Question 1

Identify the breakeven point in the graph given below.

Accepted Answer

The answer of Identify the breakeven point in the graph...

Question 2

From the graph given below,identify the fixed costs line.

Accepted Answer

Fixed costs are those which do not vary with the level of production. In the given graph, the fixed costs line is represented by AD as it is parallel to the X-axis (level of production) and does not change with the quantity produced. Therefore, the correct choice is C.

Question 3

Higher fixed costs increase the total number of units required to break even.

Accepted Answer

Higher fixed costs mean that more units must be sold in order to cover those costs and reach the break-even point.

Question 4

Sensitivity analysis empowers managers with better information for decision making by analyzing how various business strategies will affect profits earned by the company.

Accepted Answer

Sensitivity analysis helps managers understand the impact of different scenarios on the profitability of the company, allowing them to make more informed decisions.

Question 5

Bryant Company sells glass vases at a wholesale price of $2.6 per unit.The variable cost of manufacture is $0.35 per unit.The monthly fixed costs are $9,000.Bryant's current sales are 25,000 units per month.If Bryant wants to increase operating income by 25%,how many additional units,must Bryant sell? (Round your intermediate calculations to two decimal places.)

Accepted Answer

D)
 11ea8870_3613_23b7_bb89_e5af03798ade_TB5025_00 Target profit = $47,250 × (1 + 25%) = $59,063
 11ea8870_3613_23b8_bb89_1d5950e29da6_TB5025_00 11ea8870_3613_23b9_bb89_512e6baaf499_TB5025_00

Question 6

Steven was a professional classical guitar player until his motorcycle accident that left him disabled.After long months of therapy,he hired an experienced luthier (maker of stringed instruments)and started a small shop to make and sell Spanish guitars.The guitars sell for $800 and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | } 
\hline \text { Rent and utilities } & \$ 1,250 \
\hline \text { Wages and benefits to luthier } & 2,500 \
\hline \text { Other expenses } & 490 \
\hline
\end{array}$$ Steven's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales,$0.65 went to cover his fixed costs,and that anything past that point was pure profit.
Steven wishes to earn $6,000 of operating profit each month.Calculate the number of guitars Steven will have to sell to achieve the target profit.

Accepted Answer

To calculate the number of guitars Steven needs to sell to achieve his target profit, we first determine the total fixed costs and then use the contribution margin ratio to find out how much sales revenue is needed to cover both the fixed costs and the desired profit. The fixed costs are $1,250 (rent and utilities) + $2,500 (wages and benefits) + $490 (other expenses) = $4,240. Steven wants to earn $6,000 in profit, so the total amount needed from sales is $4,240 (fixed costs) + $6,000 (desired profit) = $10,240. Since the contribution margin ratio is 0.65, this means $0.65 of every sales dollar goes towards covering fixed costs and profit. Therefore, the required sales revenue is $10,240 / 0.65 = $15,754.62. Since each guitar sells for $800, the number of guitars needed to be sold is $15,754.62 / $800 ≈ 19.69. Since Steven cannot sell a fraction of a guitar, he needs to sell 20 guitars to meet his target.

Question 7

Torres Manufacturers produces flooring material.The monthly fixed costs are $10,000 per month.The unit selling price for the flooring is $95 and variable cost per unit is $35.If Torres' managers create a CVP graph from volume levels of zero to 500 units,at what sales level (in units)will the revenue and total cost lines intersect?

Accepted Answer

A) Required sales in units = (Fixed costs + Target profit) / Contribution margin per unit
Unit contribution margin = Net sales revenue per unit - Variable costs per unit
 11ea8870_3612_fca5_bb89_e3e9ba8eed4c_TB5025_00

Question 8

From the graph given below,identify the sales revenue line.

Accepted Answer

The answer of From the graph given below,identify the sales...

Question 9

Managers can use CVP relationships to conduct sensitivity analysis.

Accepted Answer

Managers can use CVP relationships to conduct sensitivity analysis and determine the effect of changes in sales, costs, and prices on profit. This helps them make informed decisions about pricing strategies, cost-cutting measures, and sales targets.

Question 10

Aspen Manufacturers produces flooring material.The monthly fixed costs are $12,000 per month.The unit selling price is $85 and variable cost per unit is $45.How many units should Aspen sell in order to earn $10,000 as operating income?

Accepted Answer

The answer of Aspen Manufacturers produces flooring material.The monthly fixed...

Question 11

Adam was a professional classical guitar player until his motorcycle accident that left him disabled.After long months of therapy,he hired an experienced luthier (maker of stringed instruments)and started a small shop to make and sell Spanish guitars.The guitars sell for $900 and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | } 
\hline \text { Rent and utilities } & \$ 800 \
\hline \text { Wages and benefits to luthier } & 3,000 \
\hline \text { Other expenses } & 500 \
\hline
\end{array}$$ Adam's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and that anything past that point was pure profit.
How many guitars does Adam have to sell each month to break even?

Accepted Answer

The answer of Adam was a professional classical guitar player...

Question 12

Elliott was a professional classical guitar player until his motorcycle accident that left him disabled.After long months of therapy,he hired an experienced luthier (maker of stringed instruments)and started a small shop to make and sell Spanish guitars.The guitars sell for $1,000 and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | } 
\hline \text { Rent and utilities } & \$ 1,240 \
\hline \text { Wages and benefits to luthier } & 2,600 \
\hline \text { Other expenses } & 800 \
\hline
\end{array}$$ Elliott's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales,$0.90 went to cover his fixed costs,and that anything past that point was pure profit.
Elliott wishes to earn $5,500 of operating profit each month.Calculate the amount of sales revenue required to achieve the target profit.

Accepted Answer

The contribution margin ratio is 0.90, meaning 90% of sales revenue goes towards covering fixed costs and the desired profit. The fixed costs total $1,240 + $2,600 + $800 = $4,640. To find the sales revenue needed to achieve a $5,500 profit, add the fixed costs to the desired profit ($4,640 + $5,500 = $10,140) and divide by the contribution margin ratio (0.90). This gives a required sales revenue of $10,140 / 0.90 = $11,266.67, which rounds to $11,267.

Question 13

When the variable cost per unit decreases,the contribution margin on each unit sold also decreases.

Accepted Answer

When the variable cost per unit decreases, the contribution margin on each unit sold increases.

Question 14

Sensitivity analysis allows managers to see how various business strategies will affect profit levels.

Accepted Answer

Sensitivity analysis is a technique used by managers to look at how different variables can affect the outcome or result of a particular decision. This can be useful when evaluating business strategies, as it allows managers to see how changes in sales volume, pricing, costs, and other factors can impact profit levels. By considering different scenarios and variables, managers can make more informed decisions and choose the strategy that is most likely to lead to a successful outcome for the business.

Question 15

In the graph below,the area between the lines AC and OB after point 'E' represents ________.

Accepted Answer

The area between the lines AC and OB after point 'E' represents the operating income. It is the area between the total revenue line (AC) and the total cost line (OB) above the breakeven point (E). Therefore, the correct choice is D, operating income.

Question 16

Higher fixed costs decrease the total contribution margin required to break even.

Accepted Answer

Higher fixed costs increase the total contribution margin required to break even because the contribution margin must cover larger fixed expenses before achieving profitability.

Question 17

When the variable cost per unit increases,the total number of units required to breakeven also increases.

Accepted Answer

This is because with a higher variable cost per unit, each unit sold contributes less towards covering the fixed costs, which means more units need to be sold in order to reach the breakeven point.

Question 18

Eric was a professional classical guitar player until his motorcycle accident that left him disabled.After long months of therapy,he hired an experienced luthier (maker of stringed instruments)and started a small shop to make and sell Spanish guitars.The guitars sell for $750 and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | } 
\hline \text { Rent and utilities } & \$ 1,200 \
\hline \text { Wages and benefits to luthier } & 2,600 \
\hline \text { Other expenses } & 500 \
\hline
\end{array}$$ Eric's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and that anything past that point was pure profit.
What is the amount of revenue Eric should earn each month to break even?

Accepted Answer

To calculate the break-even revenue, we first determine the total fixed costs: $1,200 (Rent and utilities) + $2,600 (Wages and benefits) + $500 (Other expenses) = $4,300. Since $0.60 of every sales dollar goes to cover fixed costs, we divide the total fixed costs by 0.60 to find the break-even revenue: $4,300 / 0.60 = $7,166.67, which rounds to $7,167.

Question 19

Aspen Manufacturers produces flooring material.The monthly fixed costs are $12,000 per month.The unit selling price is $85 and variable cost per unit is $45.Aspen wishes to earn an operating income of $25,000.Using the contribution martin ratio,calculate the total revenue.(Round your intermediate calculations to five decimal places.)

Accepted Answer