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Exam 3: Costvolumeprofit Analysis and Pricing Decisions

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Question 41

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The New Age Pet Store sells Diva Doggie pet waste disposal systems for $50 each.The systems include the unit and a one-year supply of enzyme digester waste terminator.The cost of the unit and enzyme is $35.The only other costs are fixed costs of $3,000.During the current period, New Age sold 600 of the units through the store's new on-line catalog division. Required: a.What is the contribution margin per unit? b.What is the contribution margin ratio? c.What is the breakeven point in units? In dollars? d.What is the margin of safety in units? In dollars?

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a.$50 ̶ $35 = $15
b.$15 ÷ $50 ...

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Question 42

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The change in operating income relative to a change in sales is referred to as

A) CVP.
B) operating leverage.
C) margin of safety.
D) sales mix.

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

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Question 43

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Whereas cost-plus pricing starts with the cost, target costing starts with the price customers are willing to pay.

All other things equal, a company can increase its operating leverage by

A breakeven graph illustrates the relationship between

Marling Machine Works produces soft serve ice cream freezers.The freezers sell for $12,000, and variable costs total $8,200 per unit.Marling incurs $6,840,000 in fixed costs during the year.The company's tax rate is 25%. Required: How many freezers must Marling sell to generate net income of $3,450,000?

Define breakeven point.If a product's variable costs per unit increases while the selling price and fixed costs remains constant, what will happen to the breakeven point?

On the breakeven graph, if sales price and the unit variable cost remain constant and fixed costs decrease, the breakeven point will

While customers and cost influence prices, so does

If a company increases the price of its product by 10% with no change in sales volume,

Braque's Pantry is a chain of arts and crafts stores.Results for the most recent year are as follows: Required: a.What is Braque's Pantry's degree of operating leverage? b.If sales increase by 7%, what will the new operating income be? c.Managers are considering changing Braque's cost structure by offering employees a commission on sales rather than a fixed salary.What effect would such a change have on the firm's operating leverage?

Pelican Co.sells two products, A and Z.Product A's contribution margin per unit is lower than Product Z's contribution margin per unit.However, Product A's contribution margin ratio is higher than Product Z's contribution margin ratio.If Pelican begins to sell more units of Product A and fewer units of Product Z, its

Mandy's Candies' income statement for last month is given below.What is Mandy's degree of operating leverage?

When volume changes,

As volume changes, which of the following items do not change?

Assume Wilkerson's Shoe Store has decided to add hiking boots to its inventory to be more competitive with another shoe store in the same mall where Wilkerson is located.If Wilkerson can purchase the boots at $45, what price should the store charge to maintain a 60% markup on the boots?

Metro Boat Company produces custom-built houseboats.Metro's house boats generally sell for prices between $85,000 and $125,000.Bob Smith, the football coach at State University, has presented Metro with the amenities he wishes to have on his boat.Metro has calculated that to build this boat to Bob's specifications, materials, labor and overhead would total $95,652.Bob does not want to pay more than $100,000.Metro normally prices their house boats based on the total cost of construction plus 15%. Required (round to the nearest dollar): a.What price would Metro normally quote for the houseboat Bob is requesting? b.What is the target cost Metro would need to meet to sell the houseboat for $100,000 at a 15% markup? c.What could Metro do to meet the target cost in part b?

As volume changes, which of the following items also change?

Bart's Bike Shop has the following income statement. Required: a.Calculate the contribution margin per unit. b.Calculate the contribution margin ratio. c.Calculate the breakeven point in units.In sales dollars. d.Calculate the margin of safety in units.In dollars.

The formula for calculating units required to meet target operating income is