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

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Question 41

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Bloom Company has variable cost per unit of $20 and a sales price of $35 per unit. Its total fixed costs are $240,000. Which of the following is a correct statement?

A) Company D's break-even point is 12,000 units.
B) If budgeted sales are 25,000 units, D's margin of safety is 10,000 units.
C) If Company D's variable cost per unit increases and nothing else changes, the margin of safety will decrease.
D) If Company D's variable cost per unit decreases and nothing else changes, the break-even point will stay the same.

E) A) and D)
F) None of the above

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Question 42

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What happens to the break-even point in sales dollars when the contribution margin ratio increases?

A) Break-even point increases.
B) Break-even point decreases.
C) Break-even point stays the same.
D) Not enough information to answer the question.

E) B) and C)
F) None of the above

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Question 43

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

Lush Lawn, Inc. produces and sells electric lawn trimmers for $120 each. The variable costs of each mower total $80 while total monthly fixed costs are $6,000. Current monthly sales are $48,000. The company is considering a proposal that will decrease the selling price by 10%, increase monthly fixed costs by 50% and increase unit sales to 450 units per month.Required: 1) Compute the company's current break-even point in units and dollars.2) What is the company's current margin of safety in units, dollars, and percentage? 3) Compute the company's margin of safety in units assuming the proposal is accepted.4) Compute the increase or decrease in profit assuming the proposal is accepted.

Bates Company currently produces and sells 4,000 units of a product that has a contribution margin of $5 per unit. The company sells the product for a sales price of $20 per unit. Fixed costs are $20,000. The company has recently invested in new technology and expects the variable cost per unit to fall to $12 per unit. The investment is expected to increase fixed costs by $15,000. After the new investment is made, how many units must be sold to break-even?

The following information is for a product of Lanier Company: Last year, the variable cost per unit was $25. Total fixed costs were $800,000. At a volume of 170,000 units, the company achieved a profit of $50,000.Required: What was the unit sales price for the product last year?

Ecco Company has total fixed costs of $5,000, sells a product whose contribution margin is $50 and selling price per unit is $125, and has current sales of $15,000. The company's margin of safety ratio is 20%.

Company A has break-even sales of 90,000 units and budgeted sales of 99,000 units. What is the margin of safety as expressed as a percentage?

Larimore Company sales are $560,000. The company has variable costs equal to 40% of sales and total fixed costs of $150,000.Required: 1) What is the company's break-even point in sales dollars? 2) Compute the company's operating leverage at its current sales level.3) Compute the percentage change in income that will accompany a 10% increase in sales.4) Compute the company's net income and operating leverage (rounded to one decimal place) if sales increase by 10%.5) Describe the effect on operating leverage as a company's sales increase and it moves further beyond its break-even point.

Jarvis Company produces a product that has a selling price of $20.00 and a variable cost of $15.00 per unit. The company's fixed costs are $50,000. What is the break-even point measured in sales dollars?

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

The records of Gemini Company show a contribution margin ratio of 40%. The company desires to earn a profit of $35,000 and has fixed costs of $70,000. What sales revenue would have to be generated in order to earn the desired profit?

Can cost-volume-profit analysis be useful for a company that sells more than one product? If so, how? If not, why not?

Company A makes and sells a single product, unless otherwise indicated. What happens to the break-even point when the variable cost per unit decreases? Answer Answers will vary The break-even point decreases.

If a company changes from a labor-intensive system that incurs significant hourly wage cost to an automated system that increases fixed cost, the total cost line on the company's cost-volume-profit graph will shift up and have a steeper slope.

Lex Company produces products that it sells for $10 each. Variable costs per unit are $4, and annual fixed costs are $120,000.Required: Use the equation method to determine the break-even point in units and dollars.

Goff Corporation sells products for $75 each that have variable costs of $50 per unit. Goff's fixed cost is $350,000.Required: Calculate the contribution margin per unit, then use the per unit contribution margin approach to find the break-even point in units and dollars.

What is prestige pricing? Under what circumstances should a company consider using prestige pricing?

During the current year, Fairview Corporation sold 100,000 units of its product for $20 each. The variable cost per unit was $14, and Fairview's margin of safety was 40,000 units. What was the amount of Fairview's total fixed costs?

What does the margin of safety measure?