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Exam 21: Cost-Volume-Profit Analysis

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Question 51

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Flannigan Company manufactures and sells a single product that sells for $450 per unit; variable costs are $270. Annual fixed costs are $800,000. Current sales volume is $4,200,000. -Flannigan Company management targets an annual pre-tax income of $1,125,000. Compute the unit sales to earn the target pre-tax net income.

A) 10,694.
B) 7,500.
C) 6,650.
D) 11,750.
E) 4,444.

F) A) and E)
G) A) and D)

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Question 52

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The excess of expected sales over the sales level at the break-even point is known as the:

A) Contribution margin.
B) Margin of safety.
C) Profit margin.
D) Relevant range.
E) Sales turnover.

F) D) and E)
G) A) and B)

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Question 53

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During a recent fiscal year, Creek Company reported pretax income of $125,000, a contribution margin ratio of 25% and total contribution margin of $400,000. Total variable costs must have been:

Fixed costs per unit decrease proportionately with increases in volume of activity.

The variable costing method is required for external financial reporting.

A company has total fixed costs of $360,000. Its product sells for $40 per unit and variable costs amount to $25 per unit. What is the break-even point in dollar sales?

The ratio (proportion) of the sales volumes for the various products sold by a company is called the:

Flannigan Company manufactures and sells a single product that sells for $450 per unit; variable costs are $270. Annual fixed costs are $800,000. Current sales volume is $4,200,000. - Compute the contribution margin per unit.

Expanse Co. is considering the production and sale of a new product line with the following sales and cost data: unit sales price $125; unit variable costs $50; and total fixed costs of $150,000. Calculate the break-even point in units and in dollar sales.

Degree of operating leverage (DOL) is defined as total contribution margin in dollars divided by pretax income.

A firm expects to sell 25,000 units of its product at $11 per unit and to incur variable costs per unit of $6. Total fixed costs are $70,000. The total contribution margin is:

A manufacturer reports the following costs to produce 10,000 units in its first year of operations: Direct materials, $10 per unit, Direct labor, $6 per unit, Variable overhead, $70,000, and Fixed overhead, $120,000. - Of the 10,000 units produced, 9,200 were sold, and 800 remain in inventory at year-end. Under variable costing, the value of the inventory is:

The budgeted income statement presented below is for Burkett Corporation for the coming fiscal year. If Burkett Corporation is able to achieve the budgeted level of sales, its margin of safety in dollars would be: $\begin{array}{ll}\text { Sales (50,000 units) }&&\$1,000,000\\\text { Costs:}\\\text { Direct materials } & \$ 270,000 \\\text { Direct labor } & 240,000 \\\text { Fixed factory overhead } & 100,000 \\\text { Variable factory overhead } & 150,000 \\\text { Fixed marketing costs } & 110,000 \\\text { Variable marketing costs } & \underline{50,000}& \underline{920,000} \\\text { Pretax income }&& \underline{\$80,000}\end{array}$

Define variable cost, fixed cost, and mixed cost.

During its most recent fiscal year, Raphael Enterprises sold 200,000 electric screwdrivers at a price of $15 each. Fixed costs amounted to $400,000 and pretax income was $600,000. What amount should have been reported as variable costs in the company's contribution margin income statement for the year in question?

A firm sells two different products, A and B. For each unit of B, the firm sells two units of A. Total fixed costs for this firm are $1,260,000. Additional selling prices and cost information for both products follow: $\begin{array} { l | l | l } \hline \begin{array} { l }\text { Product} \end{array}& \begin{array} { l } \text { Selling } \\\text { Price per unit }\end{array} & \begin{array} { l } \text { Variable } \\\text { Costs per } \\\text { unit }\end{array} \\\hline \text { A } \ldots \ldots & \$ 72 & \$ 40 \\\hline \text { B } \ldots \ldots & 48 & 28\end{array}$ Required: (a) Calculate the contribution margin per composite unit. (b) Calculate the break-even point in units of each individual product. (c) If pretax income before taxes of $294,000 is desired, how many units of A and B must be sold?

A company has a goal of earning $128,000 in pre-tax income. The contribution margin ratio is 30%. What dollar amount of sales must be achieved to reach the goal if fixed costs are $64,000?

McCoy Brothers manufactures and sells two products, A and Z in the ratio of 5:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. - Compute the contribution margin per composite unit.

Magnolia Company is considering the production and sale of a new product with the following sales and cost data: unit sales price, $350; unit variable costs, $180; total fixed costs, $399,500; and projected sales, $910,000. Round your answers to the nearest whole unit or dollar. (a) Calculate break-even in units. (b) Calculate break-even in dollars (use four decimal places when calculating the contribution margin ratio). (c) Calculate number of units that would need to be sold to generate an after-tax profit of $420,000 assuming a 30% tax rate. (d) Calculate dollar sales that would be needed to generate the same profit as above. (e) Calculate the margin of safety stated as a percentage using the $910,000 projected sales level. Be sure to label each calculation and show all calculations.

A break-even point can be calculated either in units or in dollars.