Question 1

Brewster Café has estimated that fixed costs per month are $114,840 and variable cost per dollar of sales is 42%. Sales during June totaled $220,000. What level of sales is needed for a monthly profit of $31,900?

Accepted Answer

The answer of Brewster Café has estimated that fixed costs...

Question 2

Rogers Racers makes toy race cars that sell for $12 each with a variable cost of $5 per car. Annual fixed costs are $7,000. How many cars must be sold to earn a profit of $3,150?

Accepted Answer

The answer of Rogers Racers makes toy race cars that...

Question 3

If a company sells many different types of products,

Accepted Answer

The contribution margin ratio approach is a useful tool when dealing with multiple types of products as it allows for the calculation of the contribution margin ratio for each product, which can then be used to determine the overall break-even point. This helps the company to make informed decisions about pricing and product mix. Operating leverage is not directly related to the number of products sold by a company, and it is possible to use cost-volume-profit analysis and have a positive margin of safety even with many different types of products.

Question 4

Rogers Racers makes toy race cars that sell for $12 each with a variable cost of $5 per car. Annual fixed costs are $7,000. If Rogers Racers sells 50 units fewer than break-even, how much loss would the company recognize on its income statement?

Accepted Answer

The break-even point in units can be calculated using the formula: Break-even units = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit). Here, it would be $7,000 / ($12 - $5) = 1,000 units. Selling 50 units fewer than break-even (1,000 - 50 = 950 units) means not covering $350 of fixed costs (50 units * $7 contribution margin per unit), which equals the loss recognized.

Question 5

Angel Toys is a producer of tiny dolls for children. Following is information about its revenue and cost structure: $\begin{array}{ll}
\text { Selling price per doll }&\$8.00\
\text { Variable costs per doll: }\
\text { Production (manufacturing costs) } & \$ 1.20 \
\text { Selling and administration (non-manufacturing costs) } & \$ 0.40\
\text { Total fixed costs: }\
\text { Production (manufacturing costs) }&\$ 40,000 \text { per year }\
\text { Selling and administration (non-manufacturing costs) }&\$ 32,000 \text { per year }
\end{array}$ In which range does the break-even point fall?

Accepted Answer

The answer of Angel Toys is a producer of tiny...

Question 6

Charlie Shine has written a self-improvement book. The following are its pricing and cost details:
Selling price $18.00 per book
Variable cost per unit:
Production $3.50
Selling & administrative 1.90
Fixed costs:
Production $33,600 per year
Selling & administrative 15,540 per year
What is the cost formula for this operation, where TC = Total cost and x = units sold?

Accepted Answer

The total cost (TC) is calculated by adding the total variable costs and total fixed costs. The variable cost per unit is $3.50 (production) + $1.90 (selling & administrative) = $5.40. The fixed costs are $33,600 (production) + $15,540 (selling & administrative) = $49,140. Therefore, the cost formula is TC = 5.40x + 49,140.

Question 7

Talk Time Cellular sells smart phones for $150. The unit variable cost per phone is $25 plus a selling commission of 10%. Fixed manufacturing costs total $5,600 per month, while fixed selling and administrative costs total $2,100. Talk Time expects sales of $12,300 during next year. How much is the margin of safety estimated for next year?

Accepted Answer

The answer of Talk Time Cellular sells smart phones for...

Question 8

Angel Toys is a producer of tiny dolls for children. Following is information about its revenue and cost structure: $\begin{array}{ll}
\text { Selling price per doll }&\$8.00\
\text { Variable costs per doll: }\
\text { Production (manufacturing costs) } & \$ 1.20 \
\text { Selling and administration (non-manufacturing costs) } & \$ 0.40\
\text { Total fixed costs: }\
\text { Production (manufacturing costs) }&\$ 40,000 \text { per year }\
\text { Selling and administration (non-manufacturing costs) }&\$ 32,000 \text { per year }
\end{array}$ Management is proposing to pay sales people a commission equal to 10% of the variable production cost. What will be the new contribution margin ratio if the commission plan is implemented?

Accepted Answer

The new variable cost per doll will be $1.20 (production) + $0.40 (selling and admin) + $0.12 (10% commission on $1.20), totaling $1.72. The contribution margin per doll is $8.00 - $1.72 = $6.28. The contribution margin ratio is $6.28 / $8.00 = 78.5%.

Question 9

Charlie Shine has written a self-improvement book. The following are its pricing and cost details: $$\begin{array} { l c } 
\text { Selling price } & \$ 18.00 \text { per book } \
\text { Variable cost per unit: } & \
\text { Production } & \$ 3.50 \
\text { Selling \& administrative } & 1.90 \
\text { Fixed costs: } & \
\text { Production } & \$ 33,600 \text { per year } \
\text { Selling \& administrative } & 15,540 \text { per year }
\end{array}$$ Assume the variable production cost and the selling price were each increased by $0.30 per book. Which of the following would change?

Accepted Answer

The answer of Charlie Shine has written a self-improvement book....

Question 10

Angel Toys is a producer of tiny dolls for children. Following is information about its revenue and cost structure: $\begin{array}{ll}
\text { Selling price per doll }&\$8.00\
\text { Variable costs per doll: }\
\text { Production (manufacturing costs) } & \$ 1.20 \
\text { Selling and administration (non-manufacturing costs) } & \$ 0.40\
\text { Total fixed costs: }\
\text { Production (manufacturing costs) }&\$ 40,000 \text { per year }\
\text { Selling and administration (non-manufacturing costs) }&\$ 32,000 \text { per year }
\end{array}$ Assume that the current sales level is 14,000 dolls. What impact would a 10% increase in sales have on income?

Accepted Answer

The answer of Angel Toys is a producer of tiny...

Question 11

Charlie Shine has written a self-improvement book. The following are its pricing and cost details: $$\begin{array} { l c } 
\text { Selling price } & \$ 18.00 \text { per book } \
\text { Variable cost per unit: } & \
\text { Production } & \$ 3.50 \
\text { Selling \& administrative } & 1.90 \
\text { Fixed costs: } & \
\text { Production } & \$ 33,600 \text { per year } \
\text { Selling \& administrative } & 15,540 \text { per year }
\end{array}$$ Charlie Shine is currently selling 5,200 books per year. What impact would a 22% increase in sales have on profit?

Accepted Answer

The answer of Charlie Shine has written a self-improvement book....

Question 12

Bunch of Books, a producer of children's books, has provided the following information: $$\begin{array} { l r } 
\text { Selling price per unit } & \$ 6.60 \
\text { Contribution margin per unit } & \$ 3.00 \
\text { Total fixed costs } & \$ 46,200
\end{array}$$ What is the break-even point in books?

Accepted Answer

The break-even point in units is calculated by dividing the total fixed costs by the contribution margin per unit: $46,200 / $3.00 = 15,400$ books.

Question 13

Charlie Shine has written a self-improvement book. The following are its pricing and cost details: $$\begin{array} { l c } 
\text { Selling price } & \$ 18.00 \text { per book } \
\text { Variable cost per unit: } & \
\text { Production } & \$ 3.50 \
\text { Selling \& administrative } & 1.90 \
\text { Fixed costs: } & \
\text { Production } & \$ 33,600 \text { per year } \
\text { Selling \& administrative } & 15,540 \text { per year }
\end{array}$$ How many books must Charlie sell to break-even?

Accepted Answer

The answer of Charlie Shine has written a self-improvement book....

Question 14

Brewster Café has estimated that fixed costs per month are $114,840 and variable cost per dollar of sales is 42%. For the month of July, the cafe anticipates sales of $300,000. What is the expected level of profit?

Accepted Answer

The answer of Brewster Café has estimated that fixed costs...

Question 15

A company that sells many different types of products should approach CVP analysis by assuming that

Accepted Answer

CVP analysis for a company that sells many different types of products should be approached by assuming that the products will be sold in a constant mix. This means that the company should assume that the proportion of each product sold will remain constant over time. This approach will allow the company to determine the overall contribution margin ratio for the mix of products and use this information to make pricing and production decisions. Assuming that all products will have the same contribution margin ratio (A) or that the company will sell equal amounts of each product each period (D) is unlikely to be accurate for most companies with diverse product lines. Assuming that fixed costs per unit will remain constant over the relevant range (C) is also not necessarily true as fixed costs may increase as production levels increase.

Question 16

Brewster Café has estimated that fixed costs per month are $114,840 and variable cost per dollar of sales is 42%. Sales during June totaled $220,000. What is the break-even point per month in sales?

Accepted Answer

To find the break-even point, we must find the level of sales where total costs equal total revenue.

Let X be the break-even point in sales.

Total revenue at X = X dollars

Total cost at X = Fixed cost + Variable cost = $114,840 + 0.42X

Since total revenue = total cost at the break-even point, we can set up the equation:

X = $114,840 + 0.42X

0.58X = $114,840

X = $198,000

Therefore, the break-even point per month in sales is $198,000.

Question 17

Angel Toys is a producer of tiny dolls for children. Following is information about its revenue and cost structure: $\begin{array}{ll}
\text { Selling price per doll }&\$8.00\
\text { Variable costs per doll: }\
\text { Production (manufacturing costs) } & \$ 1.20 \
\text { Selling and administration (non-manufacturing costs) } & \$ 0.40\
\text { Total fixed costs: }\
\text { Production (manufacturing costs) }&\$ 40,000 \text { per year }\
\text { Selling and administration (non-manufacturing costs) }&\$ 32,000 \text { per year }
\end{array}$ Assume that sales are expected to fall from 14,000 units this year to 13,000 units next year. Angel Toys would like to raise the selling price next year from the current $8.00 per unit to achieve the same profits next year as the current year. What will the sales price have to be next year, to generate the same profits next year as this year?

Accepted Answer

To maintain the same profit, Angel Toys needs to cover the reduced sales volume by increasing the price. The calculation shows that the new price should be between $8.40 and $8.59 to achieve the same profit with 13,000 units.

Question 18

Talk Time Cellular sells smart phones for $150. The unit variable cost per phone is $25 plus a selling commission of 10%. Fixed manufacturing costs total $5,600 per month, while fixed selling and administrative costs total $2,100. How many phones must be sold to avoid a loss on the company's income statement?

Accepted Answer

First, we need to calculate the total fixed costs:

Fixed costs = Fixed manufacturing costs + Fixed selling and administrative costs
Fixed costs = $5,600 + $2,100
Fixed costs = $7,700

Next, we can calculate the contribution margin per phone:

Contribution margin per phone = Selling price - Unit variable cost
Contribution margin per phone = $150 - ($25 + 10% of $150)
Contribution margin per phone = $150 - ($25 + $15)
Contribution margin per phone = $110

Now we can calculate the breakeven point in units:

Breakeven point in units = Fixed costs ÷ Contribution margin per phone
Breakeven point in units = $7,700 ÷ $110
Breakeven point in units = 70 phones

Therefore, 70 phones must be sold to avoid a loss on the company's income statement. Choice C is the best answer.

Question 19

Mexi-Foods produces tacos and burritos. Its financial information follows for the month of June: $\begin{array}{lrr}&\text { Tacos }&\text { Burritos }\
\text { Sales revenue } & \$ 40,000 & \$ 160,000 \
\text { Fixed costs } & 8,000 & 40,000 \
\text { Variable costs } & 15,000 & 75,000 \
\text { Income } & \$ 17,000 & \$ 45,000
\end{array}$ How much is the break-even point in total sales dollars for Mexi-Foods assuming the sales mix is stable?

Accepted Answer

The answer of Mexi-Foods produces tacos and burritos. Its financial...

Question 20

Talk Time Cellular sells smart phones for $150. The unit variable cost per phone is $25 plus a selling commission of 10%. Fixed manufacturing costs total $5,600 per month, while fixed selling and administrative costs total $2,100. What is the contribution margin per phone?

Accepted Answer

The contribution margin per phone can be calculated as:
Selling price per phone - Total variable cost per phone
Selling price per phone = $150
Total variable cost per phone = Unit variable cost + Selling commission
Total variable cost per phone = $25 + 10% of $150
Total variable cost per phone = $40
Contribution margin per phone = $150 - $40 = $110. Therefore, the correct answer is B.

Quiz 4: Cost-Volume-Profit Analysis

Brewster Café has estimated that fixed costs per month are $114,840 and variable cost per dollar of sales is 42%. Sales during June totaled $220,000. What level of sales is needed for a monthly profit of $31,900?

Rogers Racers makes toy race cars that sell for $12 each with a variable cost of $5 per car. Annual fixed costs are $7,000. How many cars must be sold to earn a profit of $3,150?

If a company sells many different types of products,

Rogers Racers makes toy race cars that sell for $12 each with a variable cost of $5 per car. Annual fixed costs are $7,000. If Rogers Racers sells 50 units fewer than break-even, how much loss would the company recognize on its income statement?

Bunch of Books, a producer of children's books, has provided the following information: $\begin{array} { l r } \text { Selling price per unit } & \$ 6.60 \\\text { Contribution margin per unit } & \$ 3.00 \\\text { Total fixed costs } & \$ 46,200\end{array}$ What is the break-even point in books?

Brewster Café has estimated that fixed costs per month are $114,840 and variable cost per dollar of sales is 42%. For the month of July, the cafe anticipates sales of $300,000. What is the expected level of profit?

A company that sells many different types of products should approach CVP analysis by assuming that

Brewster Café has estimated that fixed costs per month are $114,840 and variable cost per dollar of sales is 42%. Sales during June totaled $220,000. What is the break-even point per month in sales?

Talk Time Cellular sells smart phones for $150. The unit variable cost per phone is $25 plus a selling commission of 10%. Fixed manufacturing costs total $5,600 per month, while fixed selling and administrative costs total $2,100. What is the contribution margin per phone?