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Exam 3: Analysis of Cost, Volume, and Pricing to Increase Profitability

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Question 21

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What happens to break-even point when the sales price per unit decreases?

A) Break-even point increases.
B) Break-even point decreases.
C) Break-even point stays the same.
D) None of these answers is correct.

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Question 22

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To get a feel for the impact on profits of various changes in costs and volume levels management should perform:

A) cost benefit analysis
B) sensitivity analysis
C) cost analysis
D) profitability analysis

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Question 23

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If a company is operating beyond its break-even point, sale of one more unit of product increases the company's profit by the amount of the unit contribution margin.

Database software is especially useful for performing cost-volume-profit sensitivity analysis.

During the current year, Goldblum Co. sold 160,000 units of its product at a selling price of $40. The variable cost per unit was $30, and Goldblum reported net income for the year of $220,000. What was the amount of Goldblum's fixed costs for the year?

Bleeker Street Company produces and sells two lines of business suits, the Contemporary and the Traditionalist. The following monthly data are provided: Budgeted net income is $45,000 per month.Required: 1) Calculate the monthly break-even sales in units and dollars based on the budgeted sales mix.2) Calculate the firm's overall margin of safety in dollars.3) Compute the firm's profit assuming 1,500 units are sold in a 1:1 sales mix.4) Explain any difference between the firm's budgeted net income of $35,000 and your answer to Requirement 3. $\begin{array}{|l|ll|lr|}\hline & \text { Contemporary } & & \text { Traditionalist } \\\hline \text { Estimated unit sales per month } & 500 & & 1,000 \\\hline \text { Selling price } & \$ & 200 & \$ & 175 \\\hline \text { Variable manufacturing costs } & 110 & & 100 \\\hline \text { Variable selling and } \\\text { administrative costs } & 10 && 10 \\\hline\end{array}$

Which of the following is not one of the assumptions underlying cost-volume-profit analysis?

Wayans Company has a contribution margin ratio of 60%. This means that its variable costs are 60% of sales.

Contribution margin cannot be calculated for a service-type business, and cost-volume-profit analysis is not applicable for a company that provides services rather than selling goods.

Camden Company sets the selling price for its product by adding a markup to the product's variable manufacturing costs. This approach to pricing is referred to as:

Company A makes and sells a single product, unless otherwise indicated. What happens to break-even point when the variable cost per unit and selling price both decrease by the same amount?

Martin Company currently produces and sells 40,000 units of product at a selling price of $12. The product has variable costs of $6 per unit and fixed costs of $150,000. The company currently earns a total contribution margin of:

Canton Company produces and sells toasters. The following unit cost information assumes a production and sales volume of 15,000 units: Required: 1) Compute the budgeted selling price per unit assuming Canton uses a cost-plus pricing strategy and a markup equal to 75% of production cost.2) Compute the firm's total fixed costs.3) Compute the firm's contribution margin per unit given the budgeted selling price you computed in Requirement 1.4) Compute the firm's breakeven point in units and dollars, using the selling price you calculated in part 1.5) Using the unit contribution margin, compute the firm's estimated profit if 15,000 units are sold. $\begin{array} { | l | r | } \hline \text { Direct materials } & \$ 9 \\\hline \text { Direct labor } & 6 \\\hline \text { Variable overhead } & 2 \\\hline \text { Fixed overhead } & 3 \\\hline \text { Variable selling and administrative costs } & 1 \\\hline \text { Fixed selling and administrative costs } & 4 \\\hline\end{array}$

Pierce Company's break-even point is 12,000 units. Its product sells for $25 and has a $10 variable cost per unit. What is the company's total fixed cost amount?

Select the correct statement regarding break-even point analysis.

A product has a contribution margin of $2.50 per unit and a selling price of $25 per unit. Fixed costs are $20,000. Assuming new technology increases the unit contribution margin by 50 percent but increases total fixed costs by $13,750, what is the new breakeven point in units?

Jensen Company has a contribution margin ratio of 45%. This means that its variable costs are 55% of sales.

Contribution margin ratio will remain the same at various levels of sales even if total fixed costs are altered.

The margin of safety ratio can be defined as the:

A margin of safety of 30% means that every dollar in revenue generates thirty cents in profit.