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Exam 21: Cost-Volume-Profit Analysis

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Question 121

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Use the following information to determine the contribution margin ratio: $\begin{array} { | l r | } \hline \text { Unit sales } & 50,000 \text { Units } \\\text { Unit selling price } & \$ 14.50 \\\text { Unit variable cost } & \$ 7.50 \\\text { Fixed costs } & \$ 204,000 \\\hline\end{array}$

A) 24.5%.
B) 48.3%.
C) 34.1%.
D) 6.9%.
E) 51.7%.

F) B) and D)
G) C) and E)

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Question 122

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Forrester Company is considering buying new equipment that would increase monthly fixed costs from $120,000 to $150,000 and would decrease the current variable costs of $70 by $10 per unit. The selling price of $100 is not expected to change. Forrester's current break-even sales are $400,000 and current break-even units are 4,000. -If Forrester purchases this new equipment, the revised break-even point in dollars would be:

A) $400,000.
B) $325,000.
C) $500,000.
D) $375,000.
E) $300,000.

F) B) and C)
G) A) and D)

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Question 123

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Match the following definitions with the appropriate term

Examining strategies that impact several estimates in the CVP analysis is known as ________.

Describe and compare the three cost estimation methods used to develop a cost equation.

A cost that changes in proportion to changes in volume of activity is a(n) :

The following information is available for a company's cost of sales over the last five months. $\begin{array} { | l | l | l | } \hline \text { Month } & \text { Units sold } & \text { Cost of sales } \\\hline \text { January } & 400 & 31,00 \\\hline \text { February } & 800 & 37,000 \\\hline \text { March } & 1,600 & 49,000 \\\hline \text { April } & 2,400 & 61,000 \\\hline\end{array}$ - Using the high-low method, the estimated total fixed cost is:

The budgeted income statement presented below is for Burkett Corporation for the coming fiscal year. Compute the number of units that must be sold in order to achieve a target pretax income of $130,000. $\begin{array}{ll}\text { Sales (50,000 units) }&&\$1,000,000\\\text { Costs:}\\\text { Direct materials } & \$ 270,000 \\\text { Direct labor } & 240,000 \\\text { Fixed factory overhead } & 100,000 \\\text { Variable factory overhead } & 150,000 \\\text { Fixed marketing costs } & 110,000 \\\text { Variable marketing costs } & \underline{50,000}& \underline{920,000} \\\text { Pretax income }&& \underline{\$80,000}\end{array}$

The difference between the unit sales price and the unit variable cost of an item is defined as the________.

A company has fixed costs of $320,000 and a contribution margin per unit of $15. If the firm wants to earn a target $40,000 pretax income, how many units must be sold (rounded to the nearest whole unit) ?

A cost with a flat cost line within a relevant range that shifts to another level when volume significantly changes is a(n) :

In cost-volume-profit analysis, the unit contribution margin is:

The break-even point is the sales level at which a company neither earns a profit nor incurs a loss.

The margin of safety is the excess of:

The absorption costing method is required for external financial reporting.

The sales level at which a company neither earns a profit nor incurs a loss is the:

A target income refers to:

A firm sells two products, Regular and Ultra. For every unit of Regular the firm sells, two units of Ultra are sold. The firm's total fixed costs are $1,612,000. Selling prices and cost information for both products follow. The contribution margin per composite unit is: Product $\begin{array} { l r r r } & \text { Unit Sales } & \text { Variable Cost Per } \\\text { Product } & \text { Price } & \text { Unit } & \\\text { Regular } & \$ 20 & & \$ 8 \\\text { Ultra } & 24 & & 4\end{array}$

When graphing cost-volume-profit data on a CVP chart:

What are the basic assumptions of CVP analysis with regard to variable cost, fixed cost, and selling price per unit? (Assume a single product).