89. The following diagram is a cost-volume-profit graph for a manufacturing company:
The difference between line AB and line AC (area BAC) is the
90. The following diagram is a cost-volume-profit graph for a manufacturing company:
The formula to determine the Y-axis value ($) at point D on the graph is
91. When a company sells more units than the break-even point,
92. In a cost-volume-profit graph, the slope of the total cost line represents
93. On a profit-volume graph, the intersection of the profit line with the vertical axis provides a
94. A profit-volume graph
95. In a profit-volume graph, the slope of the profit line represents
96. Cost-volume-profit models assume that
97. Which of the following assumptions does NOT pertain to cost-profit-volume analysis?
98. Which of the following assumptions does NOT pertain to cost-volume-profit analysis?
99. Which of the following assumptions is NOT necessary for cost-volume-profit analysis?
100. Assuming all other things are the same, if there was a decrease in the break-even point, selling price per
unit must have:
101. Assuming all other things are equal, if there was a decrease in the break-even point, fixed costs must have:
102. The income statement for Symbiosis Manufacturing Company for 2014 is as follows:
Sales (10,000 units)
$120,000
Variable expenses
72,000
Contribution margin
$ 48,000
Fixed expenses
36,000
Operating income
$ 12,000
If sales increase by 1,000 units, what will happen to profit?
103. The income statement for Symbiosis Manufacturing Company for 2014 is as follows:
Sales (10,000 units)
$120,000
Variable expenses
72,000
Contribution margin
$ 48,000
Fixed expenses
36,000
Operating income
$ 12,000
If sales increase by $60,000, what will happen to profit?
104. Using cost-volume-profit analysis, we can conclude that a 20 percent reduction in variable costs will
105. Assuming all other things are the same, if there was an increase in the break-even point variable cost per
unit must have:
106. A decrease in the sales price in the basic cost-volume-profit model would
107. The DesMaris Company had the following income statement for the month of November 2014:
DesMaris Company
Income Statement
For the Month of November 2014
Sales ($60 ´ 10,000)
$600,000
Cost of goods sold:
Direct materials ($12 ´ 10,000)
$120,000
Direct labor ($9 ´ 10,000)
90,000
Variable factory overhead ($7.50 ´ 10,000)
75,000
Fixed factory overhead
120,000
405,000
Gross profit
$195,000
Selling and administrative expenses:
Variable ($1.50 ´ 10,000)
$ 15,000
Fixed
90,000
105,000
Operating income
$ 90,000
If the monthly sales volume increases by 450 units, DesMaris Company’s monthly profits will increase by
108. Nonesuch Company sells only one product at a regular price of $7.50 per unit. Variable expenses are 60
percent of sales and fixed expenses are $30,000. Management has decided to decrease the selling price to $6.00
in hopes of increasing its volume of sales.
What sales dollar level is needed to obtain a before-tax profit of $60,000 when the selling price is $6.00 per
unit?
109. Nonesuch Company sells only one product at a regular price of $7.50 per unit. Variable expenses are 60
percent of sales and fixed expenses are $30,000. Management has decided to decrease the selling price to $6.00
in hopes of increasing its volume of sales.
What is the new break-even point in units for Nonesuch Company when the selling price is $6.00?
110. Jamie Quinn, a sole proprietor, has the following projected figures for next year:
$150.00
$45.00
$630,000
What selling price per unit is needed to obtain a before-tax profit of $270,000 at a volume of 4,000 units?
111. The Mildmanner Corporation has the following data for 2014:
$15
$9
$45,000
10,000 units
If sales decrease to 7,500 units in 2015, Mildmanner’s operating leverage will be
112. The Mildmanner Corporation has the following data for 2014:
$15
$9
$45,000
10,000 units
The margin of safety in units will be (round to the nearest whole unit)
113. The Mildmanner Corporation has the following data for 2014:
$15
$9
$45,000
10,000 units
The margin of safety expressed in sales revenue will be
114. Camp Funskies has annual fixed operating costs of $150,000 and variable costs of $550 per camper. Total
fees charged to campers amount to $500 each. The camp expects 350 campers next summer. Projected
government grants are $95,000. How much must Camp Funskies raise from other sources to break even?
115. Assuming all other things are the same, if there was an increase in the break-even point, contribution
margin per unit must have:
116. Julius Corporation had the following income statement for 2014:
$80,000
56,000
$24,000
16,000
$ 8,000
What is the degree of operating leverage for Julius Corporation for 2014?
117. The Solemn Company has an operating leverage of 2. Sales for 2014 are $100,000 with a contribution
margin of $50,000. Sales are expected to be $150,000 in 2015. Operating income for 2015 can be expected to
increase by what amount over 2014?
118. Cain Company and Abel Corporation have the following income statements for 2014:
Cain Company
Abel Corporation
Sales
$50,000
$50,000
Variable expenses
10,000
25,000
Contribution margin
$40,000
$25,000
Fixed expenses
25,000
10,000
Operating income
$15,000
$15,000
What is the degree of operating leverage for Cain Company for 2014?
119. The margin of safety is
120. A very high degree of operating leverage indicates a firm
121. Bugatti, Inc. decided to institute an advertising campaign that would cost $75,000. Variable costs will
remain at $15 per unit. Bugatti is currently selling 100,000 units of its product at $25 per unit. The marketing
department is estimating that there will be a 10 percent increase in sales volume. With all else remaining the
same, what will be the result of this decision?
122. Symbiosis Company had the following information:
Activity Driver
Unit Variable Cost
Level of Activity Driver
Units sold
$ 20
—
Setups
1,000
80
Engineering hours
60
2,000
Other data:
Total fixed costs (traditional)
$800,000
Total fixed costs (ABC)
$400,000
Unit selling price
$40
What is the break-even point in units using ABC?
123. Symbiosis Company had the following information:
Activity Driver
Unit Variable Cost
Level of Activity Driver
Units sold
$ 20
—
Setups
1,000
80
Engineering hours
60
2,000
Other data:
Total fixed costs (traditional)
$800,000
Total fixed costs (ABC)
$400,000
Unit selling price
$40
How many units need to be sold to produce a before-tax profit of $120,000 using ABC?
124. Symbiosis Company had the following information:
Activity Driver
Unit Variable Cost
Level of Activity Driver
Units sold
$ 20
—
Setups
1,000
80
Engineering hours
60
2,000
Other data:
Total fixed costs (traditional)
$800,000
Total fixed costs (ABC)
$400,000
Unit selling price
$40
Suppose Symbiosis could reduce setup costs by $500 per setup and could reduce the number of engineering hours needed to 1,216 2/3 hours. How
many units must be sold to break even in this case?
125. Fantasmas Incorporated had the following information:
Activity Driver
Unit Variable Cost
Level of Activity Driver
Units sold
$ 20
—
Setups
1,200
60
Engineering hours
52
1,500
Other data:
Total fixed costs (traditional)
$600,000
Total fixed costs (ABC)
$360,000
Unit selling price
$60
What is the break-even point in units using ABC?
126. Fantasmas Incorporated had the following information:
Activity Driver
Unit Variable Cost
Level of Activity Driver
Units sold
$ 20
—
Setups
1,200
60
Engineering hours
52
1,500
Other data:
Total fixed costs (traditional)
$600,000
Total fixed costs (ABC)
$360,000
Unit selling price
$60
Suppose Fantasmas could reduce setup costs by $300 per setup and could reduce the number of engineering hours needed to 1,400 hours. How many
units must be sold to break even in this case?
127. Fantasmas Incorporated had the following information:
Activity Driver
Unit Variable Cost
Level of Activity Driver
Units sold
$ 20
—
Setups
1,200
60
Engineering hours
52
1,500
Other data:
Total fixed costs (traditional)
$600,000
Total fixed costs (ABC)
$360,000
Unit selling price
$60
How many units need to be sold to produce a before-tax profit of $80,000 using ABC?
128. The Barrister Mug Company manufactures plastic mugs that sell to wholesalers for $4.60 each. Variable
and fixed costs are as follows:
Variable Costs per Unit
Fixed Costs
per Month
Manufacturing:
Direct materials
$0.69
Factory overhead
$ 9,200
Direct labor
0.81
Selling and adm.
6,900
Factory overhead
0.57
$2.07
Total
$16,100
Selling and adm.
0.46
Total
$2.53
Barrister Mug produced and sold 11,500 cups during April 2014. There were no beginning or ending inventories.
Required:
a.
Determine Barrister Mug’s monthly break-even point in units.
b.
If monthly sales increase by 575 cups, what will be the change in monthly profits?
c.
If Barrister Mug is now subject to an income tax of 40 percent, what dollar sales volume is required to earn a monthly after-tax net income
of $13,800?
a.
Unit selling price
$4.60
Unit variable costs
2.53
Unit contribution margin
$2.07
Break-even point = $16,100/$2.07 = 7,777.7 units, or 7,778 units
b.
Increase in sales
575
units
Unit contribution margin
$2.07
Increase in monthly profits
$1,190.25
c.
Desired before-tax profit = $13,800/(1.00 – 0.40) = $23,000
Contribution margin percentage = $2.07/4.60 = 45%
Required sales volume = ($16,100 + $23,000)/0.45 = $86,889
129. The Leonardo Company had the following functional income statement for the month of July 2014:
Sales ($20 ´ 20,000 units)
$400,000
Costs of goods sold:
Direct materials
$ 60,000
Direct labor
40,000
Variable factory overhead
120,000
Fixed factory overhead
50,000
270,000
Gross profit
$130,000
Selling and administrative expenses:
Variable
$ 20,000
Fixed
50,000
70,000
Operating income
$ 60,000
There were no beginning and ending inventories.
Required:
a.
Calculate the contribution margin per unit.
b.
Calculate the contribution margin ratio.
c.
What is the break-even point in units?
d.
What is the amount of sales in dollars needed to obtain a before-tax profit of $40,000?
a.
$160,000/20,000 units = $8 per unit
b.
$160,000/$400,000 = 40%
c.
($50,000 + $50,000)/$8 = 12,500 units
d.
($50,000 + $50,000 + $40,000)/0.4 = $350,000
130. At a price of $48, the estimated monthly sales of a product are 18,000 units. Variable costs include
manufacturing costs of $27 and distribution costs of $9. Fixed costs are $60,000 per month.
Required:
Determine each of the following values:
a.
Unit contribution margin
b.
Monthly break-even unit sales volume
c.
Before-tax monthly profit
d.
Monthly margin of safety in units
131. ChowMein Company is the exclusive Montana distributor of lawn mowers for a small manufacturing
company. It sells only one model at $600 per unit and for which ChowMein pays $250. ChowMein’s other
variable costs amount to $50 per unit. Fixed costs are $2,000. In April, ChowMein sold 15 lawn mowers and it
sold 20 in May.
Required:
Calculate the following values:
a.
Monthly break-even point in sales dollars
b.
Monthly break-even point in units
c.
Monthly income for April
d.
Monthly income for May
e.
Margin of safety for April
a.
$2,000/[($600 – $250 – $50)/$600] = $4,000
b.
$2,000/($600 – $250 – $50) = 6.67 or 7 mowers
c.
(15 ´ $300) – $2,000 = $2,500
a.
Selling price
$48
Variable costs:
Manufacturing
Distribution
9
Unit contribution margin
$ 12
b.
Monthly break-even point = $60,000/$12 = 5,000 units
c.
Monthly contribution = ($12 ´ 18,000)
$216,000
Monthly fixed costs
60,000
Monthly before-tax monthly profit
$156,000
d.
Monthly sales volume
18,000 units
Monthly break-even sales volume
5,000 units
Monthly margin of safety
13,000 units
132. At a monthly volume of $31,250, a company incurs variable cost of $23,750 and fixed costs of $7,500.
Required:
Determine each of the following values:
a.
Variable cost ratio
b.
Contribution margin ratio
c.
Monthly break-even dollar sales volume
d.
Monthly margin of safety in dollars
133. The Old Towne Manufacturing Company produces the following three products:
Saws
Knives
Measuring Tapes
Selling price per unit
$40
$16
$50
Variable costs per unit
28
12
30
Contribution per unit
$12
$ 4
$20
Fixed costs are $76,000 per year.
Fifty percent of all sales in units are Saws, 30 percent are Knives, and 20 percent are Measuring Tapes..
Required:
Calculate the following values:
a.
Break-even point in total units
b.
Number of Saws that will be sold at break-even
c.
Total sales in units to obtain a before-tax profit of $19,000
a.
Ave. CM/unit = ($12 ´ 0.5) + ($4 ´ 0.3) + ($20 ´ 0.2) = $11.20
$76,000/$11.20 = 6,786 units of hammers, screwdrivers, and saws
b.
6,786 ´ 0.5 = 3,393 hammers
c.
($76,000 + $19,000)/$11.20 = 8,482 units
a.
Variable cost ratio = $23,750/$31,250 = 0.76
b.
Contribution margin ratio = 1.00 – 0.76 = 0.24
c.
Monthly break-even dollar sales volume = $7,500/0.24 = $31,250
d.
Monthly sales volume
$31,250
Monthly break-even sales volume
31,250
Monthly margin of safety
$ -0-
134. Randolph Plumbing Company has the following information for 2014:
Selling price per unit
$10
Variable costs per unit
$7
Fixed costs
$1,500
Required:
Profit line
b.
Intersection of profit line and vertical axis
Break-even point
d.
Profit area
Loss area
135. Breadline Corporation has the following information for 2014:
$10
$6
$1,000
Required:
Prepare a cost-volume-profit graph identifying the following items:
Total costs line
b.
Total fixed costs line
Total variable costs line
d.
Total revenues line
Break-even point in sales dollars
Break-even point in units
Profit area
h.
Loss area
136. In the Cost-Volume-Profit analysis, what are two ways management can deal with risk and uncertainty?
137. Gigondas Incorporated had the following information:
Activity Driver
Unit Variable Cost
Level of Activity Driver
Units sold
$ 20
—
Setups
1,000
40
Engineering hours
60
1,000
Other data:
Total fixed costs (traditional)
$100,000
Total fixed costs (ABC)
$50,000
Unit selling price
$40
Required:
a.
Calculate the break-even point in units using the traditional approach to CVP analysis.
b.
Calculate the break-even point in units using the activity-based costing approach to CVP analysis.
c.
Calculate the number of units using the activity-based costing approach, that must be sold to earn a before-tax profit of $40,000.
d.
Suppose Gilbert could reduce setup costs by $300 per setup and could reduce the number of engineering hours needed to 900. How many
units must be sold to break even in this case?
a.
$100,000/($40 – $20) = 5,000 units
b.
[$50,000 + ($1,000 ´ 40) + ($60 ´ $1,000)]/$20 = 7,500 units
($50,000 + $40,000 + $60,000 + $40,000)/$20 = 9,500 units
d.
[$50,000 + ($700 ´ 40) + ($60 ´ 900)]/$20 = 6,600 units
138. Peyton Place Corporation had the following income statement for 2014:
Sales
$27,500
Variable expenses
16,500
Contribution margin
$11,000
Fixed expenses
4,400
Operating income
$ 6,600
Required:
a.
Calculate the operating leverage ratio.
b.
If sales increase by 20 percent, what will be the percentage change in income?
c.
If sales increase by $16,500, how much will income increase?
a.
$11,000/$6,600 = 1.6667
b.
1.6667 ´ 0.2 = 0.33334, or 33.33% increase
c.
$16,500 ´ 0.4 = $6,600