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Exam 18: Cost-Volume-Profit

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Question 41

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Contribution margin is

A) the amount of revenue remaining after deducting fixed costs.
B) available to cover fixed costs and contribute to income for the company.
C) sales less fixed costs.
D) unit selling price less unit fixed costs.

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Question 42

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Bill Braddock is considering opening a Fast 'n Clean Car Service Center. He estimates that the following costs will be incurred during his first year of operations: Rent $9,200, Depreciation on equipment $7,000, Wages $16,400, Motor oil $2.00 per quart. He estimates that each oil change will require 5 quarts of oil. Oil filters will cost $3.00 each. He must also pay The Fast 'n Clean Corporation a franchise fee of $1.10 per oil change, since he will operate the business as a franchise. In addition, utility costs are expected to behave in relation to the number of oil changes as follows: Bill Braddock anticipates that he can provide the oil change service with a filter at $25 each. Instructions (a) Using the high-low method, determine variable costs per unit and total fixed costs. (b) Determine the break-even point in number of oil changes and sales dollars. (c) Without regard to your answers in parts (a) and (b), determine the oil changes required to earn net income of $20,000, assuming fixed costs are $32,000 and the contribution margin per unit is $8.

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Question 43

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At the break-even point,

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

The activity level is represented by an activity index such as direct labor hours, units of output, or sales dollars.

Which of the following is not true about the graph of a mixed cost?

Keene, Inc. produces flash drives for computers, which it sells for $20 each. Each flash drive costs $6 of variable costs to make. During March, 1,000 drives were sold. Fixed costs for March were $5.60 per unit for a total of $5,600 for the month. If variable costs decrease by 10%, what happens to the break-even level of units per month for Keene?

The high-low method is used in classifying a mixed cost into its variable and fixed elements.

An increase in the level of activity will have the following effects on unit costs for variable and fixed costs:

The contribution margin ratio increases when

The difference between actual or expected sales and break-even sales is called the __________________________.

Cost-volume-profit analysis includes all of the following assumptions except

Which of the following is not a cost classification?

Salem Bakery sells boxes of donuts each with a variable cost percentage of 35%. Its fixed costs are $54,600 per year. Instructions Determine the sales dollars Salem needs to break even per year.

Boswell company reported the following information for the current year: Sales (50,000 units) $1,000,000, direct materials and direct labor $500,000, other variable costs $50,000, and fixed costs $360,000. What is Boswell's break-even point in units?

Holder Manufacturing had $125,000 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 $475,000. 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 $60,000 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.

Chung, Inc. sells 100,000 wrenches for $24 per unit. Fixed costs are $700,000 and net income is $500,000. What should be reported as variable expenses in the CVP income statement?

In the month of September, Matlock Industries sold 800 units of product. The average sales price was $30. During the month, fixed costs were $6,300 and variable costs were 70% of sales. Instructions (a) Determine the contribution margin in dollars, per unit, and as a ratio. (b) Using the contribution margin technique, compute the break-even point in dollars and in units.

If a company had a contribution margin of $1,000,000 and a contribution margin ratio of 40%, total variable costs must have been

The following monthly data are available for Lumberyard Company. which produces only one product: Selling price per unit, $42; Unit variable expenses, $14; Total fixed expenses, $42,000; Actual sales for the month of June, 3,000 units. How much is the margin of safety for the company for June?