Question 1

Larimore Company sales are $560,000.The company has variable costs equal to 40% of sales and total fixed costs of $150,000.
Required:
1)What is the company's break-even point in sales dollars?
2)Compute the company's operating leverage at its current sales level.
3)Compute the percentage change in income that will accompany a 10% increase in sales.
4)Compute the company's net income and operating leverage (rounded to one decimal place)if sales increase by 10%.
5)Describe the effect on operating leverage as a company's sales increase and it moves further beyond its break-even point.

Accepted Answer

The answer of Larimore Company sales are $560,000.The company has...

Question 2

Pierce Company's break-even point is 12,000 units.Its product sells for $25 and has a $10 variable cost per unit.What is the company's total fixed cost amount?

Accepted Answer

A)  $250,000 
B)  $180,000 
C)  $120,000 
D)  Fixed costs cannot be computed with the information provided.

Question 3

Sensitivity analysis acknowledges that profitability is often affected by multidimensional forces.

Accepted Answer

A) True 
 B)False

Question 4

When drawing a cost-volume-profit graph,how are the axes labeled?

Accepted Answer

A)  The horizontal axis would be labeled with dollars (of cost or revenue),while the vertical axis would be labeled with number of units (volume or activity). 
B)  The horizontal axis would be labeled with dollars (of total fixed costs),while the vertical axis would be labeled with dollars (of total variable costs). 
C)  The horizontal axis would be labeled with number of units (volume or activity),while the vertical axis would be labeled with dollars (of cost or revenue). 
D)  None of these answers is correct.

Question 5

Consider the following cost-volume-profit graph:  The area designated by the letter (C)represents which of the following?

Accepted Answer

A)  Profit area 
B)  Loss area 
C)  Break-even area 
D)  Fixed cost area

Question 6

What happens to break-even point when the sales price per unit decreases?

Accepted Answer

A)  Break-even point increases. 
B)  Break-even point decreases. 
C)  Break-even point stays the same. 
D)  None of these answers is correct.

Question 7

Newton Company currently produces and sells 4,000 units of a product that has a contribution margin of $6 per unit.The company sells the product for a sales price of $20 per unit.Fixed costs are $18,000.The company is considering investing in new technology that would decrease the variable cost per unit to $8 per unit and double total fixed costs.The company expects the new technology to increase production and sales to 9,000 units of product.What sales price would have to be charged to earn a $99,000 target profit assuming the investment in technology is made?

Accepted Answer

A)  $22 
B)  $23 
C)  $15 
D)  $13

Question 8

Select the correct statement regarding break-even point analysis.

Accepted Answer

A)  The break-even point in sales dollars equals total fixed costs divided by contribution margin per unit. 
B)  An increase in fixed costs causes the break-even point to increase. 
C)  An increase in contribution margin per unit causes the break-even point in units to increase. 
D)  A decrease in the variable cost per unit causes the break-even point in units to increase.

Question 9

Martinez Company sells one product that has a sales price of $20 per unit,variable costs of $8 per unit,and total fixed costs of $200,000,what is the contribution margin ratio?

Accepted Answer

A)  40% 
B)  60% 
C)  50% 
D)  66%

Question 10

Company A has break-even sales of 90,000 units and budgeted sales of 99,000 units.What is the margin of safety as expressed as a percentage?

Accepted Answer

A)  9.00% 
B)  10.0% 
C)  9.09% 
D)  None of these answers is correct.

Question 11

Can cost-volume-profit analysis be useful for a company that sells more than one product? If so,how? If not,why not?

Accepted Answer

The answer of Can cost-volume-profit analysis be useful for a...

Question 12

Sanchez Company makes and sells two models of dog houses,the Puppy Palace and the Canine Castle: $$\begin{array} { | l | l| r | l l | } 
\hline &  { \text { Puppy Palace } } & { \text { Canine Castle } } \
\hline \text { Sales price per unit } & \$ 50 & \$  75 \
\hline \text { Variable cost per unit } &  30 & 50 \
\hline \text { Contribution margin per unit } & \$  20 & \$  25 \
\hline
\end{array}$$ Sanchez has determined that it would break even at an annual sales volume of 5,000 units,of which 75% would be Puppy Palaces.What is the amount of Sanchez's estimated annual fixed costs?

Accepted Answer

The answer of Sanchez Company makes and sells two models...

Question 13

Adams Company sells a product whose contribution margin is $10 and selling price is $25.If the company's break-even point is 100 units,its total fixed costs must be $500.

Accepted Answer

A) True 
 B)False

Question 14

Bleeker Street Company produces and sells two lines of business suits,the Contemporary and the Traditionalist.The following monthly data are provided: $\begin{array}{c}
\begin{array}{|l|}
\hline\
\hline \text { Estimated unit sales per month}\
\hline \text { Selling price}\
\hline \text { Variable manufacturing costs}\
\hline \text { Variable selling and}\
 \text { administrative costs}\
\hline
\end{array}
\begin{array}{l|}
\hline \text { Contemporary}\
\hline500 \
\hline\$   200 \
\hline 110 \
\hline\
10\
\hline
\end{array}
\begin{array}{l|}
\hline \text { Traditionalist}\
\hline  1,000 \
\hline \$ 175 \
\hline  100 \
\hline\
10\
\hline 
\end{array}
\end{array}$
 Budgeted net income is $45,000 per month.
Required:
1)Calculate the monthly break-even sales in units and dollars based on the budgeted sales mix.
2)Calculate the firm's overall margin of safety in dollars.
3)Compute the firm's profit assuming 1,500 units are sold in a 1:1 sales mix.
4)Explain any difference between the firm's budgeted net income of $35,000 and your answer to Requirement 3.

Accepted Answer

The answer of Bleeker Street Company produces and sells two...

Question 15

Mitchell Company sells its product for $100 per unit.The company's accountant provided the following cost information: $\begin{array}{|l|l|}
\hline \text { Manufacturing costs } & \$ 25,000+45 \% \text { of sales } \
\hline \text { Selling costs } & \$ 15,000+20 \% \text { of sales } \
\hline \text { Administrative costs } & \$ 25,000+10 \% \text { of sales } \
\hline
\end{array}$ What is the company's break-even point in units?

Accepted Answer

A)  1,000 
B)  750 
C)  2,600 
D)  4,000

Question 16

Target costing begins with determining the cost of the product and then focusing on developing ways to sell the product at a price that will enable the company to achieve its desired profit margin.

Accepted Answer

A) True 
 B)False

Question 17

Fox Company believes that a market exists for an electronic game with a sales price of $40 per unit.The annual fixed costs are estimated at $700,000.
Required:
Fox forecasts sales of 50,000 units and wants to earn a profit of $200,000 per year.What is the maximum amount of variable costs per unit that will allow it to achieve its profit goal?

Accepted Answer

The answer of Fox Company believes that a market exists...

Question 18

How can the contribution margin ratio be used in cost-volume-profit analysis?

Accepted Answer

The answer of How can the contribution margin ratio be...

Question 19

The Travel Pro Company sells two kinds of luggage.The company projected the following cost information for the two products: $$\begin{array} { | l | l| r | l r | } 
\hline & { \text { Rolling Bag } } &{ \text { Carry-on Bag } } \
\hline \text { Unit selling price } & \$  250 & \$  120 \
\hline \text { Unit variable cost } & \$  110 & \$  80 \
\hline \begin{array} { l } 
\text { Number of units produced and } \
\text { sold }
\end{array} & 4,000&6,000 \
\hline
\end{array}$$ The company's total fixed costs are expected to be $280,000. Based on this information,what is the combined number of units of the two products that would be required to break-even with the projected sales mix (round your answer to the nearest whole unit)?

Accepted Answer

A)  3,500 units 
B)  3,111 units 
C)  1,556 units 
D)  None of these is correct.

Question 20

Assume that the company sells two products,X and Y,with contribution margins per unit of $12 and $10,respectively.What happens to the break-even point if the sales mix shifts to favor product X? (In other words,sales of product X will make up a higher percentage of the sales mix. )

Accepted Answer

A)  Break-even point increases. 
B)  Break-even point decreases. 
C)  Break-even point stays the same. 
D)  None of these answers is correct.

Exam 3: Analysis of Cost,Volume,and Pricing to Increase Profitability

Pierce Company's break-even point is 12,000 units.Its product sells for $25 and has a $10 variable cost per unit.What is the company's total fixed cost amount?

Sensitivity analysis acknowledges that profitability is often affected by multidimensional forces.

When drawing a cost-volume-profit graph,how are the axes labeled?

Consider the following cost-volume-profit graph: The area designated by the letter (C) represents which of the following?

What happens to break-even point when the sales price per unit decreases?

Select the correct statement regarding break-even point analysis.

Martinez Company sells one product that has a sales price of $20 per unit,variable costs of $8 per unit,and total fixed costs of $200,000,what is the contribution margin ratio?

Company A has break-even sales of 90,000 units and budgeted sales of 99,000 units.What is the margin of safety as expressed as a percentage?

Can cost-volume-profit analysis be useful for a company that sells more than one product? If so,how? If not,why not?

Adams Company sells a product whose contribution margin is $10 and selling price is $25.If the company's break-even point is 100 units,its total fixed costs must be $500.

Target costing begins with determining the cost of the product and then focusing on developing ways to sell the product at a price that will enable the company to achieve its desired profit margin.

How can the contribution margin ratio be used in cost-volume-profit analysis?

Assume that the company sells two products,X and Y,with contribution margins per unit of $12 and $10,respectively.What happens to the break-even point if the sales mix shifts to favor product X? (In other words,sales of product X will make up a higher percentage of the sales mix. )