Question 1

Jefferson Company produces only product A. The following information is available: $\begin{array}{ll}
\text { Selling price per unit } & \$ 95 \
\text { Variable costs per } & \$ 70 \
\text { unit } & \
\text { Total fixed costs } & \$ 130,000
\end{array}$ Required:
a. Compute break- even point in units.
b. Compute break- even volume in dollars.
c. Compute the margin of safety assuming planned unit sales of 6,000.

Accepted Answer

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Question 2

What are the assumptions used for CVP analysis?

Accepted Answer

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Question 3

Bonnie and Clyde started the BC Restaurant in 20X0. They rented a building, bought equipment, and hired two employees to work full time at a fixed monthly salary. Utilities and other operating charges remain fairly constant during each month.
During the past two years, the business has grown with average sales increasing 1% a month. This situation pleases both Bonnie and Clyde, but they do not understand how sales can grow by one percent a month while profits are increasing at an even faster pace. They are afraid that one day they will wake up to increasing sales but decreasing profits.
Required:
Explain why the profits have increased at a faster rate than sales.

Accepted Answer

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Question 4

Dodger Company produces two products, X and Y. The following information is presented for both products: $$\begin{array} { l l l } 
& \underline { X } & \underline { Y } \
\text { Selling pric e per unit } & \$ 46 & \$ 36 \
\text { Variable cost p er unit } & \$ 38 & \$ 24
\end{array}$$ Total fixed costs are $234,000. Dodger Company plans to sell 21,000 units of product X and 7,000 units of product Y.
Compute:
a. Contribution margin for each product
b. Current net income
c. Break- even point in units of both X and Y if the sales mix is 3 units of X for every unit of Y
d. Break- even volume in total dollars if the sales mix is 2 units of X for every 3 units of Y

Accepted Answer

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Question 5

The Yetmar Family Restaurant is open 24 hours per day serving breakfast, lunch, and dinner. Fixed costs are
$24,000 per month. Variable costs are estimated at $9.60 per meal. The average total bill (excluding tax and tip) is $12 per customer.
Required:
a. Compute the number of meals that must be served if the Family Restaurant wishes to earn a profit before taxes of $6,000.
b. Compute the break- even point in meals.
c. Compute the break- even volume in dollars.
d. Assume that fixed costs increase to $30,000. How many additional meals must be served if the Yetmar Family Restaurant
wishes to earn the same before- tax profit?

Accepted Answer

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Question 6

Cleveland Manufacturing, Inc.'s most recent income statement is presented below: $\begin{array}{ll}
\text { Sales } & \$ 450,000 \
\text { Cost of goods sold } & 200,000\\text { Gross margin } & 250,000 \
\text { Other op erating } & 196,000 \
\text { expenses } & \
\text { Operating income } & \$ 54,000
\end{array}$ Cleveland Manufacturing, Inc., has determined that $50,000 of cost of goods sold and $166,000 of operating expenses is fixed.
Required:
a. Compute the contribution margin.
b. Compute the contribution- margin percentage.
c. Compute the break- even volume in sales dollars.
d. Compute the current margin of safety.

Accepted Answer

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Question 7

Sales mix concept is relevant for all companies, regardless of the number of units produced.

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Question 8

Graybill Corporation gathered the following information: $\begin{array}{ll}
\text { Variable costs } & \$ 945,000 \
\text { Income tax rate } & 40 \% \
\text { Contribution- margin } & 25 \% \
\text { ratio } &
\end{array}$ Required:
a. Compute total fixed costs assuming a break- even volume in dollars of $1,610,000.
b. Compute sales volume in dollars to produce an after- tax net income of $210,000.

Accepted Answer

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\text...

Question 9

A classmate is having difficulty understanding two sets of accounting terms, variable and fixed costs, as opposed to period and product costs. He understands that variable costs change during an accounting period while fixed costs do not. However, he explains that a period cost implies that it is for a period of time and is, therefore, also fixed. Does his assumption imply that all product costs are then variable?
Required: Assist your classmate in being able to distinguish between these terms.

Accepted Answer

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Question 10

Too Hot To Handle Company produces fireworks and has provided the following information: $\begin{array} { l  }
 \text { Total fixed costs}&\$100,000 \ \text { Unit variable costs}& \$6\ \text {Planned unit sales}&30,000 \
\end{array}$
The break- even point is 25,000 units. Required:
a. Compute the selling price per unit.
b. Compute the contribution- margin ratio.
c. Compute the break- even volume in dollars.
d. Compute the margin of safety.

Accepted Answer

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Question 11

Oakdale Municipal Hospital has variable costs of $80 million per year. These costs represent approximately 80% of the total revenues. There are 50,000 patient- days estimated for next year.
Required:
a. What is the break- even point expressed in total revenue?
b. What is the average daily revenue per patient necessary to breakeven?

Accepted Answer

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Question 12

Renew Tires has been in the tire business for five years. It rents a building but owns its equipment. All employees are paid a fixed salary except for the busy season (April - June), when temporary help is hired by the hour. Utilities and other operating charges remain fairly constant during each month except those in the busy season.
Selling prices per tire average $50 except during the busy season. Because a large number of customers buy tires prior to winter, discounts run above average during the busy season. A 15% discount is given when two tires are purchased at one time. During the busy months, selling prices per tire average $40.
The president of Renew Tires is somewhat displeased with the company's management accounting system because the cost behavior pattern displayed by the monthly break- even charts is inconsistent; the busy months' charts are different from the other months of the year. The president is never sure if the company has a satisfactory margin of safety or if it is just above the break- even point.
Required:
a. What is wrong with the accountant's computations?
b. How can the information be presented in a better format for the president?

Accepted Answer

The answer of Renew Tires has been in the tire...

Question 13

The following information is for Wood Products Corporation $\begin{array}{ll}
\text { Tot al fixed costs } & \$ 345,700 \
\text { Unit variable costs } & \$ 50.95 \
\text { Unit s elling price } & \$ 68.50
\end{array}$ Required:
a. Compute the contribution margin per unit.
b. Compute the contribution- margin ratio.
c. Compute the break- even point in units.
d. Compute the break- even volume in dollars.

Accepted Answer

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Question 14

The Sweetheart Company, a producer of specialty cards, has asked you to complete several calculations based upon the following information:

Accepted Answer

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Quiz 2: Introduction to Cost Behavior and Cost Volume Relationships

What are the assumptions used for CVP analysis?

Sales mix concept is relevant for all companies, regardless of the number of units produced.

The Sweetheart Company, a producer of specialty cards, has asked you to complete several calculations based upon the following information: