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

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Question 61

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A market research specialist told Peachtree Company that it could expect to sell 500,000 units of its new high-capacity computer disk at a price of $5.Assuming the company desires a profit margin equal to 20% of sales,what target cost per unit is necessary?

A) $1.00
B) $4.00
C) $3.00
D) None of these answers is correct

E) A) and B)
F) A) and C)

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Question 62

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Chesterfield Corporation has been operating well above its break-even point.What will happen to Chesterfield's margin of safety if the variable cost per unit increases?

A) The break-even point would decrease, and the margin of safety would decrease.
B) The break-even point would decrease, and the margin of safety would increase.
C) The break-even point would increase, and the margin of safety would decrease.
D) The break-even point would increase, and the margin of safety would increase.

E) All of the above
F) None of the above

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Question 63

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Broadway Company produces and sells two models of calculators.The following monthly data are provided: $\begin{array}{lcc}&\text{ Standard } &\text{ Premium} \\ \text {Unit selling price}&\$ 100 & \$ 150 \\ \text {Unit variable manufacturing cost}&\$ 60 & \$ 90 \\\text {Unit variable selling and administrative cost}& \$ 15 & \$ 30\\ \text {Number of units produced and sold}& 3,000 & 1,000\end{array}$ Total monthly fixed costs are expected to be $15,000.What is the break-even point in sales dollars at the expected sales mix? (Do not round intermediate calculations.)

During the current year,Winchester Company sold 80,000 units at a selling price of $20 per unit.Variable cost per unit was $15,and Winchester's net income for the year was $40,000.What was the amount of Winchester's fixed costs?

When computing the break-even point in units,a company should round to the next whole unit because partial units ordinarily are not sold.

Consider the following cost-volume-profit graph: The area designated by the letter (C) represents which of the following?

Consider the following cost-volume-profit graph: What is the approximate amount of fixed costs in this organization?

Consider the following cost-volume-profit graph: The line designated by the letter (A) represents which of the following?

Beacon Company makes a product that has a variable cost of $25 per unit and a selling price of $45 per unit.Annual fixed costs total $860,000.Beacon's net income last year was $240,000.Beacon's management is considering lowering the selling price to $35. Required: 1)How many units did Beacon sell last year? 2)If Beacon Company wants to maintain the same level of income that it had last year,how many units would it have to sell at the new selling price of $35?

Sharon Company has variable costs of $80 per unit,total fixed costs of $200,000,and a break-even point of 5,000 units.If the sales price per unit is increased by $10,how many units must Sharon Company sell to break even?

Sensitivity analysis acknowledges that profitability is often affected by multidimensional forces.

Select the incorrect break-even equation from the following:

Bruce Company recently reduced its advertising budget.All other costs and revenues were unchanged.Select the response that indicates the impact of the advertising cuts on the company's break-even point and margin of safety. $\begin{array}{llcc}&\text {Break-even Point}&\text {Margin of Safety}\\\end{array}$ A. $\begin{array}{lrr}& \text { Increase } &&&& \text { Increase} \\\end{array}$ B. $\begin{array}{lrr}& \text { Decrease } &&&& \text { Decrease} \\\end{array}$ C. $\begin{array}{lrr}& \text { Increase } & &&&\text { Decrease} \\\end{array}$ D. $\begin{array}{lrr}& \text { Decrease } &&&& \text {Increase} \\\end{array}$

Lex Company produces products that it sells for $10 each.Variable costs per unit are $4,and annual fixed costs are $120,000. Required: Use the equation method to determine the break-even point in units and dollars.

The Parsons Company makes and sells two models of blenders,as follows: $\begin{array} { l c r } & \text { Smoothie Pro } & \text { Blend master } \\\text { Sales price per unit } & \$ 50 & \$ 8 0 \\\text { Variable cost per unit } & 25 & 45 \\\text { Contribution margin per unit } & \$ 2 5& \$3 5 \end{array}$ The Parsons Company expects to incur annual fixed costs of $151,250.The relative sales mix of the products is three units of Smoothie Pro for every one unit of Blendmaster. Required: 1)Determine the total number of blenders (Smoothie Pro and Blendmaster combined)that Parsons must sell to break even. 2)What is the number of units of Smoothie Pro and of Blendmaster that Parsons would expect to sell at the break-even point?

To find the break-even point for a company that sells several products,the analyst must make an assumption about what the sales mix will be and calculate a weighted average contribution margin based on that sales mix.

How is weighted average contribution margin calculated,and how can it be used in cost-volume-profit analysis?

The Victor Company sells two products.The following information is provided: $\begin{array} { l r r r r } \text { Unit selline price } & \$ & 100 & \$ & 150 \\\text { Unit variable cost } & \$ & 30 & \$ & 70 \\\text { Number of units produced and sold } & & 20,000 & & 60,000\end{array}$ What is the weighted average contribution margin per unit?

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:

How can the contribution margin ratio be used in cost-volume-profit analysis?