Question 1

Which of the following is not an assumption of cost/volume/profit analysis?

Accepted Answer

The variable cost per unit varies over the relevant range of activity is not an assumption of cost/volume/profit analysis.

Question 2

Crown Co.can produce two types of lamps,the Enlightner and Foglighter.The data on the two lamp models are as follows: 
It takes one machine hour to produce each product.Total fixed costs for the manufacture of both products are $90,000.Demand is high enough for either product to keep the plant operating at maximum capacity.
Assuming that sales mix remains constant in dollars,the breakeven point in dollars is (round intermediate calculations to 4 decimal places and final answer to the nearest whole number):

Accepted Answer

The answer of Crown Co.can produce two types of lamps,the...

Question 3

Kelvin Co.produces and sells socks.Variable costs are $4 per pair,and fixed costs for the year total $90,000.The selling price is $6 per pair.The sales units required to make an after-tax profit of $15,000,given an income tax rate of 40 percent,are:

Accepted Answer

To find the required sales units, first calculate the before-tax profit needed: $15,000 / (1 - 0.40) = $25,000. Then, use the formula: Required units = (Fixed Costs + Before-tax Profit) / Contribution Margin per unit. Contribution Margin per unit = Selling Price - Variable Cost = $6 - $4 = $2. Required units = ($90,000 + $25,000) / $2 = 57,500 units.

Question 4

Framing House,Inc.produces and sells picture frames.Variable costs are $17 per frame,and fixed costs for the year total $130,000.The selling price is $25 per frame.The sales dollars required to make a before-tax profit of $20,000 are calculated to be:

Accepted Answer

To calculate the sales dollars required to make a before-tax profit of $20,000, we need to use the following formula:

Sales - Variable Costs - Fixed Costs = Profit

Let's plug in the given values:

$25Q - $17Q - $130,000 = $20,000

Simplifying the equation, we get:

$8Q = $150,000

Q = 18,750

Therefore, the required sales dollars to make a profit of $20,000 are:

Sales = $25 x 18,750 = $468,750

So, the best choice is B.

Question 5

Framing House,Inc.produces and sells picture frames.Variable costs are $17 per frame,and fixed costs for the year total $130,000.The selling price is $25 per frame.The sales dollars required to make an after-tax profit of $10,000,given an income tax rate of 20 percent,are calculated to be(round intermediate calculation(s)to nearest whole number):

Accepted Answer

The answer of Framing House,Inc.produces and sells picture frames.Variable costs...

Question 6

Kelvin Co.produces and sells socks.Variable costs are $4 per pair,and fixed costs for the year total $90,000.The selling price is $6 per pair.The sales dollars required to make a before-tax profit of $10,000 are:

Accepted Answer

Explanation:Sales dollars required to make a before-tax profit of $10,000 = Fixed costs + Profit / (Selling price per unit - Variable cost per unit)= $90,000 + $10,000 / ($6 - $4)= $300,000

Question 7

Staley Co.manufactures computer monitors.The following is a summary of its basic cost and revenue data: 
Assume that Staley Co.is currently selling 600 computer monitors per month and monthly fixed costs are $80,000.If an $18,000 increase in the advertising budget would increase monthly sales by $60,000,the new operating income would be:

Accepted Answer

The answer of Staley Co.manufactures computer monitors.The following is a...

Question 8

Crown Co.can produce two types of lamps,the Enlightner and Foglighter.The data on the two lamp models are as follows: 
It takes one machine hour to produce each product.Total fixed costs for the manufacture of both products are $90,000.Demand is high enough for either product to keep the plant operating at maximum capacity.
Assuming that sales mix remains constant in units,the breakeven point in total units is (round intermediate calculations to 3 decimal places and final answer to the nearest whole number):

Accepted Answer

To calculate the breakeven point, we need to find the total number of units that need to be produced and sold in order to cover the total cost (fixed and variable costs).

Let's start by calculating the variable cost per unit for each product:

Enlightner:
Direct materials cost per unit = $7.50
Direct labor cost per unit = $4.50
Variable overhead cost per unit = $3.00
Total variable cost per unit = $15.00

Foglighter:
Direct materials cost per unit = $10.00
Direct labor cost per unit = $5.00
Variable overhead cost per unit = $2.50
Total variable cost per unit = $17.50

Next, we need to calculate the contribution margin per unit for each product:

Enlightner:
Selling price per unit = $30.00
Contribution margin per unit = Selling price - Total variable cost = $30.00 - $15.00 = $15.00

Foglighter:
Selling price per unit = $40.00
Contribution margin per unit = Selling price - Total variable cost = $40.00 - $17.50 = $22.50

Now we can calculate the weighted average contribution margin per unit for both products, based on the sales mix (which we are assuming remains constant):

Weighted average contribution margin = (Contribution margin per unit x Sales mix)

Enlightner:
Weighted average contribution margin for Enlightner = $15.00 x 0.4 = $6.00

Foglighter:
Weighted average contribution margin for Foglighter = $22.50 x 0.6 = $13.50

Finally, we can use the weighted average contribution margin to calculate the breakeven point in total units:

Breakeven point = Total fixed costs / Weighted average contribution margin per unit

Breakeven point = $90,000 / ($6.00 + $13.50) = 710.5263

Rounding up to the nearest whole number, the breakeven point in total units is 710.

Therefore, the best choice is B, to produce and sell 40% of Enlightner lamps and 60% of Foglighter lamps in order to reach a breakeven point of 710 units.

Question 9

Which of the following factors is not involved in studying cost/volume/profit relationships?

Accepted Answer

Actual sales is not a factor involved in studying cost/volume/profit relationships, as it is the outcome of the relationship between cost, volume, and profit. The other factors listed (desired profit, variable costs, fixed costs, and product mix) are all key inputs that affect cost/volume/profit relationships.

Question 10

Staley Co.manufactures computer monitors.The following is a summary of its basic cost and revenue data: 
Assume that Staley Co.is currently selling 600 computer monitors per month and monthly fixed costs are $80,000.What is Staley Co.'s margin of safety in units,if 600 units are sold (round intermediate calculation up to nearest whole number of units)?

Accepted Answer

The answer of Staley Co.manufactures computer monitors.The following is a...

Question 11

Framing House,Inc.produces and sells picture frames.Variable costs are $17 per frame,and fixed costs for the year total $130,000.The selling price is $25 per frame.The sales units required to make an after-tax profit of $10,000,given an income tax rate of 20 percent,are calculated to be (round up to nearest whole unit:

Accepted Answer

To find the sales units required, first calculate the before-tax profit needed: $10,000 / (1 - 0.20) = $12,500. Then, use the formula: (Fixed Costs + Before-Tax Profit) / (Selling Price - Variable Cost) = ($130,000 + $12,500) / ($25 - $17) = 17,813 units.

Question 12

Staley Co.manufactures computer monitors.The following is a summary of its basic cost and revenue data: 
Assume that Staley Co.is currently selling 600 computer monitors per month and monthly fixed costs are $80,000.Staley Co.'s operating leverage,if 600 units are sold,is calculated to be:

Accepted Answer

The answer of Staley Co.manufactures computer monitors.The following is a...

Question 13

Framing House,Inc.produces and sells picture frames.Variable costs are $17 per frame,and fixed costs for the year total $130,000.The selling price is $25 per frame.The sales units required to make a before-tax profit of $15,000 are calculated to be:

Accepted Answer

The answer of Framing House,Inc.produces and sells picture frames.Variable costs...

Question 14

Kelvin Co.produces and sells socks.Variable costs are $4 per pair,and fixed costs for the year total $90,000.The selling price is $6 per pair.The sales units required to make a before-tax profit of $12,000 are:

Accepted Answer

To find the sales units required to achieve a before-tax profit of $12,000, use the formula: Required Sales Units = (Fixed Costs + Desired Profit) / (Selling Price - Variable Cost). Plugging in the values: (90,000 + 12,000) / (6 - 4) = 51,000 units.

Question 15

Staley Co.manufactures computer monitors.The following is a summary of its basic cost and revenue data: 
Assume that Staley Co.is currently selling 600 computer monitors per month and monthly fixed costs are $80,000.Operating income is calculated to be:

Accepted Answer

The answer of Staley Co.manufactures computer monitors.The following is a...

Question 16

At the breakeven point,fixed cost is always:

Accepted Answer

At the breakeven point, the total revenue generated is equal to the total cost incurred, which includes both fixed and variable costs. Therefore, fixed cost is equal to the total contribution margin at the breakeven point, as the contribution margin is the total revenue generated minus the total variable costs.

Question 17

Cost-volume-profit relationships that are curvilinear may be analyzed linearly by considering only:

Accepted Answer

Curvilinear cost-volume-profit relationships can be analyzed linearly by focusing only on a relevant range of volume. This means that the range of activity levels under consideration should be such that fixed costs and variable costs remain relatively constant. By limiting the analysis to a relevant range of volume, the relationship between costs, volume, and profits can be approximated as a straight line, even when actual cost behavior is curvilinear. The other options, such as fixed and semi-variable costs or relevant fixed costs, do not fully address the issue of curvilinear cost-volume-profit relationships.

Question 18

Cost/volume/profit analysis is a technique available to management to understand better the interrelationships of several factors that affect a firm's profit.As with many such techniques,the accountant oversimplifies the real world by making assumptions.Which of the following is not a major assumption underlying CVP analysis?

Accepted Answer

The answer of Cost/volume/profit analysis is a technique available to...

Question 19

Kelvin Co.produces and sells socks.Variable costs are $4 per pair,and fixed costs for the year total $90,000.The selling price is $6 per pair.The sales dollars required to make an after-tax profit of $15,000,given an income tax rate of 40 percent,are calculated to be:

Accepted Answer

To find the sales dollars required, first calculate the before-tax profit needed: $15,000 / (1 - 0.40) = $25,000. Then, use the formula: Sales = (Fixed Costs + Before-Tax Profit) / Contribution Margin Ratio. Contribution Margin per pair = $6 - $4 = $2. Contribution Margin Ratio = $2 / $6 = 1/3. Sales = ($90,000 + $25,000) / (1/3) = $345,000.

Question 20

Staley Co.manufactures computer monitors.The following is a summary of its basic cost and revenue data: 
Assume that Staley Co.is currently selling 600 computer monitors per month and monthly fixed costs are $80,000.Staley Co.'s margin of safety ratio if 600 units are sold,is calculated to be:

Accepted Answer

The answer of Staley Co.manufactures computer monitors.The following is a...

Quiz 9: Profit Planning: Cost-Volume-Profit Analysis

Which of the following is not an assumption of cost/volume/profit analysis?

Kelvin Co.produces and sells socks.Variable costs are $4 per pair,and fixed costs for the year total $90,000.The selling price is $6 per pair.The sales units required to make an after-tax profit of $15,000,given an income tax rate of 40 percent,are:

Framing House,Inc.produces and sells picture frames.Variable costs are $17 per frame,and fixed costs for the year total $130,000.The selling price is $25 per frame.The sales dollars required to make a before-tax profit of $20,000 are calculated to be:

Kelvin Co.produces and sells socks.Variable costs are $4 per pair,and fixed costs for the year total $90,000.The selling price is $6 per pair.The sales dollars required to make a before-tax profit of $10,000 are:

Which of the following factors is not involved in studying cost/volume/profit relationships?

Staley Co.manufactures computer monitors.The following is a summary of its basic cost and revenue data: Assume that Staley Co.is currently selling 600 computer monitors per month and monthly fixed costs are $80,000.Staley Co.'s operating leverage,if 600 units are sold,is calculated to be:

Framing House,Inc.produces and sells picture frames.Variable costs are $17 per frame,and fixed costs for the year total $130,000.The selling price is $25 per frame.The sales units required to make a before-tax profit of $15,000 are calculated to be:

Kelvin Co.produces and sells socks.Variable costs are $4 per pair,and fixed costs for the year total $90,000.The selling price is $6 per pair.The sales units required to make a before-tax profit of $12,000 are:

Staley Co.manufactures computer monitors.The following is a summary of its basic cost and revenue data: Assume that Staley Co.is currently selling 600 computer monitors per month and monthly fixed costs are $80,000.Operating income is calculated to be:

At the breakeven point,fixed cost is always:

Cost-volume-profit relationships that are curvilinear may be analyzed linearly by considering only:

Kelvin Co.produces and sells socks.Variable costs are $4 per pair,and fixed costs for the year total $90,000.The selling price is $6 per pair.The sales dollars required to make an after-tax profit of $15,000,given an income tax rate of 40 percent,are calculated to be:

Staley Co.manufactures computer monitors.The following is a summary of its basic cost and revenue data: Assume that Staley Co.is currently selling 600 computer monitors per month and monthly fixed costs are $80,000.Staley Co.'s margin of safety ratio if 600 units are sold,is calculated to be: