224) The following information describes a product expected to be produced and sold by Garr
Company:
Selling price……………………………………… $80 per unit
Variable costs…………………………………… $32 per unit
Total fixed costs………………………………… $630,000
Required:
(a) Calculate the contribution margin ratio.
(b) Calculate the break-even point in dollar sales.
(c) What dollar amount of sales would be necessary to achieve a pretax income of $120,000?
225) Identify items a, b, and c in the cost-volume-profit graph shown below.
226) The sales mix of Desert Springs Company is 5 units of A, 3 units of B, and 1 unit of C. Per
unit sales prices for each product are $30, $40, and $50, respectively. Variable costs per unit are
$14, $24, and $34, respectively. Fixed costs are $597,600. What is the break-even point in
composite units and in units of A, B, and C?
227) A firm sells two different products, A and B. For each unit of B sold, the firm sells two
units of A. Total fixed costs $1,260,000. Additional selling prices and cost information for both
products follow:
Product
Selling
Price per unit
Variable
Costs per unit
A…….
$72
$40
B…….
48
28
Required:
(a) Calculate the contribution margin per composite unit.
(b) Calculate the break-even point in units of each individual product.
(c) If pretax income before taxes of $294,000 is desired, how many units of A and B must be
sold?
2 units of A at ($72 – 40) contribution margin per unit…………
$64
1 unit of B at ($48 – 28) contribution margin per unit…………
20
$84
(b) Break-even point in composite units
= $1,260,000/$84
228) Benjamin Co. has three products A, B, and C, and its fixed costs are $69,000. The sales mix
for its products are 3 units of A, 4 units of B, and 1 unit of C. Information about the three
products follows:
A
B
C
Projected sales in dollars…………
$192,000
$192,000
$64,000
Selling price per unit………………
$40
$30
$40
Contribution margin ratio…………
30%
35%
35%
(a) Calculate the company’s break-even point in composite units and sales dollars.
(b) Calculate the number of units of each individual product to be sold at the break-even point.
42
14
Contribution margin of composite unit………………
229) Varigon Co. produces and sells three products–Household, Commercial, and Industrial, and
has total fixed costs of $52,000. Sales and cost data follow:
Household Commercial Industrial
Sales price per unit……………… $6 $8 $10
Variable costs per unit…………… 4 6 7
Sales mix……………..………… 3 2 1
Calculate the break-even point in composite units.
230) Whiting Company sells a mix of three related products. Total fixed costs are $144,000. The
following additional information is available for Whiting Company.
Sales Mix
Variable
Cost/Unit
Sales
Price/Unit
X
4
$4
$9
Y
4
$8
$14
Z
2
$7
$15
Determine the company’s break-even point in composite units.
125
231) Preston Company is analyzing two alternative methods of producing its product. The
production manager indicates that variable costs can be reduced 40% by installing a machine that
automates production, but fixed costs would increase. Alternative 1 shows costs before installing
the machine; Alternative 2 shows costs after the machine is installed. (a) Compute the break-
even point in units and dollars for both alternatives. (b) Prepare a forecasted income statement
for both alternatives assuming that 30,000 units will be sold. The statements should report sales,
total variable costs, contribution margin, fixed costs, income before taxes, income taxes, and net
income. Below the income statement, compute the degree of operating leverage. Which
alternative would you recommend and why?
Alternative 1
Alternative 2
Variable costs per unit…………………
$20
?
Fixed costs……………………………
$200,000
$274,400
Selling price per unit…………………
$40
$40
Income tax rate…………………………
25%
25%
232) Magnolia Company is considering the production and sale of a new product with the
following sales and cost data: unit sales price, $350; unit variable costs, $180; total fixed costs,
$399,500; and projected sales, $910,000. Round your answers to the nearest whole unit or dollar.
(a) Calculate break-even in units.
(b) Calculate break-even in dollars (use four decimal places when calculating the contribution
margin ratio).
(c) Calculate number of units that would need to be sold to generate an after-tax profit of
$420,000 assuming a 30% tax rate.
(d) Calculate dollar sales that would be needed to generate the same profit as above.
(e) Calculate the margin of safety stated as a percentage using the $910,000 projected sales level.
Be sure to label each calculation and show all calculations.
128
233) Dubashi Windows manufactures two standard size windows, J and R, in the ratio of 5:3. J
has a selling price of $150 per unit and R has a selling price of $200 per unit. The variable cost
of J is $75.00 and the variable cost of R is $90.00. Fixed costs are $352,500. Compute the (a)
contribution margin per composite unit, (b) break-even point in composite units, (c) number of
units of each product that will be sold at the break-even point.
234) Bing 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.
Bing Company
Contribution Margin Income Statement
Sales
$225,000
Variable costs
135,000
Contribution margin
90,000
Fixed costs
48,000
Net income
$42,000
235) A ________ cost is one that remains unchanged despite variations in the volume of activity
within a relevant range. A ________ cost is one that changes in proportion to changes in volume
of activity.
236) A ________ cost is one that includes both fixed and variable cost components; a ________
cost is one that reflects a step pattern.
237) Three important assumptions in cost-volume-profit analysis are that (1) ________ per unit
is constant, (2) ________ per unit is constant, and (3) ________ are constant in total.
238) Solving problems to determine the relationship of cost, volume, and profit often starts with
measuring the ________ point. Further analysis emphasizing profitability may be accomplished
by measuring the ________ and ________.
239) Three methods to separate costs into fixed and variable are the ________, ________, and
________ methods.
240) The unit contribution margin divided by the selling price per unit is the ________.
241) The difference between the unit sales price and the unit variable cost of an item is defined
as the ________.
242) Examining strategies that impact several estimates in the CVP analysis is known as
________.
243) 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 ________.
244) When using the high-low method for estimating cost behavior, the slope, or variable cost
per unit, is calculated by ________.
245) ________ is a statistical method of identifying an estimated line of cost behavior.
246) The ________ is the sales level at which a company neither earns a profit nor incurs a loss.
247) A graphic presentation of cost-volume-profit data is known as a ________ graph (or chart);
this presentation is also sometimes called a ________ chart.
248) The ratio (proportion) of the sales volumes of the various products sold by a company is
called the ________.