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Exam 3: Analysis of Cost, volume, and Pricing to Increase Profitability

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Question 31

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Pierce Company's break-even point is 12,000 units.Its product sells for $25 and has a $10 variable cost per unit.What is the company's total fixed cost amount?

A) $250,000
B) $180,000
C) $120,000
D) Fixed costs cannot be computed with the information provided.

E) B) and C)
F) A) and B)

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Question 32

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Taylor Mayberry is sales manager for a specialty products company that has over 100 product lines.The company uses 25 vendors and competes with dozens of competitors.It has been the company's practice to match competitor prices on the products it sells.Describe a technique that will assist Taylor in assessing the impact of constantly changing purchase costs,selling prices,and volumes.

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The manager should employ the technique ...

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Question 33

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What happens to break-even point when the sales price per unit decreases?

On a cost-volume-profit graph,the total revenue line lies below the total cost line to the left of the break-even point.

Compare and contrast a cost-plus pricing strategy to a target pricing strategy.

One of the advantages of target costing is that it specifically considers the probable market price for the product.

The assumptions underlying cost-volume-profit analysis seldom are entirely valid.How does that affect the usefulness of the technique?

The accuracy of cost-volume-profit analysis is limited because it assumes a strictly linear relationship between the variables.

Which of the following software applications is most useful for performing cost-volume-profit sensitivity analysis?

Contribution margin cannot be calculated for a service-type business,and cost-volume-profit analysis is not applicable for a company that provides services rather than selling goods.

During the current year,Goldblum Co.sold 160,000 units of its product at a selling price of $40.The variable cost per unit was $30,and Goldblum reported net income for the year of $220,000.What was the amount of Goldblum's fixed costs for the year?

In order to perform cost-volume-profit analysis,a company must be able to identify its variable and fixed costs.

Company A makes and sells a single product.What happens to the break-even point when the variable cost per unit and selling price both decrease by the same amount?

At its $60 selling price,Atlantic Company has sales of $15,000,variable manufacturing costs of $4,000,fixed manufacturing costs of $1,000,variable selling and administrative costs of $2,000,and fixed selling and administrative costs of $1,000.What is the company's contribution margin per unit?

When sales price,fixed cost,variable cost,and production volume are changing simultaneously,the best approach to determining profitability is:

To get a feel for the impact on profits of various changes in costs and volume levels,management should perform:

Billings Company has developed the following budgeted income statement: $\begin{array}{lrr} \text {Sales Revenue (2,300 units \( \times \$ 14 \) sales price) } &\$32,200\\ \text { Total Variable Expenses (2,300 \( \$ 6 \) per unit) } &\underline{(13,800) }\\ \text { Contribution Margin} &18,400\\ \text {Fixed Expenses } &\underline{(10,000) }\\ \text {Net Income } &\underline{\$8,400}\\\end{array}$ The Company is experimenting with new engineering techniques and believes it can reduce variable cost to $4.50 per unit and significantly improve the product.The innovations would double fixed costs but the company expects to be able to increase sales to 3,500 units.If this strategy is pursued the company's budgeted net income will:

If you were drawing a cost-volume-profit graph for a company,what lines would you plot on the graph?

If a company experiences an increase in rent expense,the total cost line on the cost-volume-profit graph will:

Explain how to calculate contribution margin per unit.