Exam 3: Fundamentals of Cost-Volume-Profit Analysis

Misa 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. The contribution margin ratio for the current year is:

You have been provided with the following information: If sales decrease by 10%,what level of fixed costs will maintain the current operating profit?

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

You have been provided with the following information: If unit sales decrease by 10%,how much will fixed costs have to be reduced by to maintain the current operating profit?

Donnelly 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 Donnelly Corporation wishes to earn $37,800 in after tax net income for the coming year,the company's sales volume in dollars must be:

Acme 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%.What is the break-even sales volume for Store B?

Kanmore produces and sells three products.Last month's results are as follows: Fixed costs total $200,000.What sales volume would generate an operating profit of $150,000? (Assume the current product mix. )

Profit is the unit contribution margin multiplied by the number of units minus the fixed component of the total costs (TC).Profit is TR minus TC,however at the unit contribution margin V (variable cost)has already been removed;therefore the above statement is true.

Turner 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:

Misa 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. For the coming year,the management of Misa 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:

EM Sales had $2,200,000 in sales last month.The contribution margin ratio was 30% and operating profits were $180,000.What sales volume does EM's need to yield a $240,000 operating profit?

The break-even point in sales dollars is fixed costs divided by the contribution margin ratio.The statement made in the question is a definition of the break even.

On January 1,2013,Lake Co.increased its direct labor wage rates.All other budgeted costs and revenues were unchanged.How did this increase affect Lake's budgeted break-even point and budgeted margin of safety? (CPA adapted)

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

Which of the following formulas is used to calculate the contribution margin ratio?

The difference between total sales in dollars and total variable costs is called:

EM Sales had $2,200,000 in sales last month.The contribution margin ratio was 30% and operating profits were $180,000.What is EM's break-even sales volume?

If the average selling price is $.60 per unit,the average variable cost is $.36 per unit,and the total fixed costs are $1,500,then sales of 15,000 units will result in operating profits of $3,600.($.60 - .36)× 15,000 - 1,500 = $2,100.

Acme 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?

Genco Sales has two store locations.Carslberg has fixed costs of $250,000 per month and a contribution margin ratio of 35%.Tuborg 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?