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Exam 18: Cost Behavior and Cost-Volume-Profit Analysis

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Question 31

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Preston Company is analyzing two alternative methods of producing its product.The production manager indicates that variable costs can be reduced 40% by installing a machine that automates production,but fixed costs would increase.Alternative 1 shows costs before installing the machine; Alternative 2 shows costs after the machine is installed.(a)Compute the break-even point in units and dollars for both alternatives.(b)Prepare a forecasted income statement for both alternatives assuming that 30,000 units will be sold.The statements should report sales,total variable costs,contribution margin,fixed costs,income before taxes,income taxes,and net income.Below the income statement,compute the degree of operating leverage.Which alternative would you recommend and why?

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(a)
Alternative 1 break-even in units = ...

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Question 32

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A product has a contribution margin per unit of $17 and sells at $25 per unit.If the break-even point is 82,000 units,calculate (a)the variable costs per unit and (b)the total fixed costs.

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(a)Variable costs per unit = $25.00 - $1...

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Question 33

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Identify items a,b,and c in the cost-volume-profit graph shown below.

Portal Manufacturing has total fixed costs of $520,000.A unit of product sells for $15 and variable costs per unit are $11. a)Prepare a contribution margin income statement showing predicted net income (loss)if Portal sells 100,000 units for the year ended December 31. b)At a minimum,how many units must Portal sell in order not to incur a loss?

Cost-volume-profit analysis is a predictive tool for identifying the impact of future cost changes,price changes,and volume of activity changes.

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

If a firm's forecasted sales are $250,000 and its break-even sales are $190,000,the margin of safety in dollars is:

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

A manufacturer reports the following information below for its first three years in operation. -Income for year 3-year period using absorption costing is:

The proportion of sales volumes for various products in a multiproduct company is known as the sales mix.

Barclay Bikes manufactures and sells three distinct styles of bicycles: the Youth model sells for $300 and has a unit contribution margin of $105; the Adult model sells for $850 and has a unit contribution margin of $450; and the Recreational model sells for $1,000 and has a unit contribution margin of $500.The company's sales mix includes: 5 Youth models; 9 Adult models; and 6 Recreational models.If the firm's annual fixed costs total $6,500,000,calculate the firm's selling price per composite unit.

Seaquest Company's contribution margin income statement is presented below.Sales for the current period consisted of 5,000 units.Determine the company's break-even point in dollars.

Cost-volume-profit analysis can be used to compute expected income from predicted sales and cost levels.

Journey Company is considering the production and sale of a new product with the following sales and cost data: unit sales price $18; unit variable costs $8.50; and total fixed costs of $81,250.Determine the dollar sales needed to generate a pre-tax income of $44,000,rounded to the nearest whole dollar.

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

Goldfarb Company manufactures and sells toasters.Each toaster sells for $23.75 and the variable cost per unit is $16.25.Goldfarb's total fixed costs are $25,000,and budgeted sales are 8,000 units.What is the contribution margin per unit?

Kent Co.manufactures a product that sells for $50.00 and has variable costs of $24.00 per unit.Fixed costs are $260,000.Kent can buy a new production machine that will increase fixed costs by $11,400 per year,but will decrease variable costs by $3.50 per unit.Compute the contribution margin per unit if the machine is purchased.

The sales mix of Desert Springs Company is 5 units of A,3 units of B,and 1 unit of C.Per unit sales prices for each product are $30,$40,and $50,respectively.Variable costs per unit are $14,$24,and $34,respectively.Fixed costs are $597,600.What is the break-even point in composite units and in units of A,B,and C?

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

Shown below are terms or phrases preceded by letters a through j followed by a list of definitions.Match the terms or phrases 1 through 10 with the correct definitions by placing the letter of the term or phrase in the answer space provided at the beginning of each definition.