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Exam 6: Cost-Volume-Profit Analysis

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Question 41

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Managers can use cost-volume-profit analysis to help evaluate changes in price.

A) True
B) False

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Question 42

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At a sales level of 20,000 units,Pony Corp.has sales of $400,000,a variable cost ratio of 60%,and a profit of $40,000.What is the break-even point in units?

A) 8,000
B) 12,000
C) 15,000
D) 20,000

E) A) and D)
F) All of the above

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Question 43

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Elk Corp.has sales of $300,000,a contribution margin ratio of 40%,and a target profit of $30,000.If 20,000 units were sold,what is the variable cost per unit?

The break-even point is the point at which profit equals:

Payton Corp.has sales of $200,000,a contribution margin ratio of 35%,and a target profit of $40,000.If 10,000 units were sold,what are total variable costs?

The margin of safety is the difference between:

The break-even point is:

On a CVP graph,the break-even point is the point at which the contribution margin line crosses the total cost line.

Glade,Inc.is trying to decide whether to increase the commission-based pay of its salespeople.Currently,each of its five salespeople earns a 15% commission on the units they sell for $100 each,plus a fixed salary of $40,000 per person.Glade hopes that by increasing commissions to 20% and decreasing each salesperson's salary to $25,000,sales will increase because salespeople will be more motivated.Currently,sales are 13,000 units.Glade's other fixed costs,NOT including the salespeople's salaries,total $580,000.Glade's other variable costs,NOT including commissions,total $20 per unit. a.What is current profit? b.What is the current break-even point in units? c.What would the break-even point in units be if commissions are increased and salaries decreased? d.If sales increase by 4,000 units,what will profit be under the new plan? e.At what sales level would Glade be indifferent between the lower-commission plan and the higher-commission plan?

Graham Corp.sells two products.Product A sells for $200 per unit,and has unit variable costs of $150.Product B sells for $50 per unit,and has unit variable costs of $20.Currently,Graham sells three units of Product B for every two units of Product A sold.Graham has fixed costs of $760,000.How many units would Graham have to sell to earn a profit of $57,000?

Irwin Corp.has fixed costs of $20,000 and a contribution margin ratio of 40%.Currently,margin of safety is $35,000.What are Irwin's current sales?

Quail,Inc. ,has a contribution margin of 40% and fixed costs of $130,000.What is the break-even point in sales dollars?

Last month Dexter Company had a $15,000 loss on sales of $150,000.Fixed costs are $60,000 a month.By how much do sales have to increase for Dexter to break even?

The margin of safety is the difference between actual sales and budgeted sales.

In multiproduct cost-volume-profit analysis,a break-even point must be calculated separately for each product.

Degree of operating leverage is calculated by dividing sales by profit.

What component of the profit equation should be set equal to zero to find the breakeven point?

Last month Peggy Company had a $30,000 profit on sales of $250,000.Fixed costs are $60,000 a month.What sales revenue is needed for Peggy to break even?

In multiproduct cost-volume-profit analysis,an assumption made in addition to those used in single-product CVP analysis is that:

Portia Company is a retailer of hammers.Portia pays $4.75 for each hammer and sells them for $8.00.Monthly fixed costs are $26,000.The hammer cost is the only variable cost. a.What is the contribution margin per unit? b.What is the break-even point in units? c.How many units will Portia need to sell to earn target profit of $13,000?