecasts,the sales department feels that for every item of Large sold,4 of Medium can be sold,and 8 of Small can be sold. The following information has been assembled by the sales department and the production department. Large Medium Small Sales price (per unit) \ 15.00 \ 10.00 \ 5.00 Material cost 5.00 4.00 2.00 Direct labor 2.00 1.50 1.25 Variable Ovemead 2.00 1.50 1.25 The fixed costs associated with the manufacture of these three products are $75,000 per year. Required: Determine the number of units of each product that would be sold at the break-even point.

The sales manager of Thompson Sales is considering expanding sales by producing three different versions of its product.Each will be targeted by the marketing department to different income levels and will be produced from three different qualities of materials.After reviewing the sales forecasts,the sales department feels that 70% of units sold will be the original product,20% will be new model #1 and the remainder will be new model #2.The following information has been assembled by the sales department and the production department. Original Modes \#1 Model \#2 Sales price (per unit) \ 50.00 \ 35.00 \ 25.00 Material cost 22.50 15.00 10.00 Direct labor 10.00 7.50 5.00 Variable overhead 7.00 5.25 3.50 The fixed costs associated with the manufacture of these three products are $250,000 per year.Required: (a)Determine the number of units of each product that would be sold at the break-even point.(b)Determine the break-even point if the sales estimates are instead 50% original product,30% model #1 and the remainder model #2.

Cost-volume-profit (CVP)analysis assumes that the production volume equals sales volume so that any changes in unit prices can be ignored.

Dorcan Corporation manufactures and sells T-shirts imprinted with college names and slogans.Last year,the shirts sold for $7.50 each,and the variable cost to manufacture them was $2.25 per unit.The company needed to sell 20,000 shirts to break-even.The after tax net income last year was $5,040.Donnelly's expectations for the coming year include the following: (CMA adapted) • The sales price of the T-shirts will be $9 • Variable cost to manufacture will increase by one-third • Fixed costs will increase by 10% • The income tax rate of 40% will be unchanged. The selling price that would maintain the same contribution margin ratio as last year is:

You have been provided with the following information regarding the Fremont Manufacturing Company: Sales price \ 50 Variable manufacturing cost per unit 24 Variable marketing cost per unit 6 Fixed manufacturing costs 360,000 Fixed administrative costs 80,000 This information is based on forecasted sales of 33,000 units. Required: (a)What is the expected operating profit for the upcoming year? (b)What is the break-even point in dollars? (c)How much in sales dollars is required to generate an operating profit of $275,000?

Renee Tyne,now retired,owns the Downtown Beauty Shop.She employs five (5)stylists and pays each a base rate of $500 per month.One of the stylists serves as the manager and receives an extra $300 per month.In addition to the base rate,each stylist also receives a commission of $3 per haircut.A stylist can do as many as 20 haircuts a day,but the average is 14 haircuts per day.The Downtown Beauty Shop is open 24 days a month.You can safely ignore income taxes.Other costs are incurred as follows: Advertising \ 200 per month Rent \ 400 per month Beauty Supplies \ 0.90 per haircut Utilities \ 175 per month plus \ 0.35 per haircut Magazines \ 25 per month Cleaning Supplies \ 0.15 per haircut Renee currently charges $8 per haircut. Required: (a)Compute the break-even point in (1)number of haircuts, (2)total sales dollars,and (3)as a percentage of capacity. (b)In July,1,400 haircuts were given.Compute the operating profits for the month. (c)Renee wants a $2,160 operating profits in August.Compute the number of haircuts that must be given in order to achieve this goal. (d)If 1,500 haircuts are given in August,compute the selling price that would have to be charged in order to have $2,160 in operating profits.

Artis Sales has two store locations.Store A has fixed costs of $125,000 per month and a variable cost ratio of 60%.Store B has fixed costs of $200,000 per month and a variable cost ratio of 30%.At what sales volume would the two stores have equal profits or losses?

Maryland Company offers two products.At present,the following represents the usual results of a month's operations: Required: a.Find the break-even point in dollars.b.Find the margin of safety in dollars.c.The company is considering decreasing product XX's unit sales to 80,000 and increasing product ZZ's unit sales to 180,000,leaving unchanged the selling price per unit,variable cost per unit,and total fixed costs.Would you advise adopting this plan? d.Refer to (c)above.Under the new plan,find the break-even point in dollars.e.Under the new plan in (c)above,find the margin of safety in dollars.

Flower Company manufactures and sells a single product that has a positive contribution margin.If the selling price and variable costs both decrease by 5% and fixed costs do not change,then what would be the effect on the contribution margin per unit and the contribution margin ratio? Contrbution margin per unit Contribution margin ratio A. Decrease Decrease B. Decrease No change C. No change Decrease D. No change No change

Lake Sales had $2,200,000 in sales last month.The contribution margin ratio was 30% and operating profits were $180,000.What is Lake's margin of safety in sales dollars?

Clifford Co.manufactures and sells adjustable windows for remodeling homes and new housing.Clifford developed its budget for the current year assuming that the windows would sell at a price of $400 each.The variable costs for each window were forecasted to be $200 and the annual fixed costs were forecasted to be $100,000.Clifford had targeted a profit of $400,000.While Clifford 's sales usually rise during the second quarter,the May financial statements reported that sales were not meeting expectations.For the first five months of the year,only 350 units had been sold at the established price,with variable cost as planned,and it was clear that the target profit for the year would not be reached unless some actions were taken.Clifford 's president assigned a management committee to analyze the situation and develop several alternative courses of action.The following three alternatives were presented to the president,only one of which can be selected.1.Reduce the selling price by $40.The marketing department forecasts that with the lower price,2,700 units could be sold during the remainder of the year.2.Lower variable costs per unit by $25 through the use of less expensive materials.Because of the difference in materials,the selling price would have to be lowered by $30 and sales of 2,200 units for the remainder of the year are forecast.3.Cut fixed costs by $10,000 and lower the selling price by 5 percent.Sales of 2,000 units would be expected for the remainder of the year.Required: a.If no changes are made to the selling price or cost structure,estimate the number of units that must be sold during the year to break-even.b.If no changes are made to the selling price or cost structure,estimate the number of units that must be sold during the year to attain the target profit of $400,000.c.Determine which of the alternatives Clifford's president should select to maximize profit.

If both the variable cost per unit and the selling price per unit decrease,the new contribution margin ratio in relation to the old contribution margin ratio will be:

Obtuse Company's fixed costs total $150,000,its variable cost ratio is 60% and its variable costs are $4.50 per unit.Based on this information,the break-even point in units is:

An increase in the selling price per unit will decrease an organization's operating leverage,assuming sales unit volume doesn't change and there are no other changes in its cost structure.

Gardner Corporation manufactures skateboards and is in the process of preparing next year's budget.The pro forma income statement for the current year is presented below. Sales \ 1,500,000 Cost of sales: Direct Material \ 250,000 Direct labor 150,000 Variable Overhead 75,000 Fixed Overhead Gross Profit \ 925,000 Selling and G8A Variable 200,000 Fixed 250,000 450,000 Operating Income The break-even point (rounded to the nearest dollar)for Gardner Corporation for the current year is:

The degree of operating leverage can be calculated as: