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Exam 4: Cost-Volume-Profit Analysis

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Question 21

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Aspire Appliances desires to earn a target net income of $500,000 for next year. If it has fixed costs of $2,000,000 and variable costs are 60% of sales, what are the required sales?

A) $3,750,000
B) $4,166,667
C) $5,000,000
D) $6,250,000

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Question 22

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Big Mountain Sporting Goods has two divisions: Sporting Goods and Camping and Hunting Gear. The sales mix is 60% for Sporting Goods and 40% for Camping and Hunting Gear. Big Mountain incurs $2,660,000 in fixed costs. The unit contribution margin for Sporting Goods is $300, while for Camping and Hunting Gear it is $500. What is the weighted-average contribution margin per unit and break-even point in units for Big Mountain Sporting Goods?

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Question 23

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Laminex Ltd. manufactures a coffee table that sells for $250 per unit. The company has variable costs of $150 per unit and total fixed costs of $100,000 per period. Laminex is currently selling 1,200 units per period. a. What is the current net income after taxes for Laminex if its effective tax rate is 25%? b. Management anticipates that fixed costs will increase $10,000 per period due to general salary increases to office staff. How does this change the break-even point?

Which of the following statements regarding sales mix is accurate?

Emanuel's Electronics Co. has the following results for the month: Revenues equal $6,500, contribution margin equals $3,900, and operating income equals $600. Revenues are expected to grow by 10% next month. Using the principle of degree of operating leverage (DOL) and based on the projected revenue increase, what can Emanuel's Electronics expect in operating income next month?

Artem CPA Accounting LLP provides standard financial statement review services for clients at a price of $25,000. Artem has variable costs of $13,000 per review and fixed costs of $120,000 per month. Last month, Artem had an operating profit of $36,000. Artem has an effective tax rate of 30%. If Artem would like to attain its net income after-tax goal of $84,000 next month, how many audits will the firm need to conduct?

Retro Records wants to sell enough records to earn a profit of $150,000. If the unit selling price is $20, unit variable cost is $8, and total fixed costs are $180,000, how many records must Retro Records sell to earn the desired net income of $150,000?

When a company experiences an increase in its variable per unit product costs, and no other changes occur, which of the following will happen?

Hopalong Hot Dog Stand has had the following average results for the past several months: Its selling price per hot dog is $3. Total monthly sales revenues have been $6,000, direct costs of labor and food ingredients have been $2,500 per month, variable indirect costs have been $500 per month, and fixed costs have been $1,500 per month. If Hopalong experiences a $150 per month increase in insurance costs, what will this increase do to its break-even point?

Which of the following is the most appropriate measure of the outputs of Zach's Accounting LLP to use when conducting cost-volume-profit (CVP) analysis?

Crusher Machinery Inc. sells three heavy-duty construction machines. Information on these machines is as follows: Based on this information, what is the weighted-average contribution margin per unit (WACM) ?

Assuming no other variables change, decreasing fixed costs will have what impact on a company's degree of operating leverage (DOL) ?

Licard Wineries Inc. sold 700 bottles of vintage burgundy in April at a price of $120 each. Licard incurs $45 in variable costs for each bottle of vintage burgundy and has total monthly fixed costs of $50,000. Which of the following statements is correct?

Eugene's Environmental Consulting Service LLP had the following operating results last month: Service revenues amounted to $25,000, variable costs were $12,000, and fixed costs were $10,000 for the month. Eugene has a 40% tax rate. Based on this information, which of the following statements is correct?

SoniCo operates the Annabell Lee, a riverboat that provides a 2-hour cruise down the St. John River and a buffet dinner for up to 90 guests. On average, 80 guests make reservations and pay the $55 charge per cruise. While the company offers a cash bar, it provides soft drinks at no charge. An outside catering service provides the food, setup, and cleanup for the dinners and charges SoniCo a catering fee. The average costs incurred per guest for each cruise include the following: Each dinner cruise takes guests 8 miles down the river, followed by a return trip. The cost of boat fuel is $4 per gallon, and the riverboat uses 2.5 gallons per mile. The average number of dinner cruises per month is 25. a. Calculate the contribution margin per cruise. b. Calculate the break-even point in revenue dollars for a month. c. What amount will be reported as contribution margin on the company's monthly income statement if there are 84 guests on each cruise? Briefly explain what information the answer provides to managers. d. If the average number of guests on each cruise is 84, as indicated in part c, what effect will this have on the break-even point in revenue dollars per month? Briefly explain. e. Why is a lower break-even point considered to be more favorable than a higher break-even point? Explain.

Jinx Company wishes to sell enough products to earn a profit of $200,000. If the unit selling price is $20, unit variable cost is $11, and total fixed costs are $700,000, how many units must be sold to earn target net income of $200,000?

Carrot Jewelry is considering two mutually exclusive product lines, based on either an emerald ring or a ruby bracelet, to introduce next year. The board of directors of the company has established a target net income of $30,000 for the new product line but wishes to maximize profit in any case. For the emerald ring line, Carrot expects to sell 200 rings during the year at a selling price per ring of $1,500. Estimated variable costs are $800 per ring, and fixed costs will amount to $90,000 for the year. For the ruby bracelet line, the company anticipates sales of 500 units at a selling price of $1,100 per bracelet. Fixed costs will come to $110,000 for the year, and the variable costs will also be $800 each. Carrot Jewelry will have a tax rate of 30% next year. How much more or less will Carrot have to spend in fixed costs on the proposed bracelet line in order for it to have the same net income as the ring product line?

Which of the following statements regarding a relatively high degree of operating leverage (DOL) is correct?

When working with multiple products and a sales mix, information required to determine overall break-even point includes which of the following?

Which of the following is an important difference between a gross margin income statement and a contribution margin income statement?