Exam 3: Fundamentals of Cost-Volume-Profit Analysis

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. Based on a $10 selling price per unit and if Dorcan Corporation wishes to earn $37,800 in after tax net income for the coming year,the company's sales volume in dollars must be:

Which of the following would not cause the break-even point to change?

Which of the following would not cause the break-even point to change?

Fairmount Corporation produces and sells a single product.Data concerning that product appear below: Per Unit Percent of Sales Selling price \ 120 100\% Variable costs Contribution margin \ 84 70\% Fixed costs are $516,000 per month.The company is currently selling 7,000 units per month.Required: The marketing manager would like to introduce sales commissions as an incentive for the sales staff.The marketing manager has proposed a commission of $9 per unit.In exchange,the sales staff would accept an overall decrease in their salaries of $55,000 per month.The marketing manager predicts that introducing this sales incentive would increase monthly sales by 200 units.What should be the overall effect on the company's monthly operating profit of these changes?

Grayson Corporation produces and sells a single product.Data concerning that product appear below: Selling price per unit \ 230.00 Variable cost per unit \ 92.00 Fixed cost per month \ 621,000 Required: a.Assume the company's monthly target profit is $69,000.Determine the unit sales to attain that target profit.b.Assume the company's monthly target profit is $41,400.Determine the dollar sales to attain that target profit.

Profit is the unit contribution margin multiplied by the number of units minus the fixed component of the total costs (TC).

The amount by which a company's sales can decline before losses are incurred is called the:

Market Sales had $1,200,000 in sales last month.The variable cost ratio was 60% and operating profits were $80,000.What sales volume does Market's need to yield a $200,000 operating profit?

The following costs have been estimated based on sales of 30,000 units: Total Annual Costs Percent That Is Variable Direct materials \ 300,000 100\% Direct labor 250,000 100 Manufacturing overhead 250,000 50 Selling and administrative 150,000 25 What selling price will yield a contribution margin of 40%?

In November,Townhouse Corporation sold 2,100 units of its only product.Its total sales were $195,300,its total variable costs were $84,000,and its total fixed costs were $98,700. Required: a.Construct the company's contribution format income statement for November in good form. b.Redo the company's contribution format income statement assuming that the company sells 2,300 units.

If Q equals the level of output,P is the selling price per unit,V is the variable cost per unit,and F is the fixed cost,then the break-even point in units is:

During 2016,Seth Britain Lab supplied hospitals with a comprehensive diagnostic kit for $120.At a volume of 80,000 kits,Seth had fixed costs of $1,000,000 and a profit before income taxes of $200,000.Due to an adverse legal decision,Seth's 2017 liability insurance increased by $1,200,000 over 2016.Assuming the volume and other costs are unchanged,what should the 2017 price be if Seth is to make the same $200,000 profit before income taxes? (CPA adapted)

Cost-volume-profit (CVP)analysis is a simple but powerful tool to assist management in making operating decisions.Which of the following does not represent a potential use of CVP analysis?

Carrie sells three products.Last month's results are as follows: P1 P2 P3 Revenues \ 150,000 \ 225,000 \ 225,000 Variable costs 60,000 210,000 120,000 Total fixed costs are $100,000 marketing and $125,000 administrative.Required: (a)What was the contribution margin ratio? (b)What sales volume does Carrie need to achieve a $100,000 monthly profit? (c)What will profit be if Carrie increases sales by 20%?

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 is Eastwick's break-even sales volume? (Assume the current product mix. )

John Martin,now retired,owns the Corner Barber Shop.He employs five (5)barbers and pays each a base rate of $500 per month.One of the barbers serves as the manager and receives an extra $300 per month.In addition to the base rate,each barber also receives a commission of $3 per haircut.A barber can do as many as 20 haircuts a day,but the average is 14 haircuts per day.The Corner Barber Shop is a corporation with a 30% tax rate and is open 24 days a month.Other costs are incurred as follows: Advertising \ 200 per month Rent \ 400 per month Barber Supplies \ .90 per haircut Utilities \ 175 per month plus \ .35 per haircut Magazines \ 25 per month Cleaning Supplies \ .15 per haircut John currently charges $8 per haircut. Required: (a)John wants to earn $2,160 in after-tax operating profits.Compute the number of haircuts that must be given to reach this goal in June. (b)In June,only 1,500 haircuts were given.Compute the price per haircut that John should have charged in June to earn $2,160 in after-tax operating profits.

Break-even analysis assumes that:

Both total revenues (TR)and total costs (TC)are likely to be affected by changes in the output.

Before-tax operating profits are equal to the after-tax operating profits divided by (1 - tax rate).

Cost-volume-profit (CVP)analysis is more complicated for organizations with multiple products because typically each product has a different contribution margin ratio.