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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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How can contribution margin per unit be used to find the break-even point in units?

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The break-even point...

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Question 62

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At the break-even point:

A) Sales would be equal to total costs.
B) Contribution margin would be equal to total fixed costs.
C) Sales would be equal to fixed costs.
D) Both sales would be equal to total costs and contribution margin would be equal to total fixed costs are correct.

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

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Question 63

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Ng Company sells one product that has a sales price of $20 per unit, variable costs of $12 per unit, and total fixed costs of $300,000. What is the amount of sales volume in dollars necessary to attain a desired profit of $100,000?

Company A makes and sells a single product, unless otherwise indicated. What happens to the break-even point when total fixed costs increase?

When sales price, fixed cost, variable cost, and production volume are changing simultaneously, the best approach to determining profitability is:

The assumptions underlying cost-volume-profit analysis seldom are entirely valid. How does that affect the usefulness of the technique?

Phan Company has not reported a profit in five years. This year the company would like to narrow its loss to $7,500. Assuming its selling price is $36.50 per unit and its variable costs per unit are $24, how many units must be sold to achieve its target given that total fixed costs are $60,000?

Chester Company plans to introduce a new product. A market research specialist claims that 20,000 units can be sold at a $100 selling price. Assuming the company desires a profit margin of 22% of sales, what is the target cost per unit?

The Parsons Company makes and sells two models of blenders, as follows: The Parsons Company expects to incur annual fixed costs of $151,250. The relative sales mix of the products is 3 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? $\begin{array} { | l | l | l | } \hline & { \text { Smoothie Pro } } & { \text { Blendmaster } } \\\hline \text { Sales price per unit } & \$ 50 & \$ 80 \\\hline \text { Variable cost per unit } & 25 & 45 \\\hline \text { Contribution margin per unit } & \$ 25 & \$ 35 \\\hline\end{array}$

For a company using target costing, market price minus profit equals target price.

Sanchez Company makes and sells two models of dog houses, the Puppy Palace and the Canine Castle: Sanchez has determined that it would break even at an annual sales volume of 5,000 units, of which 75% would be Puppy Palaces. What is the amount of Sanchez's estimated annual fixed costs? $\begin{array} { | l | r | l | } \hline & { \text { Puppy Palace } } &{ \text { Canine Castle } } \\\hline \text { Sales price per unit } & \$ 50 & \$ 75 \\\hline \text { Variable cost per unit } & 30 & 50 \\\hline \text { Contribution margin per unit } & \$ 20 & \$ 25 \\\hline\end{array}$

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

Adams Company sells a product whose contribution margin is $10 and selling price is $25. If the company's break-even point is 100 units, its total fixed costs must be $500.

Heavener Company produces and sells storage sheds. Its current sales are $500,000. The company's accountant provided the following cost information: Required: 1) Compute the product's contribution margin ratio.2) Compute the company's current net income.3) Compute the product's break-even point in dollars.4) Compute the amount of revenue necessary to earn $60,000 in profit.5) Compute the company's current margin of safety ratio.6) Should the company accept a proposal that increases sales by 20% and total fixed costs by 25%? $\begin{array} { | l | l | } \hline \text { Manufacturing costs } & \$ 100,000 + 40 \% \text { of sales } \\\hline \text { Selling costs } & \$ 30,000 + 10 \% \text { of sales } \\\hline \text { Administrative costs } & \$ 45,000 + 10 \% \text { of sales } \\\hline\end{array}$

The following information is for a product manufactured and sold by Richards Corporation: Sales price per unit, $70 Variable cost per unit, $40 Total fixed costs, $600,000 Last year, Richards earned a profit of $30,000.Required: 1) How many units did Richards sell last year? 2) Richards' managers are considering decreasing the sales price to $60 in an effort to increase market share. Also, the company wants a profit of $60,000. How many units would it have to sell at the lower selling price to achieve this target?

How does an increase in variable costs affect the break-even point in sales dollars?

Compare and contrast a cost-plus pricing strategy to a target pricing strategy.

Select the incorrect break-even equation from the following:

Select the term from the list provided that best describes each of the following descriptions or definitions.

Gamble Company has contribution margin of $20 per unit and a break-even point of 10,000 units. If Gamble sells 9,999 units, what would be its net income or loss? Explain how you calculated your answer.