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Exam 6: Cost-Volume-Profit Relationships

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Question 61

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How might management determine (at a given level of production) by what percentage net operating income will change if sales change by a particular percentage?

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% Change in sales × ...

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Question 62

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Using the following data, apply the high-low method of cost analysis to the three cost data groups: What cost behavior patterns are apparent for each group? What is the cost formula for each group?

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Hawk: Mixed cost pattern. Formula: Cost...

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Question 63

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How do per-unit fixed costs respond to changes in volume?

Using the following data, apply the high-low method of cost analysis to the three cost data groups: What cost behavior patterns are apparent for Gamma?

Oches Company has analyzed its overhead costs and derived a general formula for their behavior: $50,000 + $18 per direct labor hour employed. The company expects to use 40,000 direct labor hours during the next accounting period. What overhead rate per direct labor hour should be applied to jobs worked during the period?

Draco Company charges a selling price of $25 per unit for its single product, incurs variable costs of $17 per unit, and total fixed costs of $140,000. What sales volume is necessary to earn a net income after tax of $36,000, assuming a tax rate of 25%?

Sullivan's T-Shirt Store sells t-shirt with a sales price of $25 each. Each t-shirt costs the company $15 to produce, and the store incurs a total of $100,000 in fixed costs each year. What is the yearly breakeven point in units?

Pavarti's Sandwiches sells its signature 2-foot long sub sandwiches. These sandwiches are so good, it is the only item on the menu. In recent years, Pavarti's breakeven point has been 30,000 sandwiches. Annual fixed cost are $600,000 and the sandwiches have a sales price of $27. What is the variable cost per unit of each sandwich?

Variable costs are theoretically equal to $0 when volume is 0.

Contribution margin is the amount left over after all variable costs have been covered.

Fennier Company sells a single product for $12 per unit. Variable costs are $7 per unit and fixed costs are $65,000. What is Fennier Company's break-even point in units?

Which of the following equations describes the contribution margin ratio?

Wellington Company has analyzed its overhead costs and derived a general formula for their behavior: $30,000 + $15 per direct labor hour employed. The company expects to use 60,000 direct labor hours during the next accounting period. What overhead rate per Direct Labor hour should be applied to jobs worked during the period?

Cornelius' Cheeseburgers sells gourmet cheeseburgers. These cheeseburgers are so good, it is the only item on the menu. In recent years, Cornelius' breakeven point has been 40,000 cheeseburgers. Annual fixed cost are $200,000 and the cheeseburgers have a sales price of $15. What is the contribution margin per unit of each cheeseburger?

United Manufacturing Inc. uses CVP tools to analyze overall costs. Total costs for the period were $200,000. Total sales for the period were $210,000, and the variable cost per unit was $30. United sold 700 units this period. What is United's break-even point in units?

Matthews Beach Towel Company sells custom beach towels with a sales price of $20 each. Each beach towel costs the company $15 to produce, and the company incurs a total of $150,000 in fixed costs each year. What is the yearly breakeven point in units?

J.B.M. Consulting, LLP uses CVP analysis to consider and manage the costs of providing consulting services. Consulting revenues for the most recent period were $2,000,000. Management has determined that contribution margin was 35% of consulting revenues. Fixed costs were $350,000. J.B.M. currently charges a single hourly billing rate for all associate hours. Moreover, revenue is recognized on a "completed contract" basis (i.e., no revenue is recognized until the service is complete). J.B.M. charged 10,000 hours during the period. The management team is concerned that certain costs previously classified as variable are actually fixed. If $50,000 of variable costs from last period were reclassified as fixed costs, by how much would the break-even point in consulting revenues increase or decrease?

Legend Inc., a jewelry manufacturer, separated variable costs from fixed costs in order to conduct CVP analysis. Total fixed costs for the period were $8,400. Total costs for the period were $20,000. Total units produced during the period were 200. What would the variable cost per unit have been if Legend had produced 300 units?

Contribution margin ratio = Sales Price per unit / Contribution Margin per unit

Which of the following pieces of information is Not needed to calculate the break-even point in units?