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Exam 21: Cost-Volume-Profit Analysis

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Question 41

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Madison Corporation sells three products (M, N, and O) in the following mix: 3:1:2. Unit price and cost data are: $\begin{array}{lrrrr}&\text {M}&\text {N}&\text {O}\\\text { Unit sales price } & \$ 7 & \$ 4 & \$ 6 \\\text { Unit variable costs } & 3 & 2 & 3\end{array}$ Total fixed costs are $340,000. -The selling price per composite unit for the current sales mix (rounded to the nearest cent) is:

A) $25.00.
B) $37.00.
C) $17.00.
D) $ 5.67.
E) $20.00.

F) D) and E)
G) C) and D)

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Question 42

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The high-low method can be used to estimate the cost equation using just two points.

A) True
B) False

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Question 43

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Elk Co. manufactures a product that sells for $12 per unit. Total fixed costs are $96,000 and variable costs are $7 per unit. Elk can buy a newer production machine that will increase total fixed costs by $22,800 but variable costs will be decreased by $0.40 per unit. What effect would the purchase of the new machine have on Elk's break-even point in units?

Solving problems to determine the relationship of cost, volume, and profit often commences with the measurement of the ________ point. Further analysis emphasizing profitability may be accomplished by measuring the ________ and ________.

There are at least three different methods to separate costs into fixed and variable. These methods are the ________, ________, and ________ methods.

A firm expects to sell 25,000 units of its product at $11 per unit. Pretax income is predicted to be $60,000. If the variable costs per unit are $5, total fixed costs must be:

Least-squares regression is a statistical method for identifying cost behavior.

Describe what happens to the net income of a company under each of the following assumptions: (a) Units sold are less than break-even units. (b) Units sold are greater than break-even units. (c) Units sold are equal to the break-even units.

A company manufactures a product and sells it for $120 per unit. The total fixed costs of manufacturing and selling the product are expected to be $155,250, and the variable costs are expected to be $75 per unit. What is the company's break-even point in (a) units and (b) dollar sales?

While the total amount of fixed cost changes with the level of production, fixed cost per unit remains constant as volume changes.

Barclay Enterprises manufactures and sells three distinct styles of bicycles: the Youth model sells for $300 and has a unit contribution margin of $105; the Adult model sells for $850 and has a unit contribution margin of $450; and the Recreational model sells for $1,000 and has a unit contribution margin of $500. -The company's sales mix includes: 5 Youth models; 9 Adult models; and 6 Recreational models. If the firm's annual fixed costs total $6,500,000, calculate the firm's selling price per composite unit.

Margin Company has total fixed costs of $360,000 and variable costs of $14 per unit. If the unit sales price is reduced from $24 to $20 and advertising is increased by $10,000, sales will increase from 40,000 to 65,000 units. Should Margin reduce its per unit sales price and pay for the additional advertising? (Support your answer with calculations.)

Total variable costs change in proportion to changes in volume of activity.

Dodge Industries incurs the following costs during the current year: $\begin{array} { l | l } \text { Depreciation of machinery } & \$ 15,000 \\\hline \text { Direct labor. } & 6,000 \\\hline \text { Direct materials } & 4,000 \\\hline \text { Executive salaries } & 20,000 \\\hline \text { Insuranes } & 2,000 \\\hline \text { Rent on building } & 8,000 \\\hline \text { Sales commistions } & 10,000 \\\hline \text { Vehicle lease cost } & 5,000\end{array}$ Sales for the year were $80,000 and Dodge Industries determined that only the direct production costs (prime costs) and sales commissions are to be classified as variable costs; all other costs are classified as fixed costs. Dodge sold 400 units. (a) Calculate the unit contribution margin and the contribution margin ratio for Dodge Industries. (b) Dodge Industries is considering plans that would increase the contribution margin ratio for next year. Should it pursue these plans? Explain.

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

A manufacturer reports the following information below for its first three years in operation. $\begin{array} { l r r r } & & & \\& \text { Year 1 } & \text { Year 2 } & \text { Year 3 } \\\text { Income under variable costing } & \$ 76,000 & \$ 109,000 & \$ 115,000 \\\text { Beginning inventory (units) } & 0 & 800 & 500 \\\text { Ending inventory (units) } & 800 & 500 & 0 \\\text { Fixed manufacturing overhead per unit } & \$ 8.00 & \$ 8.00 & \$ 8.00 \\\hline\end{array}$ - Income for year 3 using absorption costing is:

Mullis Corp. manufactures DVDs that sell for $5.00. Fixed costs are $28,000 and variable costs are $3.60 per unit. Mullis can buy a newer production machine that will increase fixed costs by $8,000 per year, but will decrease variable costs by $0.40 per unit. What effect would the purchase of the new machine have on Mullis' break-even point in units?

Curvilinear costs always increase:

A company's normal operating range, which excludes extremely high or low operating levels that are not likely to occur, is called the:

Select cost information for Klondike Corporation is as follows: $\begin{array} { l c c c c c } & 1,000 \text { units of output } && { 2,000 \text { units of output } } \\& \text { Total } & \text { Cost/Unit } & \text { Total } & \text { Cost/Unit } \\\text { Direct materials } & \$ 4,000 & \$ 4.00 & \$ 8,000 & \$ 4.00 \\\text { Rent expense } & \$ 2,000 & \$ 2.00 & \$ 2,000 & \$ 1.00\end{array}$ Based on this information: