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Exam 22: Cost-Volume-Profit Analysis

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Question 81

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An important tool in predicting the volume of activity, the costs to be incurred, the sales to be earned, and the profit to be received is:

A) Target income analysis.
B) Cost-volume-profit analysis.
C) Least-squares regression of costs.
D) Variance analysis.
E) Process costing.

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

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Question 82

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The Haskins Company manufactures and sells radios. Each radio sells for $23.75 and the variable cost per unit is $16.25. Haskin's total fixed costs are $25,000, and budgeted sales are 8,000 units. What is the contribution margin per unit?

A) $7.50.
B) $16.25.
C) $23.75.
D) $60,000.
E) $1.25.

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

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Question 83

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A CVP graph presents data on:

The excess of expected sales over the sales level at the break-even point is known as the:

Total variable costs change proportionately with changes in output activity.

Bristol Company's contribution margin income statement is presented below. Sales for the current period consisted of 7,500 units. Compute the company's break-even point in (a) units, and (b) dollars. Compute the margin of safety in (c) dollars and (d) percent.

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

Define the break-even point of a company.

Kelley Company and Mason Company each have sales of $200,000 and costs of $140,000. Kelley Company's costs consist of $40,000 fixed and $100,000 variable, while Mason Company's costs consist of $100,000 fixed and $40,000 variable. Which company will suffer the greatest decline in profits if sales volume declines by 15%? Prepare income statements and compute degree of operating leverage to assess.

Describe what happens to the net income of a company under each of the following assumptions: (a) Sales volume is less than break-even sales. (b) Sales volume is greater than break-even sales. (c) Sales volume is equal to the break-even point.

Outback Products reports the following information: Required: (a) Calculate Outback Products' degree of operating leverage (DOL). (b) Outback Products forecasts a 6% increase in sales. What is the expected effect in percent on pretax income?

The margin of safety is the excess of:

Wilson Co. is preparing next period's forecasts. Total fixed costs are expected to be $300,000 and the contribution margin ratio is expected to be 30%. The applicable income tax rate is 25%. (a) Calculate the company's break-even point in dollar sales. (b) If sales are $1,800,000 above the break-even point, what will income be (i) pretax income and (ii) after-tax income?

The following information describes a product expected to be produced and sold by Pepin Corporation: Required: (a) Calculate the contribution margin per unit. (b) Calculate the break-even point in units.

Cost-volume-profit analysis is frequently based on the assumption that the production level is the same as the sales level.

The relevant range of operations includes extremely high and low levels of production that are unlikely to occur.

Cost-volume-profit analysis is a precise tool for perfectly predicting the profit consequences of cost changes, price changes, and volume changes.

Narrows 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 $75; and total fixed costs of $140,000. Calculate the break-even point: (a) In units. (b) In dollar sales.

The high-low method can be used to derive an estimated line of cost behavior.

The difference between sales price per unit and variable cost per unit is the: