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Exam 22: Cost-Volume-Profit

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Question 91

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Which of the following is not a cost classification?

A) Mixed
B) Multiple
C) Variable
D) Fixed

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Question 92

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Variable costing is not acceptable in reporting to stockholders under generally accepted accounting principles.

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Question 93

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Cannon Co. has a unit selling price of $500 variable cost per unit $300 and fixed costs of $240000. Instructions Compute the break-even point in units and in sales dollars.

Gall Manufacturing sells a product for $50 per unit. The fixed costs are $840000 and the variable costs are 60% of the selling price. As a result of new automated equipment it is anticipated that fixed costs will increase by $200000 and variable costs will be 50% of the selling price. The new break-even point in units is:

Kreter Inc. earned net income of $300000 last year. This year it wants to earn net income of $450000. The company's fixed costs are expected to be $300000 and variable costs are expected to be 70% of sales. Instructions (a) Determine the required sales to meet the target net income of $450000 using the mathematical equation. (b) Using a CVP income statement format prove your answer.

Unit contribution margin is the amount that each unit sold contributes towards the recovery of fixed costs and to income.

For purposes of CVP analysis mixed costs must be classified into their fixed and variable elements.

A cost that has both variable and fixed elements is referred to as a _________________ cost.

Match the items in the two columns below by entering the appropriate code letter in the space provided.

A fixed cost remains constant in total and on a per unit basis at various levels of activity.

The break-even point is where total sales equal total fixed costs.

Hanson Inc. requires its marketing managers to submit estimated cost-volume-profit data on all requests for new products or expansions of a product line. Nancy Stephens is a new manager. Her calculations show a fixed cost for a new project at $100000 and a variable cost of $5. Since the selling price is only $15 for the proposed product 10000 units would need to be sold to break even. That is approximately twice the volume estimate for the first year. She shares her dismay with Patti Patterson another manager. Patti strongly advises her to revise her estimates. She points out that several of the costs that had been classified as fixed costs could be considered variable since they are step costs and mixed costs. When the data has been revised classifying those costs as variable costs the project appears viable. Required: 1. Who are the stakeholders in this decision? 2. Is it ethical for Nancy to revise the costs as indicated? Briefly explain. 3. What should Nancy do?

An activity index identifies the activity that has a causal relationship with a particular cost.

Gordon Manufacturing earned net income of $100000 during 2015. The company wants to earn net income of $40000 more during 2016. The company's fixed costs are expected to be $147000 and variable costs are expected to be 30% of sales. Instructions (a) Determine the required sales to meet the target net income during 2016. (b) Fill in the dollar amounts for the summary income statement for 2016 below based on your answer to part (a). Sales revenue $\quad$$\quad$$\quad$$\quad$ $ Variable costs Contribution margin Fixed costs Net income $\quad$$\quad$$\quad$$\quad$$\quad$ $

The following information is available for Wade Corp.: $\begin{array} { l r l } \text { Sales } & \$ 580,000 & \text { Total fixed expenses } \$ 150,000 \\\text { Cost of goods sold } & 390,000 & \text { Total variable expenses } 360,000\end{array}$ A CVP income statement would report

April Industries sells a product with a contribution margin of $12 per unit fixed costs of $223200 and sales for the current year of $300000. How much is April's break-even point?

Chung Inc. sells 100000 wrenches for $24 per unit. Fixed costs are $700000 and net income is $500000. What should be reported as variable expenses in the CVP income statement?

Which is the true statement?

For planning purposes mixed costs are generally grouped with fixed costs.

Holder Manufacturing had $125000 of net income in 2015 when the selling price per unit was $100 the variable costs per unit were $70 and the fixed costs were $475000. Management expects per unit data and total fixed costs to remain the same in 2016. The president of Holder Manufacturing is under pressure from stockholders to increase net income by $60000 in 2016. Instructions (a) Compute the number of units sold in 2015. (b) Compute the number of units that would have to be sold in 2016 to reach the stockholders' desired profit level. (c) Assume that Holder Manufacturing sells the same number of units in 2016 as it did in 2015. What would the selling price have to be in order to reach the stockholders' desired profit level.