Question 1

Information from CVP analysis helps with all of the following decisions except:

Accepted Answer

CVP analysis helps managers make decisions related to production volume, product emphasis, and cost structure. However, it does not provide information directly related to specific employee layoffs. That decision would require additional information and considerations, such as performance evaluations and company policies.

Question 2

(CGA)Del Co. has fixed costs of $100,000 and breakeven sales of $800,000. What is its projected profit at $1,200,000 in sales?

Accepted Answer

At breakeven sales of $800,000, Del Co. covers all fixed costs. With $1,200,000 in sales, the additional $400,000 contributes to profit. The contribution margin ratio is $100,000/$800,000 = 12.5%. Thus, $400,000 * 12.5% = $50,000 profit.

Question 3

NuBlades Manufacturing Inc. is considering the production of a new type of in-line skate. The skates sell for $80 per pair, and direct materials and direct labour will cost about $47.20 per pair. Fixed costs will increase by $984,000 per year because a new manufacturing assembly line will be required. The income tax rate is 30%.
a)What is the breakeven point for the new skate?
b)How many units must NuBlades sell to earn $492,000 after taxes?
c)List the assumptions made in this CVP analysis.

Accepted Answer

The answer of NuBlades Manufacturing Inc. is considering the production...

Question 4

At the breakeven point, the contribution margin equals total:

Accepted Answer

At the breakeven point, the total contribution margin will be equal to the total fixed costs. This is because the contribution margin (revenues minus variable costs) only covers fixed costs once the breakeven point is reached. Therefore, the correct answer is D, fixed costs.

Question 5

Heesacker Co. sells a product with a $2 per unit contribution margin. Fixed costs are $70,000 and the tax rate is 60%. What amount of revenue is needed to obtain an after-tax profit of $30,000 if the unit selling price is $5?

Accepted Answer

The answer of Heesacker Co. sells a product with a...

Question 6

Compared to organizations with low operating leverage, organizations with high operating leverage have:

Accepted Answer

Organizations with high operating leverage have a high proportion of fixed costs in total cost, which means that a small decline in sales can lead to a large decline in profits. Therefore, these organizations are more vulnerable to losses if they are close to the breakeven point. On the other hand, organizations with low operating leverage have a low proportion of fixed costs and are less vulnerable to losses if they are close to the breakeven point.

Question 7

ABC Co. has fixed costs of $50,000 (with 60% attributable to manufacturing overhead)and breakeven sales of $500,000. What is its projected gross margin at $1,000,000 in sales?

Accepted Answer

First, we need to calculate the variable costs as a percentage of sales to determine the contribution margin. To do this, we can use the formula:

Contribution Margin = (Sales - Variable Costs) / Sales

Let's assume that the variable costs are 40% of sales. This means that the contribution margin is:

Contribution Margin = (1 - 0.4) = 0.6 or 60%

Next, we can use the formula for breakeven sales to find the total costs:

Breakeven Sales = Fixed Costs / Contribution Margin

$500,000 = $50,000 / 0.6

Total Costs = $83,333.33

Now we can use the same formula to find the total costs at $1,000,000 in sales:

$1,000,000 = Fixed Costs / Contribution Margin + Variable Costs

$1,000,000 = $50,000 / 0.6 + 0.4 * $1,000,000

$1,000,000 = $83,333.33 + $400,000

Total Costs = $483,333.33

Finally, we can calculate the gross margin:

Gross Margin = Sales - Total Costs

Gross Margin = $1,000,000 - $483,333.33

Gross Margin = $516,666.67

Therefore, the answer is C) $70,000.

Question 8

Quarterly budget data for Hamburger Haven:
Sales $100,000
Costs:
Ingredients $30,000
Hourly employees 20,000
Manager's salary 10,000
Napkins, straws, and miscellaneous 15,000
Rent, marketing, and administration 20,000
Total Costs 95,000
Budgeted pre-tax profit $ 5,000
Hourly employees go home when the outlet is not busy. The rent, marketing, and administration costs include $16,000 that does not vary proportionately with sales volumes. The income tax rate is 20%.
a)Compute the revenues needed to achieve a target after-tax income of $45,000.
b)What is the margin of safety in revenue?

Accepted Answer

The answer of Quarterly budget data for Hamburger Haven:
Sales $100,000
Costs:
Ingredients...

Question 9

(CMA)A widely used approach that is used to recognize uncertainty about individual economic variables while obtaining an immediate financial estimate of the consequences of possible prediction errors is:

Accepted Answer

Sensitivity analysis is a widely used approach that is used to recognize uncertainty about individual economic variables while obtaining an immediate financial estimate of the consequences of possible prediction errors. The technique involves analyzing the impact of changes in inputs, such as interest rates, exchange rates, or commodity prices, on the outcome of a financial model. This helps to identify the critical variables that are most likely to affect the results and allows managers to make more informed decisions about the risks associated with a particular project or investment. Expected value analysis, learning curve analysis, and regression analysis are all useful methods in their own right, but they do not provide the same level of insight into the potential impact of uncertainty on financial outcomes as sensitivity analysis.

Question 10

SDZ Corporation produces and sells a single product. Its selling price is $15 per unit, and the variable cost per unit is $12. Total fixed costs per month are $3,000.
a)What is SDZ's contribution margin per unit?
b)Calculate the monthly breakeven point in units.
c)How many units must SDZ sell for a pre-tax target profit of $10,000 per month?

Accepted Answer

The answer of SDZ Corporation produces and sells a single...

Question 11

Julie's Jewels sells cubic zirconium (fake diamond)rings for $80 each. The projected income statement for 2006 follows:
Sales $4,000,000
Variable costs (2,200,000)
Contribution Margin 1,800,000
Fixed costs (1,600,000)
Pre-tax profit $ 200,000
a)Compute the contribution margin per ring and the number of rings that must be sold to break even.
b)Compute the contribution margin ratio and the breakeven point in total revenue.
c)Suppose the total revenues were $200,000 greater than expected. What is the total pre-tax profit?
d)What is the margin of safety in number of rings?
e)Assume a tax rate of 25%. How many rings must be sold to earn an after-tax profit of $300,000?

Accepted Answer

The answer of Julie's Jewels sells cubic zirconium (fake diamond)rings...

Question 12

NTQ Corporation produces and sells a single product with a price of $12 per unit and variable costs of $8 per unit. Total fixed costs per month are $8,000.
a)Calculate NTQ's contribution margin per unit.
b)How many units must NTQ sell monthly to break even?
c)If fixed costs increase by $500 per month, how many extra units must NTQ sell each month to continue breaking even?

Accepted Answer

The answer of NTQ Corporation produces and sells a single...

Question 13

CTR Corporation produces and sells three products: chairs, tables, and artificial plants. Data related to the three products appears in the table below:
Artificial
Chairs Tables Plants
Expected sales volume (units)800 200 150
Price per unit $50.00 $70.00 $20.00
Variable cost per unit 12.00 30.00 3.00
CTR's total fixed costs are $9,000, and its tax rate is 30%. Based on the preceding information, calculate the following amounts:
a)Expected sales mix in units for each product as a percent of total unit sales
b)Expected sales mix in revenues for each product as a percent of total revenue
c)Expected after-tax income for CTR as a whole
d)Breakeven point in units for CTR as a whole

Accepted Answer

The answer of CTR Corporation produces and sells three products:...

Question 14

CVP analysis is most likely to be used for:

Accepted Answer

CVP analysis is used to predict profits across a range of operations by analyzing the relationship between sales, costs, and profit. It helps in determining the break-even point and the level of sales needed to earn a desired level of profit. Option A is more related to strategic planning, option B is related to cost behavior analysis, and option C is more related to cost estimation for a specific project.

Question 15

FTH Corporation produces and sells two products: regular scooters and electric scooters. Last month, the company produced and sold 500 regular and 300 electric scooters. Last month's per-unit financial data for both models is presented below:
Regular Electric
Selling price $100 $150
Variable cost 30 40
Product line fixed cost 25 45
Corporate fixed cost 10 10
Product line fixed costs can be avoided if the product is dropped, but corporate fixed costs can only be avoided if FTH goes out of business entirely. Calculate the following amounts:
a)Total fixed product line costs for each product
b)Total corporate fixed costs
c)Overall corporate breakeven point in sales dollars assuming a constant sales mix
d)Breakeven point in sales dollars for regular scooters, ignoring corporate fixed costs
e)Breakeven point in sales dollars for electric scooters, ignoring corporate fixed costs

Accepted Answer

The answer of FTH Corporation produces and sells two products:...

Question 16

RSE Corporation sells its product for $10 per unit. Its variable cost is $3 per unit and total fixed costs are $700. Calculate the following:
a)Breakeven sales in units
b)Margin of safety in units if RSE sells 150 units
c)Margin of safety in revenues if RSE sells 200 units
d)Estimated income or loss if RSE sells 75 units

Accepted Answer

The answer of RSE Corporation sells its product for $10...

Question 17

To calculate a breakeven point for an organization that has multiple products, the weighted average contribution margin is calculated. What are the components of a weighted average contribution margin?

Accepted Answer

The answer of To calculate a breakeven point for an...

Question 18

Franco's Flowers is a wholesale flower shop that sells two types of flowers, roses and carnations, by the dozen. The contribution margin on roses is higher than the contribution margin on carnations. During February, Franco's sells twice as many roses as in other months, but the same amount of carnations as in other months. Will the contribution margin in February be higher or lower than in other months? Explain your answer.

Accepted Answer

The answer of Franco's Flowers is a wholesale flower shop...

Question 19

CVP analysis has a number of uses. Describe two of these.

Accepted Answer

The answer of CVP analysis has a number of uses....

Question 20

During Muin Company's first year of operations it sold a single product for $25 per unit, with variable costs of $15 per unit. Annual fixed costs were $60,000 (with Fixed Manufacturing Overhead making up 50% of the total and Fixed Selling and Admin making up the other 50%).
a)Assuming fixed costs are spread evenly throughout the year, what was Muin's monthly breakeven point in units?
b)Muin sold 500 units per month. What was its monthly gross margin? What was its annual gross margin? What was its operating profit?
b)What was its monthly contribution margin? What was its annual contribution margin? What was its operating profit?
c)Based on the same sales data as in
d)Explain the difference between Muin Co's annual gross margin and its annual contribution margin during its first year of operations.

Accepted Answer

The answer of During Muin Company's first year of operations...

Quiz 3: Cost-Volume-Profit Analysis