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Exam 18: Cost Behavior and Cost-Volume-Profit Analysis

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Question 1

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The most complex of the cost estimation methods is the high-low method.

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Question 2

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A company manufactures and sells a product for $91 per unit. The company's fixed costs are $859,716 and its variable costs are $25 per unit. What is the company's break-even point in dollars? (Round all calculations to 2 decimal places.)

A) $627,592.68
B) $1,177,693.15
C) $622,982.60
D) $1,091,839.30
E) $66.00

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Question 3

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Duxbury Co. reports the following data for the current year: $\begin{array} { l r } \text { Units Sold } & 1,200 \\\text { Unit Sales Price } & \$ 30 \\\text { Unit Variable Cost } & \$ 10 \\\text { Total Fixed Cost } & \$ 18,000\end{array}$ Required: (a) Calculate the breakeven point in units. (b) Calculate Duxbury's pretax income. (c) Calculate Duxbury's degree of operating leverage. (d) Calculate the margin of safety in units.

The high-low method can be used to derive an estimated line of cost behavior.

The margin of safety is the amount that sales can drop before the company incurs a loss.

Cost-volume-profit analysis is based on three basic assumptions. Which of the following is not one of these assumptions?

A CVP graph presents data on:

Define the break-even point of a company.

What-if analysis of cost, revenue, and volume changes is called _______________________. Further analysis of this nature may be achieved by measuring the degree of ______________________.

An important tool in predicting the volume of activity, the costs to be incurred, the sales to be earned, and the profit to be received is:

Cost-volume-profit analysis can be used to predict the effects of reduced selling prices, increased fixed costs, and reduced variable costs on break-even points.

The margin of safety can be expressed in units of product, in dollars, or as a percent of sales.

A product sells for $30 per unit and has variable costs of $18 per unit. The fixed costs are $720,000. If the variable costs per unit were to decrease to $15 per unit and fixed costs increase to $900,000, and the selling price does not change, break-even point in units would:

A company manufactures and sells a product for $91 per unit. The company's fixed costs are $859,716 and its variable costs are $25 per unit. The company's break-even point in units is:

The Haskins Company manufactures and sells radios. Each radio sells for $23.75 and the variable cost per unit is $16.25. Haskin's total fixed costs are $25,000, and budgeted sales are 8,000 units. What is the contribution margin per unit?

A statistical method for deriving an estimated line of cost behavior is the:

What are the basic assumptions of CVP analysis with regard to variable cost, fixed cost, and selling price per unit? (Assume a single product). 3

The relevant range of operations excludes extremely high and low levels of production that are not likely to occur.

Wilson Co. is preparing next period's forecasts. Total fixed costs are expected to be $300,000 and the contribution margin ratio is expected to be 30%. The applicable income tax rate is 25%. (a) Calculate the company's break-even point in dollar sales. (b) If sales are $1,800,000 above the break-even point, what will income be (i) pretax income and (ii) after-tax income?

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?