Exam 3: Fundamentals of Cost-Volume-Profit Analysis

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 margin of safety is sales dollars?

At a break-even point of 400 units,variable costs were $400 and fixed costs were $200.What will the 401^st unit sold contribute to operating profits before income taxes?

JJ Motors Inc.employs 45 sales personnel to market its line of luxury automobiles.The average car sells for $23,000,and a 6 percent commission is paid to the salesperson.JJ Motors is considering a change to the commission arrangement where the company would pay each salesperson a salary of $2,000 per month plus a commission of 2 percent of the sales made by that salesperson.The amount of total monthly car sales at which JJ Motors would be indifferent as to which plan to select is:

RedTail Manufacturing has the following data: What dollar sales volume does RedTail need to break even?

In multi-product cost-volume-profit (CVP)analysis,the fixed product mix method and the weighted-average contribution margin method yield different break-even points.Both methods yield the same result.

Cost A is a fixed cost,while B is a variable cost.During the current year,the volume of output has decreased.In terms of cost per unit of output,we would expect that:

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

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.($2,400 + 1,200)/40% = $9,000;this is dollars,not units.

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 all variable costs,and a $45,000 increase in fixed costs.The operating profit for next year would be:

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.The operating leverage will decrease,even though the total cost structure does not change,because the fixed cost decline relative to selling price.

The degree of operating leverage can be calculated as:

Barnes 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. The break-even point (rounded to the nearest dollar)for Barnes Corporation for the current year is:

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

A company has provided the following data: 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:

Brasher 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?

With regard to the CVP graph,which of the following statements is not correct?

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.The selling price that would maintain the same contribution margin ratio as last year is:

KR 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 KR's need to yield a $200,000 operating profit?

If the fixed costs for a product increase and the variable costs (as a percentage of sales dollars)increase,what will be the effect on the contribution margin ratio and the break-even point,respectively?

Sanfran has the following data: If Sanfran produces and sells 30,000 units,what is the margin of safety in units?