Deck 5: Cost-Volume-Profit Analysis and Break-Even

Question 1

A company that makes cell phones has the following cost structure. The have fixed costs of $145 000 per period and manufacturing costs of $15.16 per cell phone. Advertising is expected to be $25 000 per period and a special promotional contest will involve providing a free case for a cost of $5.30 per cell phone. Each cell phone sells for $49.95. What is the break-even point in the number of phones?

A) 4886
B) 4917
C) 4168
D) 5765
E) 4240

Answer 1

5765

Question 2

Last year a printing company had total sales of $37 500. The total of its variable costs was $ 15 000, and fixed costs Capacity is at sales maximum of $50 000.
a) Calculate the break-even point in
b) Draw a detailed break-even chart

Answer 2

a) i) Let x represent the sales volume in dollars.
= = 0.40 = 40%
(100%) = 60%
b)

Question 3

A local health care facility has fixed costs per month of $187 400. They also have patient costs of $4.15 per day per patient for linen and cleaning, medication costs are $23.32 per patient per day and lab tests cost $75.61 per patient per day. The government is considering allowing the health care facility to charge each patient and amount to recover his or her costs and to make a "profit" of $15 000 per month. The health care facility averages 690 patients per month. The VP-Finance for the facility wants you to calculate the daily rate charge per patient. Your answer is:

A) $462.92
B) $396.41
C) $345.73
D) $284.51
E) $455.21

Answer 3

$396.41

Question 4

A local toolmaker makes the best hammers on the market. The head of the hammer costs $12.11 and the handle costs $4.37. It takes 1.4 minutes to assemble the hammer and the hourly cost is $90.00 for assembly time. The company has fixed operating costs of $22 310 per month. They sell the hammers for three times their total variable cost. The company wants to make a monthly profit of $5000. How many hammers must they sell?

A) 796
B) 735
C) 776
D) 766
E) 768

Question 5

Trevor, the new owner of the vehicle accessory shop is considering buying sets of winter tires for $299 per set and selling them at $520 each. Fixed costs related to this operation amount to $3 250 per month. It is expected that 18 sets per month could be sold. How much profit will Trevor make each month?

Question 6

Elaine's business budget included sales of $350 000 and fixed costs of $52 600. If the total contribution margin for the business was $125 000, what are the sales needed to break even?

Question 7

Victor plans to set up an online business selling software applications that he develops and supports. He believes that a price of $130 for his product including the technical support would be competitive. His monthly fixed expenses amount to $850. Victor would hire some college students to provide the technical support of the application paying them for 3 hours at $15 per hour for each client.
a) How many clients does Victor need to acquire to break even?
b) If he wants to achieve a target profit of $500 monthly, how many clients does he need?

Question 8

A company that makes audio computer input devices has calculated their revenue and costs as follows for the most recent fiscal period: Costs:
The company has a target level of profitability of $35,000 per fiscal period. What sales dollar volume do they have to achieve in order to achieve their goal?

A) $840 909.09
B) $616 071.43
C) $784 090.91
D) $863 636.36
E) $678 571.43

Question 9

Priest and Sons, a local manufacturer of a product that sells for $13.50 per unit. Variable cost per unit is $7.85 and fixed cost per period is $1 220. Capacity per period is 1100 units.
Perform a break-even analysis showing
a) an algebraic statement of
b) a detailed break-even chart.

Question 10

The gas division of Power-U-Up plans to introduce a new gas delivery system based on the following accounting information.
a) Draw a detailed break-even chart
b) Compute the break-even point
c) Determine the break-even point as a percent of capacity

Question 11

A company that makes customized pens has calculated their revenue and costs as follows for the most recent fiscal period: Costs:
What are the company's fixed costs per fiscal period?

A) $105 000
B) $115 000
C) $80 000
D) $85 000
E) $120 000

Question 12

A local restaurant has the best meals in town. The average variable cost per meal is $22.74 and the desserts are $5.24. Only half of the patrons order desserts. The restaurant has fixed operating costs of $112 714 per month. They sell the meals and desserts for four times their average variable cost per meal. They company wants to make a monthly profit of $75 000. How many meals must they sell?

A) 2 045
B) 2 236
C) 2 008
D) 2 803
E) 2 468

Question 13

The operating budget of the Omega Twelve Company contains the following information.
a) Draw a detailed break-even chart.
b) Compute the break-even point as a percent of capacity.
c) Determine the break-even point in dollars if fixed costs are reduced by $11 200 while variable costs are changed to 62% of sales.

Question 14

The Excellent DVD Company sells DVDs for $62 each. Manufacturing cost is $22.70 per DVD; marketing costs are $7.75 per DVD; and royalty payments are 15% of the selling price. The fixed cost of preparing the DVDs is $227 300. Capacity is 20 000 DVDs.
a) Draw a detailed break-even chart.
b) Compute the break-even point
c) Determine the break-even point in units if fixed costs are increased by $3300 while manufacturing cost is reduced $1.65 per DVD.
d) Determine the break-even point in units if the selling price is increased by 10% while fixed costs are increased by $2900.

Question 15

Olfert Greenhouses has compiled the following estimates for operations.
Capacity is a sales volume of $175 000.
Perform a break-even analysis showing
a) an algebraic statement of
b) a detailed break-even chart.

Question 16

A pen manufacturer makes luxury pens. The pen case costs $7.26 each, the ink holder costs $1.26 each, the spring costs $.07 each and the velvet pen case costs $0.91 each. The plant has general and administrative costs of $55 000 and fixed selling expenses of $37 500. The pens sell of $39.95 each. Plant capacity is 4 000 pens per period. At what percentage of capacity is the break-even point?

A) 75.95%
B) 73.74%
C) 75.77%
D) 61.32%
E) 30.79%

Question 17

A company that makes basketballs has calculated their revenue and costs as follows for the most recent fiscal period: Costs:
What are the company's fixed costs per fiscal period?

A) $245 000
B) $2 18120
C) $191 240
D) $1 054 760
E) $1 001000

Question 18

A manufacturer plans to introduce a new type of shirt based on the following information.
The selling price is $57.00; variable cost per unit is $18.00; fixed costs are $7800.00; and capacity per period is 500 units.
a) Calculate the break-even point
b) Draw a detailed break-even chart.
c) Calculate the break-even point (in units) if fixed costs are reduced to $7020.00
d) Calculate the break-even point (in dollars) if the selling price is increased to $78.00

Question 19

A company that makes optical computer input devices has calculated their revenue and costs as follows for the most recent fiscal period: Costs:
What is the break-even point in sales dollars?

A) $362 500.00
B) $589 666.67
C) $241 666.67
D) $870 000.00
E) $280 333.33

Question 20

A company that makes environmental measuring devices has calculated their revenue and costs as follows for the most recent fiscal period: Costs:
What is the break-even point in sales dollars?

A) $100 000
B) $200 000
C) $300 000
D) $250 000
E) $450 000

Question 21

Last year, Terrific Copying had total revenue of $475 000, while operating at 60% of capacity. The total of its variable cost is $150 000. Fixed costs were $180 000. What is Terrific's contribution rate?

A) 62.1%
B) 16.7%
C) 20%
D) 60%
E) 68.4%

Question 22

An electrician charges a flat fee of $90 for a home service call. In addition he charges $25 for every 20 minutes as labour cost. Draw a graph to show the total charge against the time in hours. Calculate the slope of the line.

Question 23

Given the following chart, calculate the cost function. Interpret the function to calculate variable costs and fixed costs:

Question 24

Last year, Terrific Copying had total revenue of $475 000, while operating at 60% of capacity. The total of its variable cost is $150 000. Fixed costs were $180 000. What is the expected revenue this year at full capacity?

A) $791 667
B) $250 000
C) $300 000
D) $550 000
E) $1 341 667

Question 25

A local college hospitality restaurant has the best meals in town. The average variable cost per meal is $10.25 and the desserts are $1.25. The restaurant has fixed operating costs of $110 500 per month. They sell the meals and desserts for three times their average variable cost per meal. The college wants to make a monthly profit of $50 000. How many meals must they sell (Round up to nearest whole meal)?

A) 4805
B) 6979
C) 6500
D) 8405
E) 9769

Question 26

Caroline needs to put some money in her pocket this winter, so she plans on removing snow from driveways. She will need to pay $560 for a snow-blower to make her job easier. A variable cost of $3 per job for supplies would also be required. She estimates that she could clean 40 driveways a month. What price should she charge the customers for the service in order to break even?

Question 27

Sunbeam wants to sell microwaves at a unit contribution margin of $42 and a unit contribution rate of 60%. What should be the break even volume if the total cost of production is kept below $10 000.

A) 143
B) 238
C) 357
D) 714
E) 900

Question 28

A company has variable costs that are 1/8 the value of their sales revenues. Total net income for the most recent period was a profit of $50 400 and sales were $500 000. The company has started a new marketing campaign that they hope will increase sales, but it will require additional advertising of $15 000. How many sales dollars does the company have to generate in order to remain at the same level of profitability as before the new ad campaign?

A) $517 142.86
B) $387 100.00
C) 392 100.00
D) $387 100.86
E) 392 100.86

Question 29

Last year, Terrific Copying had total revenue of $475 000, while operating at 60% of capacity. The total of its variable cost is $150 000. Fixed costs were $180 000. What is Terrific's break-even point expressed in dollars of revenue?

A) $289 855
B) $1 077 844
C) $900 000
D) $263 158
E) $300 000

Question 30

Citizen sells a watch for $35 at a variable cost of $15 per unit and fixed cost of $1 million per annum. Recent recession has seen jump in material cost by $7. What is the change in profit due to recession if Citizen produces and sells 100 000 watches in a year?

A) $1 000 000 decrease
B) $700 000 decrease
C) $300 000 decrease
D) $800 000 increase
E) $1 800 000 increase

Question 31

Sala pipe fittings produce pipe elbows and reducers from stainless steel. The company can process up to 20 000 tonnes of stainless steel sheets in a year. The company pays the steel company $800 per tonne of stainless steel sheets and each tonne is used to manufacture $2000 worth of elbows and reducers. Variable processing costs are $470 per tonne and fixed processing costs $3.4 million per year at all production levels. Administrative overhead is $3 million per year regardless of the volume of the production. Marketing and transportation costs work out to be $230 per tonne. Determine the break-even volume in terms of percent capacity utilization.

A) 30%
B) 34%
C) 43.8%
D) 24.6%
E) 64%

Question 32

A company has variable costs that are 4/7 the value of their sales revenues. Total net income for the most recent period was a profit of $53 770 and sales were $420 000. The company has started a new marketing campaign that they hope will increase sales, but it will require additional advertising of $6400. How many sales dollars does the company have to generate in order to remain at the same level of profitability as before the new ad campaign?

A) $434 933.33
B) $326 357.50
C) $420 210.00
D) $140 396.67
E) $105 297.50

Question 33

Citizen sells a watch for $35 at a fixed cost of $1 million per annum. Recent recession has seen jump in material cost to $20. What is the new break-even volume of watches per year?

A) 28 571
B) 50 000
C) 66 667
D) 6667
E) 7000

Question 34

A company has variable costs that are 3/8 the value of their sales revenues. Total net income for the most recent period was a profit of $123 400 and sales were $400 000. The company has started a new marketing campaign that they hope will increase sales, but it will require additional advertising of $11 200. How many sales dollars does the company have to generate in order to remain at the same level of profitability as before the new ad campaign?

A) $358 933.33
B) $215 360.00
C) $400 000.00
D) $417 920.00
E) $696 533.33

Question 35

Last year, Terrific Copying had total revenue of $475 000, while operating at 60% of capacity. The total of its variable cost is $150 000. Fixed costs were $180 000. If the current selling price, variable costs, and fixed costs are the same as last year, what net income can be expected from revenue of $500 000 in the current year

A) $381 388
B) $394 737
C) $1 418 216
D) $1 184 210
E) $346 260

Question 36

Samsung sell refrigerators at $900 per unit. Their variable cost is estimated to be $550 per unit and their fixed costs are estimated to be $8.75 million per annum. Calculate the minimum number of units, Samsung should produce every year to make a profit?

A) 9722
B) 15 909
C) 25 000
D) 2500
E) 21 875

Question 37

Calculate the contribution margin, if the variable cost per unit to produce a microwave is $39 and a contribution rate is 45%.

A) $17.55
B) $1.15
C) $70.91
D) $31.91
E) $39

Question 38

Sala pipe fittings produce pipe elbows and reducers from stainless steel. The company can process up to 20 000 tonnes of stainless steel sheets in a year. The company pays the steel company $800 per tonne of stainless steel sheets and each tonne is used to manufacture $2000 worth of elbows and reducers. Variable processing costs are $470 per tonne and fixed processing costs $3.4 million per year at all production levels. Administrative overhead is $3 million per year regardless of the volume of the production. Marketing and transportation costs work out to be $230 per tonne. In order to attain a net income of $2.4 million how many tonnes of steel must be processed this year?

Question 39

Excel hardware is introducing a new product on a new product line of capacity 800 units per week at a production cost of $50 per unit. Fixed costs are $22,400 per week. Variable selling and shipping costs are estimated to be $20 per unit. Excel plan to market the new product at $110 per unit. What is the break-even capacity per week?

A) 204
B) 373
C) 560
D) 280
E) 320

Question 40

Excel hardware is introducing a new product on a new product line of capacity 800 units per week at a production cost of $50 per unit. Fixed costs are $22 400 per week. Variable selling and shipping costs are estimated to be $20 per unit. Excel plan to market the new product at $110 per unit. What would be the weekly net income at 90% of the capacity?

A) $9600
B) $7200
C) $6400
D) $56 800
E) $20 800

Question 41

Tarfex Tech intended to sell a new product in order to keep up with customer demands. The product was to be sold to consumers at $620, creating a contribution margin of $150 per unit. They spent $9800 on advertising and were able to sell 1,200 units on the first day. Determine the resulting profit.

Question 42

A new smartphone is being sold by Motorola at $650. The fixed cost per month to make these phones is $840 000 and the variable cost per phone is $150. Determine the breakeven volume for Motorola using the contribution margin approach.

Question 43

Barb has a hot-dog stand near the ferry terminal for Centre Island. She pays $500 per month as rent and $3000 per month in wages for the hired help. Variable costs per hot dog come out to be $1.30 and she sells each hotdog for $3.00. In summer months, she is able to sell 4500 hotdogs in a month. To increase her sales, she added a free soda can which increased her variable costs by 20 cents. However, it increased her monthly sales to 5000 units. What is the change in her monthly net income due to these recent changes.

Question 44

Raider Corporation made $130 000 in sales last year. They had fixed costs of $29 300 and variable costs of $26 000. What is the breakeven point if their capacity is at $160 000? Provide algebraic statements of the revenue and cost functions, as well as a breakeven point in sales dollars.

Question 45

Darby is running a flower stand, and is selling a single bouquet for $31.50. Her contribution margin is $24.57 per bouquet and the breakeven sales in dollars for Darby's flower stand are $700 per day. How much can she pay per day in fixed costs to run the stand?

Question 46

Caroline needs to put some money in her pocket this winter, so she plans on removing snow from driveways. She will need to pay $560 for a snow-blower to make her job easier. A variable cost of $3 per job for supplies would also be required. She estimates that she could clean 40 driveways a month. What price should she charge the customers for the service in order to make a profit of $1200?

Question 47

Barb has a hot-dog stand near the ferry terminal for Centre Island. She pays $500 per month as rent and $3000 per month in wages for the hired help. Variable costs per hot dog come out to be $1.30 and she sells each hotdog for $3.00. In summer months, she is able to sell 4500 hotdogs in a month. Recently, another hot dog vendor opened his stand across the street. To attract and retain her customers, she added a free soda can which increased her variable costs by 20 cents. To make things worse, the rent was also increased by 15%. What is the change in her monthly net income due to these recent changes. Assume that the monthly sale figures remain at 4500 units.