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Exam 6: Cost-Volume-Profit Analysis

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Question 21

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If a firm sells more than one product, the break-even point in units represents:

A) the number of units of the largest-selling product required to break even.
B) the number of units of the most profitable product required to break even.
C) the number of units of the highest-revenue product required to break even.
D) the sum of the units of all products required to break even.

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

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Question 22

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Which of the following statements is not correct about cost-volume-profit analysis?

A) CVP analysis is a decision-making tool for managers.
B) CVP analysis focuses on the relationship among volume and mix of units sold, prices, variable costs, fixed costs, and profit.
C) CVP analysis works best when all variables are changed concurrently.
D) Managers use CVP analysis to evaluate how changing one key variable will impact profitability, while holding everything else constant.

E) C) and D)
F) B) and D)

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Question 23

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Roland had revenues of $600,000 in March. Fixed costs in March were $200,000 and profit was $40,000. Answer the following questions: a. What was the contribution margin percentage? b. What monthly sales volume (in dollars) would be needed to break-even? c. What sales volume (in dollars) would be needed to earn $150,000?

Mustang Corp. has a selling price of $15, variable costs of $10 per unit, and fixed costs of $35,000. How many units must be sold to break-even?

Harmony sells a product for $50 per unit. Variable costs per unit are $30, and monthly fixed costs are $150,000. Answer the following questions: a. What is the break-even point in units? b. What unit sales would be required to earn a target profit of $100,000? c. Assume they achieve the level of sales required in part b, what is the degree of operating leverage? d. If sales increase by 40% from that level, by what percentage will profits increase?

Nora Inc. sells a single product for $15. Variable costs include $6 for each unit plus a 10% sales commission. Fixed costs are $150,000 per month. a. What is the contribution margin percentage? b. What is the break-even sales revenue? c. What sales revenue is needed to achieve a $100,000 per month profit?

Jasper Corp. has a selling price of $30, and variable costs of $20 per unit. When 12,000 units are sold, profits equaled $70,000. How many units must be sold to break-even?

The margin of safety is the difference between actual sales and budgeted sales

If production volume does not equal sales volume:

Payton Corp. has sales of $200,000, a contribution margin ratio of 35%, and a target profit of $40,000. If 10,000 units were sold, what are total variable costs?

Target units equals fixed costs plus target profit divided by the unit contribution margin

Malibu, Inc., which has fixed costs of $2,150,000, sells three products whose sales price, variable cost per unit, and percentage of sales units are presented in the table below. a. What is the weighted average unit contribution margin? b. At the break-even point, how many units of Product A must be sold? c. To make a profit of $1,075,000, how many units of Product B must be sold?

Managers can use cost-volume-profit analysis to help evaluate changes in price

Cost-volume-profit analysis assumes that all costs can be accurately described as either fixed or variable

Dallas Inc. sells a product for $60. Variable costs are 60% of sales, and monthly fixed costs are $54,000. Answer the following questions: a. What is the break-even point in units? b. What unit sales would be required to earn a target profit of $120,000? c. Assume they achieve the level of sales required in part b, what is the margin of safety in sales dollars?

Louise Corp. has a contribution margin ratio of 35%, fixed costs of $60,000, and a profit of $45,000. What are total sales?

Dexter Corp. has fixed costs of $500,000 and a contribution margin ratio of 25%. Currently, margin of safety is $1,000,000. What are Dexter's current sales?

Irwin Corp. has fixed costs of $20,000 and a contribution margin ratio of 40%. Currently, margin of safety is $35,000. What are Irwin's current sales?

Last month Dexter Company had a $15,000 loss on sales of $150,000. Fixed costs are $60,000 a month. By how much do sales have to increase for Dexter to break even?

At a level of 20,000 units sold, Gail Corp. has sales of $400,000, a contribution margin ratio of 40%, and a profit of $40,000. What is the break-even point in units?