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Exam 4: Costvolumeprofit Analysis: a Managerial Planning Tool

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Question 31

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What is the formula to calculate operating income?

A) (price × units sold) − (unit variable cost × units sold) − fixed cost
B) (price × units sold) + (unit variable cost × units sold) + fixed cost
C) (price + units sold) − (unit variable cost + units sold) − fixed cost
D) (price − units sold) + (unit variable cost − units sold) + fixed cost

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Question 32

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Match each item with the correct statement below. -The use of fixed costs to extract higher percentage changes in profits as sales activity changes

A) Break-even point
B) Common fixed expenses
C) Contribution margin
D) Direct fixed expenses
E) Margin of safety
F) Operating leverage
G) Degree of operating leverage
H) Sales mix

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Question 33

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Miss She makes dolls.The price of a doll is $15,and the variable expense is $7 per doll.What is the contribution margin ratio?

$\begin{array}{lr}\text { Direct materials } & \$ 1.50 \\\text { Direct labour } & 1.20 \\\text { Variable overhead } & 0.90 \\\text { Variable marketing expense } & 0.40\end{array}$ -Refer to the Figure.What is the variable cost ratio?

What is total contribution margin divided by sales revenue?

What is the break-even point?

$\begin{array}{lr}\text { Direct materials } & \$ 1.50 \\\text { Direct labour } & 1.20 \\\text { Variable overhead } & 0.90 \\\text { Variable marketing expense } & 0.40\end{array}$ -Refer to the Figure.What is the contribution margin ratio?

The HandyTool Manufacturing Company produces the following three products: $\begin{array} { l r r r } & \text { Hammers } & \text { Screwdrivers } & \text { Saws } \\\text { Selling price per unit } & \$ 40 & \$ 16 & \$ 50 \\\text { Variable costs per unit } & 28 & 12 & 30 \\\text { Contribution per unit } & \$ 12 & \$ 4 & \$ 20\end{array}$ Fixed costs are $76,000 per year. Of all units sold,50% are hammers,30% are screwdrivers,and 20% are saws. Required: Calculate the following values: A. $\quad$ Break-even point in total units B. $\quad$ Number of hammers that will be sold at break-even C. $\quad$ Total sales in units to obtain a before-tax profit of $\$ 19,000$

What is the result when actual sales equal break-even sales?

Refer to the Figure.How many deluxe models are sold at break-even?

What formula is used to calculate the degree of operating leverage?

McKenzie Company expects to produce and sell 1000 units next month.Data on costs follows: $\begin{array}{lc}\text { Per unit costs: } & \\\text { Selling price } & \$ 8 \\\text { Variable manufacturing costs } & \$ 2.75 \\\text { Variable selling costs } & \$ 0.25\\\\\text { Total costs: }\\\text { Fixed manufacturing costs }&\$1,000\\\text { Fixed selling costs }&\$125\end{array}$ A. What is the break-even point in units? B. What is the break-even point in sales dollars? C. What is the expected operating income for next month? D. What is the margin of safety in dollars? E. What is the break-even point in units if fixed manufacturing costs increase by $\$ 500$ ? F. What is the break-even point in units if variable manufacturing costs decrease by $\$ 0.75$ ?

To find the number of units to sell to earn a targeted income,it is quicker to simply adjust the break-even units equation by adding target income to the variable cost.

$\begin{array}{lr}\text { Sales } & \$ 540,000 \\\text { Variable costs } & \$ 378,000 \\\text { Fixed costs } & \$ 120,000 \\\text { Expected production and sales in units } & 40,000\end{array}$ -Refer to the Figure.What is the break-even point in sales dollars?

Match each item with the correct statement below. -Fixed costs that are directly traceable to a given segment and,consequently,disappear if the segment is eliminated

Assume the following information: $\begin{array}{lr}\text { Selling price per unit } & \$ 100 \\\text { Contribution margin ratio } & 50 \% \\\text { Total fixed costs } & \$ 250,000\end{array}$ How many units must be sold to generate a before-tax profit of $45,000?

$\begin{array}{lr}\text { Selling price per unit } & \$ 80 \\\text { Variable cost per unit } & \$ 60 \\\text { Total fixed costs } & \$ 400,000\end{array}$ -Refer to the Figure.What is the break-even point in units?

Information about the K-9 Salon's two products is as follows: Suppose the sales mix in units is 70% Product X and 30% Product Y.What total monthly sales volume in units is required to break even?

By what amount can sales decline before losses are incurred?

Smart Inc.expects to produce and sell 4,000 units next month.Data on costs follows: $\begin{array}{ll}\text { Per unit costs: } & \\\text { Selling price } & \$ 80 \\\text { Variable manufacturing costs } & \$ 20 \\\text { Variable selling costs } & \$ 12\\\\\text { Total costs: }\\\text { Fixed manufacturing costs } & \$ 32,000 \\\text { Fixed selling costs } & \$ 16,000\end{array}$ A. What is the variable cost per unit? B. What is contribution margin per unit? C. What is the variable cost ratio? D. What is the contribution margin ratio?