Exam 3: Fundamentals of Cost-Volume-Profit Analysis

Eastwick produces and sells three products.Last month's results are as follows: P1 P2 P3 Revenues \ 100,000 \ 200,000 \ 200,000 Variable costs 40,000 140,000 80,000 Fixed costs total $200,000.What sales volume would generate an operating profit of $150,000? (Assume the current product mix. )

If the fixed costs are $2,400,targeted operating profits is $1,200,selling price per unit is $2,and the contribution margin ratio is 40%,then the required sales volume is 9,000 units.

Blues Corporation produces and sells a single product whose selling price is $240.00 per unit and whose variable cost is $86.40 per unit.The company's fixed cost is $720,384 per month.Required: Determine the monthly break-even point in both units and dollar sales.

In the most recent month,Faulkner Corporation's total contribution margin was $208,000 and its operating profit $39,400.Required: a.Compute the degree of operating leverage to two decimal places.b.Using the degree of operating leverage,estimate the percentage change in operating profit that should result from a 1% increase in sales.

The Frances Manufacturing Company sells two products,FRN and CES.FRN has a higher contribution margin ratio than CES.If the product mix shifts towards CES,the company's break-even point in total units (i.e. ,FRN plus CES)will increase.

Morrel Co.produces and sells a single product.The company's income statement for the most recent month is given below: Sales (6,000 units at \ 40 per unit) \ 240,000 Less manufacturing costs: Direct materials \ 48,000 Direct labor (variable) 60,000 Variable factory overhead 12,000 Fixed factory overhead Gross margin 90,000 Less selling and other costs: Variable selling and other costs 24,000 Fixed selling and other costs 42,000 66,000 Operating profit There are no beginning or ending inventories.Required: a.Compute the company's monthly break-even point in units of product.b.What would the company's monthly operating profit be if sales increased by 25% and there is no change in total fixed costs? c.What dollar sales must the company achieve in order to earn an operating profit of $50,000 per month? d.The company has decided to automate a portion of its operations.The change will reduce direct labor costs per unit by 40 percent,but it will double the costs for fixed factory overhead.Compute the new break-even point in units.

The Skyways Company is currently selling its single product for $15.Variable costs are estimated to remain at 70% of the current selling price and fixed costs are estimated to be $4,800 per month.If Skyways increases its selling price by 10%,its variable cost ratio will:

The break-even point in sales dollars is fixed costs divided by the contribution margin ratio.

At the break-even point,the total contribution margin equals total: (CPA adapted)

Champion Corporation produces and sells a single product.In April,the company sold 1,700 units.Its total sales were $153,000,its total variable costs were $79,900,and its total fixed costs were $56,800. Required: a.Construct the company's contribution format income statement for April in good form. b.Redo the company's contribution format income statement assuming that the company sells 1,600 units.

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

Garrison Inc.produces and sells a single product whose contribution margin ratio is 66%.The company's monthly fixed cost is $667,920 and the company's monthly target profit is $72,600.Required: Determine the dollar sales to attain the company's target profit.

Bargain Company's contribution margin ratio is 15%.If the degree of operating leverage is 12 at the $150,000 sales level,operating profit at the $150,000 sales level must equal:

A company has provided the following data: Sales 3,000 Units Sales price \ 70 per unit Variable cost \ 50 per unit Fixed cost \ 25,000 If the sales volume decreases by 25%,the variable cost per unit increases by 15%,and all other factors remain the same,operating profit will:

A company's break-even point will not be changed by:

Xi-Tech,Inc.is considering the introduction of a new music player with the following price and cost characteristics: Sales price \ 125 each Variable costs 75 each Fixed costs 180,000 peryear Required: (a)How many units must Xi-Techsell to break even? (b)How many units must Xi-Techsell to make an operating profit of $120,000 for the year? (c)If projected sales are 7,500 units,what is the margin of safety in units?

Break-even analysis assumes that over the relevant range: (CPA adapted)

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. Sales for the coming year are expected to exceed last year's by 1,000 units.If this occurs,Dorcan's sales volume in the coming year will be:

If an organization's fixed costs are $2,400,tax rate is 40%,and contribution margin is $5,200,then its after-tax operating profits are $1,680.

Evergreen Corporation manufactures circuit boards and is in the process of preparing next year's budget.The pro forma income statement for the current year is presented below. Sales \ 3,500,000 Cost of sales: Direct Material \ 500,000 Direct labor 250,000 Variable Overhead 275,000 Fiked Overhead 1,625,000 Gross Profit \ 1,876,000 Selling and General \& Admin. Exp. Variable 750,000 Fiked 250,000 1,000,000 Operating Income \ 875,000 For the coming year,the management of Evergreen Corporation anticipates a 5 percent decrease in sales,a 10 percent increase in variable costs,and a $45,000 increase in fixed costs.The break-even point for next year would be: