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Exam 5: Cost Behavior Cost-Volume-Profit Analysis

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Question 61

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Philadelphia Co. is considering the production and sale of a new product with the following sales and cost data: unit sales price, $300; unit variable costs, $180; total fixed costs, $270,000; and projected sales, $900,000. What is the margin of safety: (a) In dollar sales? And (b) As a percent of sales?

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Contribution margin ratio = ($300 - $180...

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Question 62

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What is the high-low method? Briefly describe how it is applied.

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The high-low method is a way to estimate...

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Question 63

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If a firm's forecasted sales are $250,000 and its break-even sales are $190,000, the margin of safety in dollars is:

Flannigan Company manufactures and sells a single product that sells for $450 per unit; variable costs are $270. Annual fixed costs are $800,000. Current sales volume is $4,200,000. Compute the break-even point in dollars.

Under variable costing, fixed overhead costs are excluded from product costs.

Forrester Company is considering buying new equipment that would increase monthly fixed costs from $120,000 to $150,000 and would decrease the current variable costs of $70 by $10 per unit. The selling price of $100 is not expected to change. Forrester's current break-even sales are $400,000 and current break-even units are 4,000. If Forrester purchases this new equipment, the revised contribution margin ratio would be:

Flannigan Company manufactures and sells a single product that sells for $450 per unit; variable costs are $270. Annual fixed costs are $800,000. Current sales volume is $4,200,000. Compute the contribution margin per unit.

The contribution margin ratio is the percent by which the margin of safety exceeds the break-even point.

A CVP graph presents data on:

Forrester Company is considering buying new equipment that would increase monthly fixed costs from $120,000 to $150,000 and would decrease the current variable costs of $70 by $10 per unit. The selling price of $100 is not expected to change. Forrester's current break-even sales are $400,000 and current break-even units are 4,000. If Forrester purchases this new equipment, the revised break-even point in units would:

The contribution margin ratio is the percent of each sales dollar that remains after deducting the total unit variable cost.

What is operating leverage? How can the degree of operating leverage be used in analyzing changes in sales?

The dollar amount of sales needed to achieve a target income is computed by dividing the sum of fixed costs plus the target pretax income by the contribution margin ratio.

A company has total fixed costs of $200,000. Its product sells for $25 per unit and variable costs amount to $15 per unit. The company has a target pre-tax income of $50,000. How many units must be sold to achieve this pre-tax target income?

Kent Manufacturing produces a product that sells for $50.00. Fixed costs are $260,000 and variable costs are $24.00 per unit. Kent can buy a new production machine that will increase fixed costs by $11,400 per year, but will decrease variable costs by $3.50 per unit. Compute the revised break-even point in dollars with the purchase of the new machine.

Flannigan Company manufactures and sells a single product that sells for $450 per unit; variable costs are $270. Annual fixed costs are $800,000. Current sales volume is $4,200,000. Compute the break-even point in units.

A graphic presentation of cost-volume-profit data is known as a ________ graph (or chart); this presentation is also sometimes called a ________ chart.

Barclay Enterprises manufactures and sells three distinct styles of bicycles: the Youth model sells for $300 and has a unit contribution margin of $105; the Adult model sells for $850 and has a unit contribution margin of $450; and the Recreational model sells for $1,000 and has a unit contribution margin of $500. The company's sales mix includes: 5 Youth models; 9 Adult models; and 6 Recreational models. If the firm's annual fixed costs total $6,500,000, calculate the firm's contribution margin per composite unit.

The method most likely to produce the most precise line of cost behavior and require the least amount of judgment is the scatter diagram.

Mason Company manufactures and sells shoelaces for $2.00 per pair. Its variable cost per unit is $1.70. Mason's total fixed costs are $10,500. How many pairs must Mason Company sell to break even?