Exam 5: Cost Behavior and Cost-Volume-Profit Analysis

Barclay Bikes manufactures and sells three distinct styles of bicycles: the Youth model sells for $300 and has a unit contribution margin of $105; the Adult model sells for $850 and has a unit contribution margin of $450; and the Recreational model sells for $1,000 and has a unit contribution margin of $500. The company's sales mix includes: 5 Youth models; 9 Adult models; and 6 Recreational models. If the firm's annual fixed costs total $6,500,000, calculate the firm's contribution margin per composite unit.

Cost-volume-profit analysis is based on necessary assumptions. Which of the following is not one of these assumptions?

A product sells for $30 per unit and has variable costs of $18 per unit. The fixed costs are $720,000. If the variable costs per unit were to decrease to $15 per unit, fixed costs increase to $900,000, and the selling price does not change, break-even point in units would:

Fixed costs per unit decrease proportionately with increases in volume of activity.

A manufacturer reports the following costs to produce 10,000 units in its first year of operations: Direct materials, $10 per unit, Direct labor, $6 per unit, Variable overhead, $70,000, and Fixed overhead, $120,000. The total product cost per unit under variable costing is:

Select cost information for Seacrest Enterprises is as follows: Based on this information:

The following information describes a product expected to be produced and sold by Quark Corporation: Selling price…………………………… $33 per unit Variable costs………………………… $27 per unit Total fixed costs……………………… $855,000 per year Required: (a) Calculate the contribution margin per unit. (b) Calculate the break-even point in units.

Journey Company is considering the production and sale of a new product with the following sales and cost data: unit sales price $18; unit variable costs $8.50; and total fixed costs of $81,250. Determine the dollar sales needed to generate a pre-tax income of $44,000, rounded to the nearest whole dollar.

Which of the following is the correct interpretation of a degree of operating leverage of 5?

The proportion of sales volumes for various products in a multiproduct company is known as the sales mix.

A company has total fixed costs of $200,000. Its product sells for $25 per unit and variable costs amount to $15 per unit. The company has a target pre-tax income of $50,000. How many units must be sold to achieve this pre-tax target income?

Portal Manufacturing has total fixed costs of $520,000. A unit of product sells for $15 and variable costs per unit are $11. a) Prepare a contribution margin income statement showing predicted net income (loss) if Portal sells 100,000 units for the year ended December 31. b) At a minimum, how many units must Portal sell in order not to incur a loss?

The contribution margin per unit expressed as a percentage of the product's selling price is the:

Solving problems to determine the relationship of cost, volume, and profit often starts with measuring the ________ point. Further analysis emphasizing profitability may be accomplished by measuring the ________ and ________.

The method most likely to produce the most precise line of cost behavior and require the least amount of judgment is the scatter diagram.

Scatter diagrams plot volume (units) on the vertical axis and cost on the horizontal axis.

Mott Company's sales mix is 3 units of A, 2 units of B, and 1 unit of C. Selling prices for each product are $20, $30, and $40, respectively. Variable costs per unit are $12, $18, and $24, respectively. Fixed costs are $320,000. What is the break-even point in composite units?

Select cost information for Klondike Corporation is as follows: Based on this information:

A company has a goal of earning $128,000 in pre-tax income. The contribution margin ratio is 30%. What dollar amount of sales must be achieved to reach the goal if fixed costs are $64,000?

Mullis Corp. manufactures DVDs that sell for $5.00. Fixed costs are $28,000 and variable costs are $3.60 per unit. Mullis can buy a newer production machine that will increase fixed costs by $8,000 per year, but will decrease variable costs by $0.40 per unit. What effect would the purchase of the new machine have on Mullis' break-even point in units?