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Exam 5: Cost Behavior and Cost-Volume-Profit Analysis

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Question 111

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A company has fixed costs of $270,000, a unit contribution margin of $14, and a contribution margin ratio of 55%. If the company wants to earn a target $60,000 pretax income, what amount of sales must it make (rounded to the nearest whole dollar) ?

A) 490,909.
B) 330,000.
C) 109,090.
D) 381,818.
E) 600,000.

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Question 112

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While the total amount of fixed cost remains constant with the level of production, fixed cost per unit changes as volume changes.

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Question 113

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What are the unit contribution margin and the contribution margin ratio? What do these measures reveal about a company's cost structure?

A cost that remains unchanged in total despite variations in volume of activity within a relevant range is a:

At Midland Company's break-even point of 9,000 units, fixed costs are $180,000 and variable costs are $540,000 in total. The unit sales price is:

A product sells for $200 per unit, and its variable costs per unit are $130. Total fixed costs are $420,000. If the firm wants to earn $35,000 pretax income, how many units must be sold?

A manufacturer reports the following costs to produce 10,000 units in its first year of operations: Direct materials, $10 per unit, Direct labor, $6 per unit, Variable overhead, $70,000, and Fixed overhead, $120,000. Of the 10,000 units produced, 9,200 were sold, and 800 remain in inventory at year-end. Under absorption costing, the value of the inventory is:

Craft Company and Jarmer Company each have sales of $200,000 and costs of $140,000. Craft Company's costs consist of $40,000 fixed and $100,000 variable, while Jarmer Company's costs consist of $100,000 fixed and $40,000 variable. Which company will suffer the greatest decline in profits if sales volume declines by 15%?Prepare contribution margin income statements and compute the degree of operating leverage

A firm sells two different products, A and B. For each unit of B sold, the firm sells two units of A. Total fixed costs $1,260,000. Additional selling prices and cost information for both products follow: Required: (a) Calculate the contribution margin per composite unit. (b) Calculate the break-even point in units of each individual product. (c) If pretax income before taxes of $294,000 is desired, how many units of A and B must be sold?

The following information is available for a company's cost of sales over the last four months. Use the high-low method to estimate the fixed and variable components of the cost of sales.

Total fixed costs change in proportion to changes in volume of activity.

Elk Co. manufactures a product that sells for $12 per unit. Total fixed costs are $96,000 and variable costs are $7 per unit. Elk can buy a newer production machine that will increase total fixed costs by $22,800 and decrease variable costs by $0.40 per unit. What effect would the purchase of the new machine have on Elk's break-even point in units?

Define variable cost, fixed cost, and mixed cost.

Which one of the following statements is not true?

Wang Co. manufactures and sells a single product that sells for $450 per unit; variable costs are $270 per unit. Annual fixed costs are $800,000. Current sales volume is $4,200,000. Compute the contribution margin per unit.

While the total amount of fixed cost changes with the level of production, fixed cost per unit remains constant as volume changes.

Total contribution margin in dollars divided by pretax income is the:

Carver Packing Company reports total contribution margin of $72,000 and pretax net income of $24,000 for the current month. In the next month, the company expects sales volume to increase by 8%. The degree of operating leverage and the expected percent change in income, respectively, are:

A line on a scatter diagram that is intended to reflect the past relation between cost and unit volume is the:

Under variable costing, fixed overhead costs are excluded from product costs.