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Exam 21: Cost-Volume-Profit Analysis

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Question 81

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

A) Units are plotted on the horizontal axis; costs on the vertical axis.
B) Units are plotted on the vertical axis; costs on the horizontal axis.
C) Both units and costs are plotted on the horizontal axis.
D) Both units and cost are plotted on the vertical axis.
E) Data points always represent expected future points.

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

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Question 82

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Cost-volume-profit analysis provides approximate,but not precise,answers to questions about costs,volumes,and profits.

A) True
B) False

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Question 83

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Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are $300.Annual fixed costs are $990,000.Current sales volume is $4,200,000.Dunkin company management targets an annual after-tax income of $843,750.The company is subject to a 25% income tax rate.Compute the unit sales to earn the target after-tax net income.

Discuss how CVP analysis can be useful in planning.

Total contribution margin in dollars divided by pretax income is the:

Boston 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 company has a goal of earning $100,000 in after-tax income.The company must pay $28,000 in income tax if it achieves the goal.The contribution margin ratio is 30%.What dollar amount of sales must be achieved to reach the goal if fixed costs are $64,000?

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

_____________ is a statistical method of identifying an estimated line of cost behavior.

Legacy Company is considering the production and sale of a new product with the following sales and cost data: unit sales price $18; unit variable costs $8.10; and total fixed costs of $8,250.Legacy is subject to a 25% tax rate.Determine the dollar sales needed to generate an after-tax income of $33,000.

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

Cost-volume-profit analysis cannot be used when a firm produces and sells more than one product.

Total variable costs change proportionately with changes in output activity.

Cost-volume-profit analysis can be used to predict the effects of reduced selling prices,increased fixed costs,and reduced variable costs on break-even points.

Hess Co.manufactures a product that sells for $12 per unit.Total fixed costs are $96,000 and variable costs are $7 per unit.Hess can buy a newer production machine that will increase total fixed costs by $22,800 but variable costs will be decreased by $0.40 per unit.What effect would the purchase of the new machine have on Hess's break-even point in units?

Which of the following is the correct interpretation of a degree of operating leverage of 5?

Brown Company's contribution margin ratio is 24%.Total fixed costs are $84,000.What is Brown's break-even point in sales dollars?

A term describing a firm's normal range of operating activities is:

Dividing a mixed cost into its separate fixed and variable cost components makes it more difficult to perform cost-volume-profit analysis.

A graphic presentation of cost-volume-profit data is known as a __________________ graph (or chart); this presentation is also sometimes called a ______________ chart.