Question 1

Loyal Enterprises has sales revenue of $125,000 for 2014.Its product sells for $10 and has a 25 percent contribution margin.Fixed costs are $26,000.What is Loyal Enterprises' operating income for 2014?

Accepted Answer

To find the operating income, first calculate the contribution margin in dollars: $125,000 * 25% = $31,250. Then subtract the fixed costs: $31,250 - $26,000 = $5,250.

Question 2

Edward Cheezer's Inc.makes and sells frozen four-cheese pizzas,New York-style.The expected selling price is $10 per pizza.The projected variable cost per pizza is $6.The estimated fixed costs per month are $10,000. 
-If 6,000 pizzas are sold in a given month and fixed costs increase by $5,000,the overall profit is

Accepted Answer

The profit is calculated as (Selling Price - Variable Cost) * Quantity - Fixed Costs. Here, ($10 - $6) * 6,000 - ($10,000 + $5,000) = $24,000 - $15,000 = $9,000.

Question 3

Hike Sports Corporation's income statement data for last year is as follows:  What is Hike's breakeven point in dollars?

Accepted Answer

The answer of Hike Sports Corporation's income statement data for...

Question 4

Field Legal Services is trying to determine the variable and fixed elements of its service overhead.The following data have been collected from recent activity:  The formula for total service overhead costs is

Accepted Answer

The answer of Field Legal Services is trying to determine...

Question 5

Briefly explain the use of statistical methods to separate mixed cost components.

Accepted Answer

The answer of Briefly explain the use of statistical methods...

Question 6

Excerpts from cost-volume-profit analysis of Nutshell Inc.indicate fixed costs of $85,000,a contribution margin per unit of $40,a selling price of $95,and a sales level of 4,000 units.What must be the targeted level of profit?

Accepted Answer

To find the targeted level of profit, use the formula: Profit = (Sales level * Contribution margin per unit) - Fixed costs. Plugging in the values: Profit = (4,000 * $40) - $85,000 = $75,000.

Question 7

Excerpts from a cost-volume-profit analysis indicate fixed costs of $30,000,a variable cost per unit of $36,a selling price of $60,and a sales level of $125,000.The targeted level of profit must be

Accepted Answer

The contribution margin per unit is $60 - $36 = $24. To find the number of units sold, divide the sales level by the selling price per unit: $125,000 / $60 = 2083.33 units. The total contribution margin is 2083.33 units * $24 = $50,000. Subtract fixed costs of $30,000 from the total contribution margin to find the profit: $50,000 - $30,000 = $20,000.

Question 8

Using the contribution margin approach,find the contribution margin ratio for Consumer Products if the selling price per unit is $15,the variable cost per unit is $7.50,and the fixed costs are $8,000.

Accepted Answer

Contribution margin ratio is calculated by dividing the contribution margin (selling price per unit minus variable cost per unit) by the selling price per unit.

Contribution Margin = Selling Price per Unit - Variable Cost per Unit
= $15 - $7.50
= $7.50

Contribution Margin Ratio = (Contribution Margin / Selling Price per Unit) x 100%
= ($7.50 / $15) x 100%
= 50%

Therefore, the correct answer is C) 50%.

Question 9

Lopez Inc.sells 400 watches at $59 per watch and has variable costs of $26 per watch and fixed costs of $4,000,what is the projected profit?

Accepted Answer

The projected profit can be calculated as follows: Total Revenue - Total Costs = Profit. Total Revenue = 400 watches * $59 = $23,600. Total Variable Costs = 400 watches * $26 = $10,400. Total Costs = Total Variable Costs + Fixed Costs = $10,400 + $4,000 = $14,400. Therefore, Profit = Total Revenue - Total Costs = $23,600 - $14,400 = $9,200.

Question 10

If the contribution margin on a new product line is $15,fixed costs are $165,000,and the total market for the product is 22,000 units,then the breakeven analysis would recommend that the company

Accepted Answer

The contribution margin of $15 is greater than the fixed costs of $165,000, indicating that the product will generate a profit after breakeven point is reached. The breakeven point can be calculated by dividing the fixed costs by the contribution margin, which gives us 11,000 units. As the total market size is 22,000 units, it suggests that the company should adopt the new product line as it has the potential to generate a profit. They could also consider options to increase sales and reduce costs to increase profitability further.

Question 11

The graph below depicts two different types of costs.Questions related to the graph should be answered in the spaces provided.

a.The line H-B represents what type of cost? ______________________
b.Total variable costs for production at point J would be ___________ than at point L.
c.Fixed costs per unit at point J would be _________ than at point L.
d.What is a possible reason that line G-A increases at point A to a new horizontal line?
e.What kind of cost is depicted by the line from point G to point A?

Accepted Answer

The answer of The graph below depicts two different types...

Question 12

Edward Cheezer's Inc.makes and sells frozen four-cheese pizzas,New York-style.The expected selling price is $10 per pizza.The projected variable cost per pizza is $6.The estimated fixed costs per month are $10,000. 
-The number of pizzas that must be sold to obtain a monthly profit of $20,000 is

Accepted Answer

First, we need to calculate the contribution margin per pizza, which is:
Selling price per pizza - Variable cost per pizza = $10 - $6 = $4.

Next, we need to calculate the total contribution margin required to obtain a monthly profit of $20,000. Since the fixed costs are already given as $10,000, the total required contribution margin is:
Fixed costs + Target profit = $10,000 + $20,000 = $30,000.

Finally, we can calculate the number of pizzas required to generate this contribution margin as follows:
(Number of pizzas) x (Contribution margin per pizza) = Total contribution margin required
(Number of pizzas) x $4 = $30,000
(Number of pizzas) = $30,000 ÷ $4
(Number of pizzas) = 7,500

Therefore, the answer is D, 7,500 pizzas, which must be sold to obtain a monthly profit of $20,000.

Question 13

Fusion Inc.sells a single product which has a contribution margin of $125 per unit.The fixed cost of Fusion is $195,000.If the company wants to earn $55,000 as operating income,it should sell:

Accepted Answer

The answer of Fusion Inc.sells a single product which has...

Question 14

For every unit that a company produces and sells above the breakeven point,its profitability is improved (ignoring taxes)by the unit's

Accepted Answer

The contribution margin is the amount that each unit contributes towards covering the fixed costs and generating a profit. Therefore, for every unit sold above the breakeven point, the profitability is improved by the unit's contribution margin. A and B are incorrect because Gross Margin and Selling Price minus Fixed Cost do not fully consider the variable costs associated with each unit. C is incorrect because simply subtracting variable cost does not take into account the effect of fixed costs on profitability.

Question 15

Walton reported sales of $640,000,fixed costs of $314,000,and a profit of $92,000.If the contribution margin is $8 per unit,how many units did Walton sell?

Accepted Answer

Contribution margin per unit = Sales per unit - Variable cost per unit
Contribution margin per unit = $8
Total profit = $92,000
Total fixed cost = $314,000
Sales revenue = $640,000
Using the formula to calculate the break-even point in units:
Break-even point in units = (Fixed costs + Profit) / Contribution margin per unit
Break-even point in units = ($314,000 + $92,000) / $8 per unit
Break-even point in units = 50,750 units
Therefore, Walton sold 50,750 units to make a profit of $92,000. Thus, the answer is C.

Question 16

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

Accepted Answer

The assumption that the breakeven point will be reached and surpassed during the period is not necessary for cost-volume-profit analysis to be applied. In some cases, a company may not reach its breakeven point, but cost-volume-profit analysis can still provide useful information. The other assumptions listed (product sales mix will not change, cost behavior can be determined accurately, and productivity is constant within the relevant range) are necessary for cost-volume-profit analysis to be applicable.

Question 17

Lilly LLC wants to make a profit of $30,000.It has variable costs of $99 per unit and fixed costs of $20,000.How much must it charge per unit if 5,000 units are sold?

Accepted Answer

To achieve a profit of $30,000 with fixed costs of $20,000 and selling 5,000 units, Lilly LLC needs total revenue of $50,000 (profit + fixed costs) in addition to covering variable costs. The variable cost per unit is $99, so the total variable cost for 5,000 units is $495,000. The total required revenue is $545,000 ($495,000 for variable costs + $50,000 for fixed costs and profit). Dividing this by 5,000 units gives a price per unit of $109.

Question 18

Share and Care International is trying to determine how many clients must be serviced in order to cover its monthly service overhead.Using the high-low method,it has determined that the variable cost per client is $800 and that the monthly fixed overhead is $28,000. 
-Assuming an average fee of $1,400 per client and a targeted profit of $26,000,the number of clients to be serviced is

Accepted Answer

To find the number of clients needed to cover costs and achieve the targeted profit, use the formula: (Fixed Costs + Target Profit) / (Average Fee - Variable Cost per Client). Here, it is ($28,000 + $26,000) / ($1,400 - $800) = 90 clients.

Question 19

Share and Care International is trying to determine how many clients must be serviced in order to cover its monthly service overhead.Using the high-low method,it has determined that the variable cost per client is $800 and that the monthly fixed overhead is $28,000. 
-Assuming an average fee of $1,200 per client,the breakeven point per month is

Accepted Answer

The formula to find the breakeven point is:

Breakeven Point = Fixed Costs / (Price per Unit - Variable Costs per Unit)

Substituting the values given:

Breakeven Point = 28,000 / (1,200 - 800) = 70 clients.

Therefore, the answer is C, 70 clients. This means that Share and Care International must service at least 70 clients in a month to cover its monthly service overhead.

Question 20

Breakeven analysis adjusted for a targeted profit

Accepted Answer

Breakeven analysis adjusted for a targeted profit is excellent for performing "what-if" analysis because it allows businesses to calculate how changes in costs, selling prices, or volume affect profitability, including achieving specific profit goals.

Quiz 21: Cost-Volume-Profit Analysis