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Exam 5: Cost Behavior and Cost-Volume-Profit Analysis

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Question 71

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Management anticipates fixed costs of $72,500 and variable costs equal to 40% of sales. What will pretax income equal if sales are $325,000?

A) $57,500.
B) $122,500.
C) $130,000.
D) $181,250.
E) $252,500.

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

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Question 72

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The relevant range of operations is a range of volume neither close to zero nor at maximum capacity.

A) True
B) False

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Question 73

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During its most recent fiscal year, Dover, Inc. had total sales of $3,200,000. Contribution margin amounted to $1,500,000 and pretax income was $400,000. What amount should have been reported as fixed costs in the company's contribution margin income statement for the year?

Use the following information to determine the break-even point in units (rounded to the nearest whole unit) :

Wang Co. manufactures and sells a single product that sells for $450 per unit; variable costs are $270 per unit. Annual fixed costs are $800,000. Current sales volume is $4,200,000. Management targets an annual pre-tax income of $1,125,000. Compute the unit sales to earn the target pre-tax net income.

Expanse Co. is considering the production and sale of a new product line with the following sales and cost data: unit sales price $125; unit variable costs $50; and total fixed costs of $150,000. Calculate the break-even point in units and in dollar sales.

Describe how a cost-volume-profit analysis would be performed for a company that sells more than one product when the sales mix is known.

An important assumption in multiproduct CVP analysis is a constant sales mix.

A company is looking into two alternative methods of producing its product. The following information about the two alternatives is available. If the company's expected sales volume is 35,000 units, which alternative should be selected?Prepare forecasted contribution margin income statements and compute the degree of operating leverage to assess the alternatives.

Philadelphia Co. is considering the production and sale of a new product with the following sales and cost data: unit sales price, $300; unit variable costs, $180; total fixed costs, $270,000; and projected sales, $900,000. What is the margin of safety: (a) In dollar sales? And (b) As a percent of sales?

A manufacturer reports the following costs to produce 10,000 units in its first year of operations: Direct materials, $10 per unit, Direct labor, $6 per unit, Variable overhead, $70,000, and Fixed overhead, $120,000. Of the 10,000 units produced, 9,200 were sold, and 800 remain in inventory at year-end. Under variable costing, the value of the inventory is:

Henderson Co. has fixed costs of $36,000 and a contribution margin ratio of 24%. If expected sales are $200,000, what is the margin of safety as a percent of sales?

A graphic depiction of the break-even point is known as a cost-volume-profit (CVP) chart.

Total variable costs change in proportion to changes in volume of activity.

If a firm's forecasted sales are $250,000 and its break-even sales are $190,000, the margin of safety in dollars is:

A cost that changes as volume changes, but at a nonconstant rate, is called a:

A company manufactures a product and sells it for $120 per unit. The total fixed costs of manufacturing and selling the product are expected to be $155,250, and the variable costs are expected to be $75 per unit. What is the company's break-even point in (a) units and (b) dollar sales?

Wang Co. manufactures and sells a single product that sells for $450 per unit; variable costs are $270 per unit. Annual fixed costs are $800,000. Current sales volume is $4,200,000. Compute the current margin of safety in dollars.

Madison Corporation sells three products (M, N, and O) in the following mix: 3:1:2. Unit price and cost data are: Total fixed costs are $340,000. The selling price per composite unit for the current sales mix (rounded to the nearest cent) is:

Clockworks Co. reports the following data for the current year: Units sold………………………………………… 1,200 Unit sales price…………………………………… $30 Unit variable cost………………………………… $10 Total fixed cost…………………………………… $18,000 Required: (a) Calculate Clockworks' pretax income. (b) Calculate Clockworks' degree of operating leverage.