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Exam 22: Cost-Volume-Profit

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Question 71

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Gribble Company's high and low level of activity last year was 60000 units of product produced in May and 20000 units produced in November. Machine maintenance costs were $156000 in May and $60000 in November. Using the high-low method determine an estimate of total maintenance cost for a month in which production is expected to be 45000 units.

A) $135000
B) $144000
C) $117000
D) $120000

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Question 72

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The range over which a company expects to operate is referred to as the _____________ range.

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Question 73

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Boswell company reported the following information for the current year: Sales (50000 units) $1000000 direct materials and direct labor $500000 other variable costs $50000 and fixed costs $360000. What is Boswell's break-even point in units?

Reliable Manufacturing wants to sell a sufficient quantity of products to earn a profit of $100000. If the unit sales price is $10 unit variable cost is $8 and total fixed costs are $200000 how many units must be sold to earn income of $100000?

The contribution margin ratio of 40% means that 60 cents of each sales dollar is available to cover fixed costs and to produce a profit.

Oakbrook Inc. reported actual sales of $2000000 and fixed costs of $350000. The contribution margin ratio is 25%. Instructions Compute the margin of safety in dollars and the margin of safety ratio.

When units produced are greater than units sold income under ________________ costing is higher than under ______________ costing.

Henderson Farms reports the following results for the month of November: $\begin{array} { l r } \text { Sales (10,000 units) } & \$ 600,000 \\\text { Variable costs } & 420,000 \\\text { Contribution margin } & 180,000 \\\text { Fixed costs } & 110,000 \\\text { Net income } & \$ 70,000\end{array}$ Management is considering the following independent courses of action to increase net income. 1. Increase selling price by 5% with no change in total variable costs. 2. Reduce variable costs to 66 % of sales. 3. Reduce fixed costs by $10000. Instructions If maximizing net income is the objective which is the best course of action?

Dunbar Manufacturing's variable costs are 30% of sales. The company is contemplating an advertising campaign that will cost $55000. If sales are expected to increase $100000 by how much will the company's net income increase?

Which of the following is not true about the graph of a mixed cost?

When applying the high-low method the variable cost element of a mixed cost is calculated before the fixed cost element.

Which of the following would be the least controllable fixed costs?

Changes in activity have a(n) _________ effect on fixed costs per unit.

The contribution margin ratio increases when

A company has total fixed costs of $240000 and a contribution margin ratio of 20%. The total sales necessary to break even are

In evaluating the margin of safety the

The income statement for Bradford Machine Company for 2015 appears below. $\begin{array}{c} \text {BRADFORD MACHINE COMPANY }\\ \text {Income Statement}\\ \text { For the Year Ended December 31, 2015}\\\\\begin{array}{llr} \text { Sales (40,000 units) } &\$1,000,000\\ \text { Variable expenses } &\underline{700,000}\\ \text { Contribution margin } &300,000\\ \text { Fixed expenses} &\underline{360,000}\\ \text { Net income (loss) } &\$(60,000)\\\end{array}\end{array}$ Instructions Answer the following independent questions and show computations using the contribution margin technique to support your answers: 1. What was the company's break-even point in sales dollars in 2015? 2. How many additional units would the company have had to sell in 2016 in order to earn net income of $45000? 3. If the company is able to reduce variable costs by $2.50 per unit in 2016 and other costs and unit revenues remain unchanged how many units will the company have to sell in order to earn a net income of $45000?

The fixed cost element of a mixed cost is the cost of having a service available.

The graph of variable costs that behave in a curvilinear fashion will

For CVP analysis both variable and fixed costs are assumed to have a linear relationship within the relevant range of activity.