Question 1

Furniture,Inc.,sells lamps for $30.The unit variable cost per lamp is $22.Fixed costs total $9,600.
Required:
a.What is the contribution margin per lamp?
b.What is the breakeven point in lamps?
c.How many lamps must be sold to earn a pretax income of $8,000?
d.What is the margin of safety,assuming 1,500 lamps are sold?

Accepted Answer

The answer of Furniture,Inc.,sells lamps for $30.The unit variable cost...

Question 2

Stones Manufacturing,sells a marble slab for $1,000.Fixed costs are $30,000,while the variable costs are $400 per slab.The company currently plans to sell 200 slabs this month.What is the margin of safety assuming 75 slabs are budgeted?

Accepted Answer

The answer of Stones Manufacturing,sells a marble slab for $1,000.Fixed...

Question 3

Sensitivity analysis helps to evaluate the risk associated with decisions.

Accepted Answer

Sensitivity analysis is a tool used in decision-making to evaluate the potential impact of changes in key variables on the outcome of the decision. By examining different scenarios and evaluating the sensitivity of the decision to changes in key variables, decision-makers can gain a better understanding of the risks associated with their decisions. Thus, the statement "Sensitivity analysis helps to evaluate the risk associated with decisions" is true.

Question 4

Margin of safety measures the difference between budgeted revenues and breakeven revenues.

Accepted Answer

The margin of safety is the amount by which actual or projected sales exceed the breakeven sales, indicating how much sales can drop before the business reaches its breakeven point.

Question 5

Answer the following questions using the information below:

Southwestern College is planning to hold a fund raising banquet at one of the local country clubs. It has two options for the banquet:

Southwestern College has budgeted $1,800 for administrative and marketing expenses. It plans to hire a band which will cost another $800. Tickets are expected to be $30 per person. Local business supporters will donate any other items required for the event.

-Which option provides the greatest degree of operating leverage if 600 people attend?

Accepted Answer

Option one: $18 × 600 / $7,200 = 1.50; Option two: $22 × 600 / $7,600 = 1.74

Question 6

In 2015,Craylon Company has sales of $1,000,000,variable costs of $250,000,and fixed costs of $200,000.In 2016,the company expects annual property taxes to decrease by $15,000.
Required:
a.Calculate operating income and the breakeven point for 2015.
b.Calculate the breakeven point for 2016.

Accepted Answer

The answer of In 2015,Craylon Company has sales of $1,000,000,variable...

Question 7

Sensitivity analysis is a "what-if" technique that managers use to examine how a result will change if the originally predicted data are not achieved or if an underlying assumption changes.

Accepted Answer

Sensitivity analysis is indeed a "what-if" technique that examines the impact of changes in input assumptions or variables on a project or business result. It is useful in identifying potential risks and opportunities that may arise as the underlying factors change.

Question 8

Answer the following questions using the information below:

Southwestern College is planning to hold a fund raising banquet at one of the local country clubs. It has two options for the banquet:

Southwestern College has budgeted $1,800 for administrative and marketing expenses. It plans to hire a band which will cost another $800. Tickets are expected to be $30 per person. Local business supporters will donate any other items required for the event.

-Which option has the lowest breakeven point?

Accepted Answer

Option one: $30X - $12X - $1,000 - $1,800 - $800 = 0; X = $200
Option two: $30X - $8X - $3,000 - $1,800 - $800 = 0; X = $255

Question 9

Globus Autos sells a single product.8,000 units were sold resulting in $80,000 of sales revenue,$20,000 of variable costs,and $10,000 of fixed costs.If a change is made in one parameter of CVP analysis,it is an example of ________.

Accepted Answer

Sensitivity analysis involves changing one parameter in CVP analysis to determine its effect on profits. In this case, changing one parameter (such as the selling price or variable cost per unit) could impact the profits of Globus Autos. Incremental budgeting involves adjusting the budget based on changes in activity levels or prices, but it does not relate to CVP analysis. Variance analysis involves comparing actual costs to budgeted costs to analyze the differences, but it does not necessarily involve adjusting one parameter in CVP analysis. Multiple cost drivers involve considering multiple factors that affect costs, but this is not relevant to the scenario described.

Question 10

Tom's Tire Tower,Inc.,sells tires for $110.The unit variable cost per tire is $85.Fixed costs total $475,000.
Required:
a.What is the contribution margin per tire?
b.What is the breakeven point in tires?
c.How many tires must be sold to earn a pretax income of $450,000?
d.What is the margin of safety,assuming 33,000 tires are sold?

Accepted Answer

The answer of Tom's Tire Tower,Inc.,sells tires for $110.The unit...

Question 11

Alex Miller,Inc.,sells car batteries to service stations for an average of $30 each.The variable cost of each battery is $20 and monthly fixed manufacturing costs total $10,000.Other monthly fixed costs of the company total $8,000.
Required:
a.What is the breakeven point in batteries?
b.What is the margin of safety,assuming sales total $60,000?
c.What is the breakeven level in batteries,assuming variable costs increase by 20%?
d.What is the breakeven level in batteries,assuming the selling price goes up by 10%,fixed manufacturing costs decline by 10%,and other fixed costs decline by $100?

Accepted Answer

The answer of Alex Miller,Inc.,sells car batteries to service stations...

Question 12

Answer the following questions using the information below:

Southwestern College is planning to hold a fund raising banquet at one of the local country clubs. It has two options for the banquet:

Southwestern College has budgeted $1,800 for administrative and marketing expenses. It plans to hire a band which will cost another $800. Tickets are expected to be $30 per person. Local business supporters will donate any other items required for the event.

-Which option provides the greatest operating income if 600 people attend?

Accepted Answer

Option two provides the greatest operating income if 600 people attend, which is $9,000 ($15 x 600 - $6,000). Option one would provide an operating income of $6,000 ($10 x 600 - $4,200).

Question 13

If a company's breakeven revenue is $1,000 and its budgeted revenue is $1,250,then its margin of safety percentage is 20%.

Accepted Answer

Margin of safety percentage is calculated as (Budgeted Revenue - Breakeven Revenue) / Budgeted Revenue.

In this case, (1250-1000)/1250 = 0.2 or 20%. Therefore, the statement is true.

Question 14

Answer the following questions using the information below:

Southwestern College is planning to hold a fund raising banquet at one of the local country clubs. It has two options for the banquet:

Southwestern College has budgeted $1,800 for administrative and marketing expenses. It plans to hire a band which will cost another $800. Tickets are expected to be $30 per person. Local business supporters will donate any other items required for the event.

-Which option provides the least amount of risk?

Accepted Answer

The answer of Answer the following questions using the information...

Question 15

Globus Autos sells a single product.8,000 units were sold resulting in $80,000 of sales revenue,$20,000 of variable costs,and $10,000 of fixed costs.If variable costs decrease by $1 per unit,the new margin of safety is ________.

Accepted Answer

First, let's calculate the current margin of safety:
Margin of safety = Actual Sales - Break-even Sales
Break-even sales = Fixed Costs / Contribution Margin per Unit
Contribution Margin per Unit = Sales Price per Unit - Variable Cost per Unit

From the given data, we can calculate:
Contribution Margin per Unit = Sales Price per Unit - Variable Cost per Unit
= $80,000 / 8,000 units - $20,000 / 8,000 units
= $6 per unit

Break-even Sales = $10,000 / $6 per unit
= 1,667 units

Margin of safety = 8,000 units - 1,667 units
= 6,333 units

Now, if variable cost per unit decreases by $1, new variable cost per unit = $20,000 / 8,000 units - $1
= $1.50 per unit

New Contribution Margin per Unit = $80,000 / 8,000 units - $1.50 per unit
= $4.50 per unit

New Break-even Sales = $10,000 / $4.50 per unit
= 2,222 units

New Margin of safety = 8,000 units - 2,222 units
= 5,778 units

So, the new margin of safety is $68,235 (5,778 units x $6 per unit)
Therefore, the correct answer is C.

Question 16

________ is the process of varying key estimates to identify those estimates that are the most critical to a decision.

Accepted Answer

Sensitivity analysis involves varying key estimates or assumptions to determine which ones are the most critical to a decision. This helps decision makers understand the potential impact of changes in those key assumptions or estimates on the overall outcome of the decision. The graph method, degree of operating leverage, and sales mix are all related to financial analysis and decision making, but they are not specifically related to the process of identifying critical key estimates.

Question 17

The margin of safety is the difference between ________.

Accepted Answer

The margin of safety is the difference between the budgeted revenues and the breakeven revenues. This is because the margin of safety measures how much the actual or projected sales can fall short of the budgeted sales before the company starts incurring losses. Therefore, the margin of safety is important for assessing the level of risk associated with a business's operations.

Question 18

Answer the following questions using the information below:

Southwestern College is planning to hold a fund raising banquet at one of the local country clubs. It has two options for the banquet:

Southwestern College has budgeted $1,800 for administrative and marketing expenses. It plans to hire a band which will cost another $800. Tickets are expected to be $30 per person. Local business supporters will donate any other items required for the event.

-Option one: Fixed costs of $10,000 and a breakeven point of 500 units. Option two: Fixed costs of $20,000 and a breakeven point of 700 units.
Which option should you choose if you are expecting to produce 600 units?

Accepted Answer

Option one should be chosen because producing 600 units exceeds the breakeven point of 500 units, leading to a profit.

Question 19

Explain sensitivity analysis and how do managers use sensitivity analysis to evaluate its implications?

Accepted Answer

The answer of Explain sensitivity analysis and how do managers...

Question 20

To apply CVP analysis in the hotel industry,which of the following is the most important measure of output?

Accepted Answer

In the hotel industry, the number of room-nights occupied is the most important measure of output as it directly relates to revenue generation. CVP analysis helps to understand the relationship between revenue, costs, and volume of output, and in the case of the hotel industry, the number of room-nights occupied is directly correlated to revenue. Therefore, it is the best choice for applying CVP analysis in this industry. B, C, and D are not directly related to revenue generation and do not provide a clear measure of output for the industry.

Quiz 3: Cost-Volume-Profit Analysis

Stones Manufacturing,sells a marble slab for $1,000.Fixed costs are $30,000,while the variable costs are $400 per slab.The company currently plans to sell 200 slabs this month.What is the margin of safety assuming 75 slabs are budgeted?

Sensitivity analysis helps to evaluate the risk associated with decisions.

Margin of safety measures the difference between budgeted revenues and breakeven revenues.

In 2015,Craylon Company has sales of $1,000,000,variable costs of $250,000,and fixed costs of $200,000.In 2016,the company expects annual property taxes to decrease by $15,000. Required: a.Calculate operating income and the breakeven point for 2015. b.Calculate the breakeven point for 2016.

Sensitivity analysis is a "what-if" technique that managers use to examine how a result will change if the originally predicted data are not achieved or if an underlying assumption changes.

Globus Autos sells a single product.8,000 units were sold resulting in $80,000 of sales revenue,$20,000 of variable costs,and $10,000 of fixed costs.If a change is made in one parameter of CVP analysis,it is an example of ________.

If a company's breakeven revenue is $1,000 and its budgeted revenue is $1,250,then its margin of safety percentage is 20%.

Globus Autos sells a single product.8,000 units were sold resulting in $80,000 of sales revenue,$20,000 of variable costs,and $10,000 of fixed costs.If variable costs decrease by $1 per unit,the new margin of safety is ________.

________ is the process of varying key estimates to identify those estimates that are the most critical to a decision.

The margin of safety is the difference between ________.

Explain sensitivity analysis and how do managers use sensitivity analysis to evaluate its implications?

To apply CVP analysis in the hotel industry,which of the following is the most important measure of output?