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

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Question 51

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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?

A) 4,000 units
B) 5,000 units
C) 6,000 units
D) 3,000 units

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

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Question 52

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Rocky Mountain Bottling Company produces a soft drink that is sold for a dollar.At production and sales of 800,000 units,the company pays $600,000 in production costs,half of which are fixed costs.At that volume,general,selling,and administrative costs amount to $250,000 of which $70,000 are fixed costs.What is the amount of contribution margin per unit?

A) $0.40
B) $0.5375
C) $0.25
D) None of these is correct.

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

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Question 53

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On a cost-volume-profit graph,the total revenue line lies below the total cost line to the left of the break-even point.

If you were drawing a cost-volume-profit graph for a company,what lines would you plot on the graph?

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

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

Anton Company produces and sells bicycles for $500.The variable costs per unit are $300 plus a sales commission of 15% of the selling price.Total fixed costs consist of $16,000 in fixed overhead and $9,000 in fixed selling and administrative costs. Required: 1)Compute the contribution margin per unit. 2)Compute the break-even point in units and dollars. 3)How many units must be sold to earn a profit of $20,000? 4)What would be the break-even point in units if the sales commission is reduced to $20 per unit sold?

An increase in total fixed costs increases the break-even point.

Select the incorrect statement regarding cost-volume-profit relationships for multiple products.

How does the cost-volume-profit model accommodate non-linear costs and revenues?

What are the assumptions on which cost-volume-profit analysis is based? Are there any additional assumptions for a multiproduct company?

Phillips Company can sell 15,000 units of its new product at a selling price of $116.The unit cost is $72.The company's target profit is 40% of sales.The Vice President of Marketing has learned that a competitor plans to introduce a similar product for $104.The Vice President has recommended that Phillips match the competitor's price.She believes the lower selling price will increase sales volume by 20%. Required: 1)Compute the company's net income assuming the product is sold for $116 and the costs remain at $72.Assume there were no additional costs. 2)Compute the product's target cost if it is sold at a $116 selling price. 3)Compute the company's net income if the target cost computed in Requirement 2 is achieved. 4)Compute the change in income from Requirement 1 if the product is sold for $104,costs remain at $72,and volume is increased by 20%.

One of the advantages of target costing is that it specifically considers the probable market price for the product.

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

Assuming a company uses a markup equal to 25% of cost,the cost of a product that sells for $100 is $75.

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?

On a cost-volume-profit graph,the total revenue line begins at the break-even point and slopes upward to the right.

Which of the following statements regarding cost-volume-profit analysis is incorrect?

How would a company use target pricing to identify the desired cost for a product or service?

Write an equation for each item provided: Contribution margin per unit $=$ _____________ Contribution margin ratio $=$ ____________ Break-even in units $=$ ___________ Break-even in dollars $=$ ______________ Units required to achieve desired profit =______________ Dollars required to achieve desired profit =_______________ Margin of safety ratio $=$ _______________