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Exam 9: Cost-Volume-Profit Analysis

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Question 21

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Floyd's Barbershop has fixed costs of $3000 per month.Floyd regularly performs 400 haircuts a month and he does not anticipate this to change.Each haircut has a variable cost of $4.00.If Floyd would like to earn a target profit of $2000,what does he need to charge for each haircut?

A) $12.50
B) $16.50
C) $11.50
D) $ 8.50

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Question 22

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Chapman Products produces a unique item with the following information: $\begin{array}{ll}\text { Sales price } & \$ 100 \text { per unit } \\\text { Variable costs } & \$ 40 \text { per unit } \\\text { Fixed Costs (total) } & \$ 60000 \\\text { Unite sold } & 5000\end{array}$ Required: Calculate the following based on the above information: A. Net incume B. Contribution marpin per unit C. Contribution marpin ratio D. If Chapman sells 500 more adkitional units, by what amount will net income increase? E. If Chapman has an additional $\$ 20000$ in sales, by what anount will net income increase?

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Question 23

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Refer to the Joe’s Coffee House information below. Joe’s Coffee House Joe’s Coffee House has the following information available for the month of July: $\begin{array}{lr}\text { Sales }(2500 \text { cups) } & \$ 7500 \\\text { Variable costs } & 3250 \\\text { Fixed costs } & 4000 \\\text { Net Income } & \$ \quad 250\end{array}$ -All else being equal,if Joe's increases the sales price per unit by 10%,net income will:

Vincent Products manufactures a particular item with the following information: $\begin{array}{llcc} \text { Sales price } & \text { \$ 80 per unit} \\ \text { Variable costs} & \text { \( \$ 30 \) per unit } \\ \text { Fixed Costs } & \text { \( \$ 5 \) per unit } \\ \text { Units produced and sold } & \text { 10000 } \\\end{array}$ Required: Calculate the following based on the above information: A. Contribution margan per unit B. Contribution margin ratio C. Break-even point in units D. Break-even point in sales dollars

Poole Products Inc. Poole Products Inc. has the following product information available: $\begin{array}{ll}\text { Sales price } & \$ 25 \text { per unit } \\\text { Variable costs } & \$ 10 \text { per unit } \\\text { Fixed costs } & \$ 36000\end{array}$ -What is the break-even point in sales dollars?

A company with a high level of operating leverage will:

Refer to the Bergman Inc. information below. Bergman Inc. Bergman Inc. has the following product information available: $\begin{array}{ll}\text { Sales price } & \$ 12 \text { per unit } \\\text { Variable costs } & \$ 4 \text { per unit } \\\text { Fixed costs } & \$ 15600 \\\text { Units sold } & 10400\end{array}$ -What is the break-even point in units?

Which of the following would you not find on a traditional income statement?

Refer to the Stealth Software Inc. information below. Stealth Software Inc. Stealth Software Inc. has the following information available from last year for one of its software products: $\begin{array}{lr}\text { Sales revenue } & \$ 30000 \\\text { Variable costs } & 4950 \\\text { Fixed costs } & 4000 \\\text { Net income } & \$ 21050\end{array}$ -If the software had a sales price of $30 per unit,what is the variable cost per unit?

For each of the following statements,fill in the blank with either the word increase,decrease,or stay the same. a. All else being equal,as the sales price per unit increases,the contribution margin per unit will _________________. b. All else being equal,as variable costs per unit increase,the contribution margin per unit will _________________. c. All else being equal,as total fixed costs increase,the contribution margin per unit will ________________. d. All else being equal,as sales volume increases,total fixed costs will _______________. e. All else being equal,as sales volume increases,total variable costs will _____________.

Village Manufacturing Village Manufacturing produces two types of products ? Card Games and Puzzles. The following information is available related to each product: $\begin{array}{lrrr} & \underline{ \text { Card Games }} & \underline{\text { Puzzles }} \\\text { Sales price per unit } & \$ 6.00 & \$ 15.00 \\\text { Variable costs per unit } & 2.00 & & 3.50\end{array}$ 60% of the products sold are Card Games and 40% are Puzzles. -If total fixed costs are $24 500,how many Puzzles need to be sold in order for the company to break even?

All else being equal,which of the following would cause the contribution margin to increase?

Harrison Inc.has a contribution margin ratio of 60% and fixed costs of $91 000. Required: A. If Harrison ignores income taxes, what do sales dollars need to be in order to have net income of $\$ 500000$ ? B. If Harrison takes into account income taxes, and the company is in the $40 \%$ tax bracket, what do sales dollars need to be in order to have an after-tax net income of $\$ 500000$ ?

Which of the following statements is most likely true if Red Inc.has an operating leverage of 2.0 while Blue Corp.has an operating leverage of 1.4?

Greenwood Manufacturing has the following product information: $\begin{array}{llcc} \text {Sales price } & \text { \$40.00 per unit } \\ \text {Variable costs } & \text { \( \$ 18.00 \) per unit } \\ \text { Fixed Costs (total) } &\$99000\\\end{array}$ Required: Calculate the following based on the above information: A What is the break-even paint in units? B. What is the break-even point in sales dollars? C. How many units need to be sold in order for the company to eann a target-profit of 4429 000? (ignore taxes)

Harrison Manufacturing Harrison Manufacturing has the following product information available: $\begin{array}{ll}\text { Sales price } & \$ 50 \text { per unit } \\\text { Variable costs } & \$ 26 \text { per unit } \\\text { Fixed costs } & \$ 87600\end{array}$ -What is the break-even point in units?

Bradford Products has the following product information available: $\begin{array} { l l } \text { Sales price } & \$ 25.00 \text { per unit } \\\text { Variable costs } & \$ 15.00 \text { per unit } \\\text { Fixed Costs (total) } & \$ 50000\end{array}$ Required: Answer each of the following independent questions. A. What is the contributidn margin per unit? B. What is the contribution margin ratio? C. How many units must be sold in order to break even? D. How many units must be sold in order to earn a target profit of \$400 000? (ignore taxes) E. Bradford is considering an advertising campaign that has a cost of 7 Dod The marketing department estimates that the campaign will increase sales by 1250 000. Should the company have the advertising campaign? Why ar why not? Show you calculations.

Hillary's Restaurant has the following information available regarding last year's operations: $\begin{array}{lr}\text { Sales }& \$ 900000 \\\text { Variable costs } &\underline{ 300000}\\\text { Contribution margin } &600000 \\\text { Fixed costs } & \underline{175000}\\\text { Net income } & \underline{ \$ 425000}\end{array}$ The company's operating leverage was:

Cameron Corp. Cameron Corp. has the following product information: $\begin{array} { l l } \text { Sales price } & \$ 20 \text { per unit } \\\text { Contribution margin ratio } & 35 \% \\\text { Fixed costs } & \$ 59500\end{array}$ -What is the break-even point in sales dollars?

Assuming a company has a positive contribution margin,which of the following changes will cause net income to increase?