Question 1

What is an important feature that must be remembered when using cost identifying and behavior methods?

Accepted Answer

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Question 2

Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are $300.Annual fixed costs are $990,000.Current sales volume is $4,200,000.Dunkin company management targets an annual after-tax income of $843,750.The company is subject to a 25% income tax rate.Compute the unit sales to earn the target after-tax net income.

Accepted Answer

Pretax income = After-tax income/(1-.25); $843,750/.75 = $1,125,000
Unit sales at target income = $990,000 + $1,125,000 = $2,115,000
Units to be sold = $2,115,000/$180= 11,750

Question 3

Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are $300.Annual fixed costs are $990,000.Current sales volume is $4,200,000.Compute the break-even point in dollars.

Accepted Answer

$480 - $300 = $180/$480 = 37.5%; $990,000/.375 = $2,640,000

Question 4

Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are $300.Annual fixed costs are $990,000.Current sales volume is $4,200,000.Compute the contribution margin ratio.

Accepted Answer

$480 - $300 = $180/$480 = 37.5%

Question 5

What are the basic assumptions of CVP analysis with regard to variable cost,fixed cost,and selling price per unit?
 (Assume a single product).

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Question 6

Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are $300.Annual fixed costs are $990,000.Current sales volume is $4,200,000.Dunkin company management targets an annual after-tax income of $843,750.The company is subject to a 25% income tax rate.Compute the dollar sales to earn the target after-tax net income.

Accepted Answer

Pretax income = After-tax income/(1-.25); $843,750/.75 = $1,125,000
Unit sales at target income = $990,000 + $1,125,000 = $2,115,000
Dollars to be sold = $2,115,000/.375= $5,640,000

Question 7

Baines Brothers manufactures and sells two products,A and Z in the ratio of 4: 2.Product A sells for $75; Z sells for $95.Variable costs for product A are $35; for Z $40.Fixed costs are $418,500.Compute the contribution margin per composite unit.

Accepted Answer

($75 - $35) = $40 * 4 = $160; ($95 - $40) = $55 * 2 = $110; $160 + $110 = $270

Question 8

Baines Brothers manufactures and sells two products,A and Z in the ratio of 4: 2.Product A sells for $75; Z sells for $95.Variable costs for product A are $35; for Z $40.Fixed costs are $418,500.Compute the break-even point in composite units.

Accepted Answer

($75 - $35) = $40 * 4 = $160; ($95 - $40) = $55 * 2 = $110; $160 + $110 = $270
$418,500/$270 = 1,550 units

Question 9

Baines Brothers manufactures and sells two products,A and Z in the ratio of 4: 2.Product A sells for $75; Z sells for $95.Variable costs for product A are $35; for Z $40.Fixed costs are $418,500.Compute the number of units of Product A Baines must sell to break even.

Accepted Answer

($75 - $35) = $40 * 4 = $160; ($95 - $40) = $55 * 2 = $110; $160 + $110 = $270
$418,500/$270 = 1,550 units * 4 = 6,200

Question 10

Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are $300.Annual fixed costs are $990,000.Current sales volume is $4,200,000.Compute the break-even point in units.

Accepted Answer

$480 - $300 = $180; $990,000/$180 = 5,500 units

Question 11

Describe what happens to the net income of a company under each of the following assumptions:
 (a)Sales volume is less than break-even sales.(b)Sales volume is greater than break-even sales.(c)Sales volume is equal to the break-even point.

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Question 12

Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are $300.Annual fixed costs are $990,000.Current sales volume is $4,200,000.Compute the current margin of safety in dollars for Dunkin Company.

Accepted Answer

Break-even = $480 - $300 = $180/$480 = 37.5%; $990,000/.375 = $2,640,000
Margin of safety = $4,200,000 - $2,640,000 = $1,560,000

Question 13

Baines Brothers manufactures and sells two products,A and Z in the ratio of 4: 2.Product A sells for $75; Z sells for $95.Variable costs for product A are $35; for Z $40.Fixed costs are $418,500.Compute the number of units of Product Z Baines must sell to break even.

Accepted Answer

($75 - $35) = $40 * 4 = $160; ($95 - $40) = $55 * 2 = $110; $160 + $110 = $270
$418,500/$270 = 1,550 units * 2 = 3,100

Question 14

Define variable cost,fixed cost,and mixed cost.

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Question 15

Winthrop Manufacturing produces a product that sells for $50.00.Fixed costs are $260,000 and variable costs are $24.00 per unit.Winthrop 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 break-even point in dollars with the purchase of the new machine.

Accepted Answer

Break-even point with new machine = ($260,000 + $11,400)/((($50.00 - ($24.00 -$3.50))/$50.00) = $271,400/.59 = $460,000

Question 16

Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are $300.Annual fixed costs are $990,000.Current sales volume is $4,200,000.Compute the contribution margin per unit.

Accepted Answer

$480 - $300 = $180

Question 17

Winthrop Manufacturing produces a product that sells for $50.00.Fixed costs are $260,000 and variable costs are $24.00 per unit.Winthrop 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 contribution margin per unit if the machine is purchased.

Accepted Answer

Contribution margin with new machine = $50.00 - ($24.00-$3.50) = $29.50

Question 18

Winthrop Manufacturing produces a product that sells for $50.00.Fixed costs are $260,000 and variable costs are $24.00 per unit.Winthrop 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 break-even point in units if the new machine is purchased.

Accepted Answer

Break-even point with old machine = $260,000/($50.00 - $24.00) = 10,000 units
Break-even point with new machine = ($260,000 + $11,400)/(($50.00 - ($24.00 -$3.50))= 9,200 units; 10,000 - 9,200 = 800 unit decrease

Question 19

Discuss how CVP analysis can be useful in planning.

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Question 20

Legacy Company is considering the production and sale of a new product with the following sales and cost data:
 unit sales price $18; unit variable costs $8.10; and total fixed costs of $8,250.Legacy is subject to a 25% tax rate.Determine the dollar sales needed to generate an after-tax income of $33,000.

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Quiz 21: Cost-Volume-Profit Analysis