104. Camden Corporation sells three products (M, N, and O) in the following mix: 3:1:2. Unit
price and cost data are:
M
N
O
Unit sales price ………………………………
$7
$4
$6
Unit variable costs …………………………
3
2
3
Total fixed costs are $340,000. The break-even point in sales dollars for the current sales mix
is (round to the nearest thousand):
A. $ 20,000.
B. $289,000.
C. $400,000.
D. $629,000.
E. $740,000.
21–42
105. Wayward 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 break-even point in sales dollars.
A. $13,250,000.
B. $13,000,000.
C. $12,750,000.
D. $12,900,050.
E. $12,750,625.
106. Winthrop Manufacturing produces a product that sells for $50.00. Fixed costs are
$260,000 and variable costs are $24.00 per unit. Winthrop 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 contribution margin per unit if the machine is purchased.
A. $22.50.
B. $26.00.
C. $29.50.
D. $28.50.
E. $27.50.
107. Winthrop Manufacturing produces a product that sells for $50.00. Fixed costs are
$260,000 and variable costs are $24.00 per unit. Winthrop 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 break-even point in units if the new machine is purchased.
A. 10,438 units.
B. 8,814 units.
C. 10,000 units.
D. 9,200 units.
E. 9,869 units.
108. Winthrop Manufacturing produces a product that sells for $50.00. Fixed costs are
$260,000 and variable costs are $24.00 per unit. Winthrop 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. What effect would the purchase of the new machine have on Winthrop’s break-even
point in units?
A. 800 unit increase.
B. 800 unit decrease.
C. 5,714 unit increase.
D. 4,444 unit decrease.
E. No effect on the break-even point in units.
109. Winthrop Manufacturing produces a product that sells for $50.00. Fixed costs are
$260,000 and variable costs are $24.00 per unit. Winthrop 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 break-even point in dollars with the purchase of the new machine.
A. $500,000.
B. $440,678.
C. $521,923.
D. $480,000.
E. $460,000.
110. Baines Brothers manufactures and sells two products, A and Z in the ratio of 4:2. Product
A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs
are $418,500. Compute the contribution margin per composite unit.
A. $270.
B. $240.
C. $300.
D. $330.
E. $285.
111. Baines Brothers manufactures and sells two products, A and Z in the ratio of 4:2. Product
A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs
are $418,500. Compute the break-even point in composite units.
A. 1,748.
B. 1,468.
C. 1,550.
D. 1,395.
E. 1,270.
112. Baines Brothers manufactures and sells two products, A and Z in the ratio of 4:2. Product
A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs
are $418,500. Compute the number of units of Product A Baines must sell to break even.
A. 5,080.
B. 6,200.
C. 5,580.
D. 3,100.
E. 9,300.
113. Baines Brothers manufactures and sells two products, A and Z in the ratio of 4:2. Product
A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs
are $418,500. Compute the number of units of Product Z Baines must sell to break even.
A. 5,080.
B. 6,200.
C. 2,540.
D. 3,100.
E. 2,790.
114. Dunkin Company manufactures and sells a single product that sells for $480 per unit;
variable costs are $300. Annual fixed costs are $990,000. Current sales volume is $4,200,000.
Compute the contribution margin per unit.
A. $480.
B. $300.
C. $200.
D. $190.
E. $180.
115. Dunkin Company manufactures and sells a single product that sells for $480 per unit;
variable costs are $300. Annual fixed costs are $990,000. Current sales volume is $4,200,000.
Compute the contribution margin ratio.
A. 37.5%.
B. 62.5%.
C. 55.0%.
D. 50.0%.
E. 47.5%.
116. Dunkin Company manufactures and sells a single product that sells for $480 per unit;
variable costs are $300. Annual fixed costs are $990,000. Current sales volume is $4,200,000.
Compute the break-even point in units.
A. 3,750.
B. 10,000.
C. 5,500.
D. 3,300.
E. 6,000.
117. Dunkin Company manufactures and sells a single product that sells for $480 per unit;
variable costs are $300. Annual fixed costs are $990,000. Current sales volume is $4,200,000.
Compute the break-even point in dollars.
A. $2,790,000.
B. $2,640,000.
C. $2,880,000.
D. $2,475,000.
E. $2,500,000.
118. Dunkin Company manufactures and sells a single product that sells for $480 per unit;
variable costs are $300. Annual fixed costs are $990,000. Current sales volume is $4,200,000.
Dunkin company management targets an annual after-tax income of $843,750. The company
is subject to a 25% income tax rate. Compute the unit sales to earn the target after-tax net
income.
A. 12,000.
B. 10,188.
C. 6,672.
D. 11,750.
E. 14,688.
119. Dunkin Company manufactures and sells a single product that sells for $480 per unit;
variable costs are $300. Annual fixed costs are $990,000. Current sales volume is $4,200,000.
Dunkin company management targets an annual after-tax income of $843,750. The company
is subject to a 25% income tax rate. Compute the dollar sales to earn the target after-tax net
income.
A. $4,890,000.
B. $5,640,000.
C. $4,327,500.
D. $5,043,750.
E. $5,050,000.
21–50
120. Dunkin Company manufactures and sells a single product that sells for $480 per unit;
variable costs are $300. Annual fixed costs are $990,000. Current sales volume is $4,200,000.
Compute the current margin of safety in dollars for Dunkin Company.
A. $3,210,000.
B. $2,640,000.
C. $1,560,000.
D. $2,440,000.
E. $3,500,000.
121. Shown below are terms or phrases preceded by letters a through j followed by a list of
definitions. Match the terms or phrases 1 through 10 with the correct definitions by placing
the letter of the term or phrase in the answer space provided at the beginning of each
definition.
21–51
(a) Contribution margin per unit
(b) Fixed cost
(c) Mixed cost
(d) Curvilinear cost
(e) Variable cost
(f) Step-wise cost
(g) Relevant range of operations
(h) Estimated line of cost behavior
(i) Least-squares regression
(j) Cost-volume-profit analysis
__________(1) The amount that the sale of one unit contributes toward recovering fixed costs
and earning profit.
__________(2) A cost that changes in proportion to changes in volume of activity.
__________(3) A cost that includes both fixed and variable costs.
__________(4) A cost that changes with volume, but not at a constant rate.
__________(5) A line drawn on a graph to fit the past relation between cost and sales.
__________(6) A statistical method for deriving an estimated line of cost behavior that is
more precise than the high-low method and a scatter diagram.
__________(7) A company’s normal operating range; excludes extremely high and low
volumes that are not likely to be encountered.
__________(8) A cost that remains constant over limited ranges of volumes of activity but
changes by a lump sum when volume changes occur outside these limited ranges.
__________(9) Useful in business planning; includes predicting the volume of activity, the
costs incurred, sales earned, and profits received.
__________(10) A cost that remains unchanged in total amount even when the volume of
activity varies.
122. Define variable cost, fixed cost, and mixed cost.
123. What are the basic assumptions of CVP analysis with regard to variable cost, fixed cost,
and selling price per unit? (Assume a single product).
124. 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.
125. Discuss how CVP analysis can be useful in planning.
126. What is an important feature that must be remembered when using cost identifying and
behavior methods?
127. What are the unit contribution margin and the contribution margin ratio? What do these
measures reveal about a company’s cost structure?
21–59
128. What is operating leverage? How can the degree of operating leverage be used in
analyzing changes in sales?
129. What is a scatter diagram? How is a scatter diagram used to estimate cost behavior?
130. What is the high-low method? Briefly describe how it is applied.
131. Define the break-even point of a company.
21–60
132. Briefly describe a CVP chart, including its major components.
133. Describe how a cost-volume-profit analysis would be performed for a company that sells
more than one product. (Assume that the sales mix is known.)
Problems
134. A company has a goal of earning $100,000 in after-tax income. The company must pay
$28,000 in income tax if it achieves the goal. The contribution margin ratio is 30%. What
dollar amount of sales must be achieved to reach the goal if fixed costs are $64,000?
135. A company has total fixed costs of $200,000. Its product sells for $25 per unit and
variable costs amount to $15 per unit. The company wishes to earn an after-tax income of
$35,000. Assume that the company has a 30% tax rate. How many units must be sold to
achieve this after-tax income level?
136. Davison Company has fixed costs of $315,000 and a contribution margin ratio of 24%. If
sales are expected to be $1,500,000, what is the percentage of the margin of safety?
137. Hiller Co. anticipates total fixed costs of $120,000 and variable costs equal to 40% of
sales. What is the pretax income if sales are $650,000?
138. Legacy Company is considering the production and sale of a new product with the
following sales and cost data: unit sales price $18; unit variable costs $8.10; and total fixed
costs of $8,250. Legacy is subject to a 25% tax rate. Determine the dollar sales needed to
generate an after-tax income of $33,000.
139. Boston Co. is considering the production and sale of a new product with the following
sales and cost data: unit sales price, $300; unit variable costs, $180; total fixed costs,
$270,000; and projected sales, $900,000. What is the margin of safety:
(a) In dollar sales? And (b) As a percent of sales?
140. Herriot Co. has total fixed costs of $180,000 and a contribution margin ratio of 40%.
Assume that an additional advertising expenditure of $4,000 would increase sales by $8,000.
Should the company spend this additional amount on advertising? (Support your answer with
calculations.)
141. Rudy Co. has total fixed costs of $520,000. A unit of product sells for $15 and variable
costs per unit are $11.
a) Prepare a contribution margin income statement showing predicted net income (loss) if
Rudy Co. sells 100,000 units for the year ended December 31.
b) At a minimum, how many units must Rudy Co. sell in order not to incur a loss?
142. Thomas Company has total fixed costs of $360,000 and variable costs of $14 per unit. If
the unit sales price is reduced from $24 to $20 and advertising is increased by $10,000, sales
will increase from 40,000 to 65,000 units. Should Thomas reduce its per unit sales price and
pay for the additional advertising? (Support your answer with calculations.)
143. The following data relate to a product sold by Nelson Company:
Total Variable costs ………………………………………………. $90,000
Total fixed costs …………………………………………………….. 27,000
Predicted after-tax income (30% tax) ………………………… 12,600
Contribution margin per unit ……………………………………. 5
(a) Calculate the number of units expected to be sold.
(b) Calculate the expected total dollar sales.
144. 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?