ch 18 sb

Remote Company has expected sales of 55,000 units and break-even sales of 50,000 units. If fixed costs are $75,000, what is the margin of safety?

margin of safety= expected sales - break even sales/expected sales =55000-50000/55000=9%

Jack works on the production line at an assembly plant. Jack receives a base salary plus $1.25 per unit assembled. This is an example of a ______ cost.

mixed

CVP analysis relies on all of the following assumptions except: costs must be linear within the relevant range mixed costs can be used inventory levels do not change sales mix is constant

mixed costs can be used Costs must be classified as variable or fixed, so mixed costs must be separated into their fixed and variable components.

Revenue$ 100,000 Variable Costs20,000 Fixed Costs5,000 What is the income?

sales 100000 -variable costs 20000 contribution margin 80000 -fixed costs 5000 income= 75000

A company has a margin of safety of 20%. If expected sales are $50,000, then break-even sales are:

Break even sales = Total sales - Margin of safety sales = $50,000 - ($50,000 *20%) = $40,000

Each of the following are methods used to separate mixed costs into their fixed and variable components except: Multiple choice question. high-low method low-high method scatter diagram regression

low-high method

A company has a degree of operating leverage of 2.5. If sales increase by 10%, then profits will:

increase by 25%

A company sells 800 units at $16 each, has variable costs of $12 per unit, and fixed costs of $1,200. Income is $

2000 sales = 800 x 16 = 12800 variable cost= 800 x 12= 9600 contribution margin 3200 fixed cost 1200 pretax income 3200-1200= 2000

RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. The company is considering purchasing a new manufacturing machine which would improve efficiency. The new machine would decrease the variable cost to $4, but increase fixed costs by $15,000. The revised break-even point in dollars is $

$10-6 = $4. $4/10=40%. $30,000/40% = $75,000

The break-even point can be expressed as sales in _ or _

Blank 1: units Blank 2: dollars or dollars of sales

A company has fixed costs of $50,000 while manufacturing a product that has variable costs of $4 per unit and sells for $14 per unit. The break-even point is _____ units.

$50,000/($14 - $4) = 5,000 units

A company produces a product with a contribution margin per unit of $36. If the company incurs $62,000 in total fixed costs and expects to sell 2,500 units their income would be $

(2,500 x $36) - $62,000 = $28,000

RST Company produces a product that has a selling price of $10 per unit and variable cost of $6 per unit. The company's fixed costs are $30,000. If the company sells 15,000 units, the degree of operating leverage is

1. Contribution Margin = 15000 x $4 = $60,000 2. Pre-Tax Income = $60,000 - 30,000 = $30,000 3. Degree of Operating Leverage = $60,000 / $30,000 = 2

The high-low method uses ___ points to estimate the cost equation.

2

The break-even point can be expressed as sales in ____ or ______

Blank 1: units Blank 2: dollars or dollars of sales

A company produces a product with variable costs of $2.50 per unit. The product sells for $5.00 per unit. The company has fixed costs of $3,000 and desires a target income of $10,000. The sales level in dollars to achieve the desired target income is $

26000 the contribution is contribution=selling price - variable cost =5-2.50 = 2.50 the contribution ratio is ratio = contribution/selling price 2.5/5= .5 the sales will be sales=profit +fixed costs/contribtion ratio 10000+3000/.50= 26000 Hence the sales to achieve desired profit is $26,000.

In __ costing, only costs that change in total with changes in production levels are included in product costs.

Blank 1: variable

Cost-volume-profit analysis helps managers predict how changes in _____ and _______ levels affect income.

Blank 1: cost or costs Blank 2: sales

CVP analysis looks at how _ is affected by sales price per unit, variable costs per unit, volume, and fixed costs

Blank 1: income or profit

Sales mix is the (volume/proportion/mix)____of the sales volume for each product.

Blank 1: proportion

Maker's Company produces a product that has a variable cost of $4 per unit. The company's fixed costs are $40,000. The product sells for $12 per unit. The company is considering purchasing a new manufacturing machine which would improve efficiency. The new machine would decrease the variable cost to $3, but increase fixed costs by $5,000. The revised break-even point in dollars is $

Breakeven sales in dollars = $ 60,000 After purchasing the new manufacturing machine: Selling Price - $ 12 (-) Variable Cost - ( $ 3 ) Contribution $ 9 per unit. Fixed cost = $ 40000 + $ 5000 = $ 45000 Breakeven sales are the sales at which company profit is zero i.e it is the point at which total costs are recovered. Any sales below this point results in loss. Entity will start making profit after sales cross this point. Breakeven sales = Fixed cost / Contribution per unit = $ 45,000 / $ 9 = 5000 units. Breakeven sales in dollars = Fixed cost / Contribution Margin = $ 45,000 / 75% = $ 60,000 **Contribution margin=Contribution/selling Price x100 = $ 9/ $ 12 x 100 = 75 %

Companies can use _____ analysis to predict income based on various changes in fixed or variable costs, selling price and volume.

CVP

A company manufactures and sells a product for $120 per unit. The company's fixed costs are $68,760, and its variable costs are $90 per unit. The company's break-even point in units is

Calculation of break even point in units. 68,760/30

Delta Company sells mini-flash drives. The selling price is $10 each and the variable costs are $8. If fixed costs are $3,000, how much in sales dollars must Delta have to break even?

Contribution margin ratio = (Selling price per unit - Variable cost per unit) / Selling price per unit = ($10 - $8) / $10 = $2 / $10 = 0.20 or 20% Break even point in sales dollars = Fixed cost / Contribution margin ratio = $3,000 / 0.20 = $15,000

RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. RST desires to earn a profit of $20,000. The contribution margin per unit is $

Explanation: Contribution Margin = Selling price - Variable cost Contribution margin = $10 - $6 = $4

A statistical method of identifying cost behavior that is computed using spreadsheet programs or calculators is:

least-squares regression

LMN Company produces a product that sells for $1. The company has production costs of $600,000, half of which are fixed costs. Assuming production and sales of 750,000 units, the contribution margin per unit is $

Sales($1*750000) $750000 Less:Variable cost(600,000/2) $3,00,000 Contribution $450000 Hence contribution margin per unit=(450000/750000)=$0.60 per unit.

Which of the following is the correct statement about fixed costs?

The fixed cost per unit will decrease when volume increases. Reason: Fixed costs in total will not change with volume increases but fixed cost per unit will decrease as volume increases.

Which of the following is the correct statement about variable costs?

The variable cost per unit does not change when volume changes. Reason: Variable costs per unit will remain the same. Variable costs in total will increase with volume increases.

The break-even point is the sales level at which a company:

has income of $0. contribution margin equals fixed costs.

Assuming all other factors remain constant, if variable cost per unit increases, then the break-even point will:

increase

A company has fixed costs of $90,000. Its contribution margin ratio is 30% and the product sells for $75 per unit. What is the company's break-even point in dollar sales?

break-even point= 90,000/.3= $300,000

RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. RST desires to earn a target income of $20,000. The sales level in dollars to achieve the desired target income is $

contribution = selling price - variable cost = $10-$6 =$4 2) Contribution margin ratio = (contribution ÷ selling price) × 100 = (4÷10)×100 = 0.4 or 40% Now., The sales level in dollars to achieve the desired target income = ( Fixed cost + target income) ÷ contribution margin ratio = ($30000+$20000) ÷ 0.4 = $125,000

CompuTop Company sells toy laptop computers for $30 each. If the variable cost for each laptop is $20 and fixed costs total $25,000, how many laptops must CompuTop sell to generate a target income of $66,667?

contribution margin per unit= 30-20 = 10 unit sales at target income= fixed costs + target income / contribution margin per unit $25,000 + $66.667 / 10 = 9,167

Jelly Company has a product that sells for $150 per unit and has variable costs of $60 per unit. What is the contribution margin per unit?

contribution margin per unit= selling price per unit - variable costs per unit 150-60=90

CompuTop Company sells toy laptop computers for $30 each. If the variable cost for each laptop is $20 and fixed costs total $25,000, how much sales in dollars must it sell to generate a target income of $66,667?

contribution margin= 30-20 = 10 Contribution margin ratio = (contribution ÷ selling price) × 100 10/30 x 100 = 33.333 dollar sales at target income = fixed costs + target income/ contribution margin ratio $25,000+66667/33.3333

RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. How many units must be produced to break-even

contribution per unit= selling price per unit - variable cost per unit 10-6=$4 per unit break even point(units)= fixed cost/contribution per unit 30,000/10-6= 7500 units

When preparing a scatter diagram, the estimated line of cost behavior is drawn on a scatter diagram to show the relation between:

cost and unit volume

Managers make assumptions in CVP analysis. These assumptions include

costs are linear within the relevant range. costs can be classified as variable or fixed.

videos start here Fixed costs on a per unit basis _____ as production increases.

decrease

A measure to assess the effect of changes in the level of sales on income is the :

degree of operating leverage

examples of fixed cost

depreciation

A company has fixed costs of $320,000 and a contribution margin per unit of $15. If the firm wants to earn a target $40,000 pretax income, how many units must be sold (rounded to the nearest whole unit)?

desired contribution = total fixed costs + desired income 320000+40000 =360000 units to be sold= desired contribution / contribution margin per unit 360000/15 = 24000

Absorption costing includes all of the following as part of the product cost:

direct materials variable overhead direct labor fixed overhead

examples of variable costs

direct materials and direct labor

True or false: On a scatter diagram, costs are plotted on the horizontal axis.

false

A _____ cost remains unchanged when the volume of activity changes within the relevant range.

fixed

Alvarez Company's break-even point in units is 1,000. The sales price per unit is $10 and variable cost per unit is $7. If the company sells 2,500 units, what will net income be?

sales 2500 x 10 = 25000 -variable costs 2500 x 7= 17500 contribution= 7500 -fixed cost= 3000 net income = 4500

A firm expects to sell 25,000 units of its product at $11 per unit and to incur variable costs per unit of $6. Total fixed costs are $70,000. The pretax net income is:

sales 275000 -variable costs 150000 contribution margin 125000 -fixed costs 70000 pretax income 55000

Compute sales based on the following information. Sales$ ? Variable costs30,000 Fixed costs5,000 Target income$ 65,000

sales = cost + net income cost = variable cost + fixed cost sales= variable cost + fixed cost + net income total sales = $100000

A company expects to sell 1,000 units of their product at $20 each. Their variable costs are $5 each and fixed costs are $10,000. What is their expected income?

sales revenue= 1000x20= $20000 -variable costs- 5x10000=$5000 contribution margin=15000 -fixed costs=10000 Income = 5000

Sales mix is the proportion of _____ for various products.

sales volume

A cost that has a step pattern when volume changes occur outside the relevant range of operations is called a _____ cost.

step-wise

The margin of safety is: (Check all that apply.)

the amount sales can drop before the company incurs a loss. the difference between expected sales and break-even sales divided by expected sales.

When using the high-low method, the slope represents:

the variable cost per unit

The break-even point is the sales level at which:

total sales equals total costs

examples of mixed costs

water and electricity