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Exam 21: Cost-Volume-Profit Analysis

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Question 31

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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 income statements and compute degree of operating leverage to assess the alternatives. $\begin{array} { l | l | l } & \text { Alternative\#1 } & \text { Alternative \#2 } \\\hline \text { Variable costs per unit } & \$ 8 & \$ 12 \\\hline \text { Fixed costs } & \$ 240,000 & \$ 140,000 \\\hline \text { Selling price per unit } & \$ 20 & \$ 20\end{array}$

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Alternative 1 provides the higher incom...

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Question 32

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Managers can use variable costing information for internal decision making, but they must use absorption costing for external reporting purposes.

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Question 33

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Kent Manufacturing produces a product that sells for $50.00 and has variable costs of $24.00 per unit. Fixed costs are $260,000. Kent can buy a new production machine that will increase fixed costs by $11,400 per year, but will decrease variable costs by $3.50 per unit. - Compute the revised break-even point in units if the new machine is purchased.

Curvilinear costs increase as volume of activity increases, but at a nonconstant rate.

One aid in measuring cost behavior involves creating a display of the data about past costs in graphical form. Such a visual display is called a __ .

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

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

While the total amount of variable cost changes with the level of production, variable cost per unit remains constant as volume changes.

A company's product sells at $12 per unit and has a $5 per unit variable cost. The company's total fixed costs are $98,000. The break-even point in units is:

A company manufactures and sells a product for $120 per unit. The company's fixed costs are $68,760, and its variable costs are $90 per unit. -The company's break-even point in dollars is:

A company has fixed costs of $270,000, a unit contribution margin of $14, and a contribution margin ratio of 55%. If the firm wants to earn a target $60,000 pretax income, what amount of sales must the company make (rounded to the nearest whole dollar) ?

Barclay Enterprises manufactures and sells three distinct styles of bicycles: the Youth model sells for $300 and has a unit contribution margin of $105; the Adult model sells for $850 and has a unit contribution margin of $450; and the Recreational model sells for $1,000 and has a unit contribution margin of $500. - The company's sales mix includes: 5 Youth models; 9 Adult models; and 6 Recreational models. If the firm's annual fixed costs total $6,500,000, calculate the firm's contribution margin per composite unit.

Kent Manufacturing produces a product that sells for $50.00. Fixed costs are $260,000 and variable costs are $24.00 per unit. Kent can buy a new production machine that will increase fixed costs by $11,400 per year, but will decrease variable costs by $3.50 per unit. -Compute the revised break-even point in dollars with the purchase of the new machine.

The following information is available for Alba Company's maintenance cost over the last four months. $\begin{array} { | l | l | l | } \hline \text { Month } & \begin{array} { l } \text { Maintenance } \\\text { hours }\end{array} & \begin{array} { l } \text { Maintenance } \\\text { cost }\end{array} \\\hline \text { January } & 150 & \$ 6,000 \\\hline \text { February } & 120 & \$ 5,100 \\\hline \text { March } & 240 & \$ 8,100 \\\hline \text { April } & 210 & \$ 6,900 \\\hline\end{array}$ Use the high-low method to estimate both the fixed and variable component of its maintenance cost.

The following information is available for a company's utility cost for operating its machines over the last four months. $\begin{array} { | l | r | r | } \hline \text { Month } & \text { Machine hours } & \text { Utility cost } \\\hline \text { January } & 900 & \$ 5,450 \\\hline \text { February } & 1,800 & \$ 6,900 \\\hline \text { March } & 2,400 & \$ 8,100 \\\hline \text { April } & 600 & \$ 3,600 \\\hline\end{array}$ - Using the high-low method, the estimated variable cost per unit for utilities is:

Raven Company has a target of earning $70,000 pre-tax income. The contribution margin ratio is 30%. What amount of dollar sales must be achieved to reach the goal if fixed costs are $36,000?

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

A product is sold for $45 and has variable costs of $33 per unit. The total fixed costs for the firm are $180,600. If the firm desires to earn a pretax income of $77,400, how many units must be sold?

A step-wise variable cost can be separated into a fixed component and a variable component.

A company has fixed costs of $90,000. Its contribution margin ratio is 30% and the product sells for $75 per unit. What is the company's break-even point in dollar sales?