Gleim SU 4 - Managerial

In forecasting purchases of inventory for XYZ Company, all of the following are useful except

Internal allocations of costs to different segments of the firm.

Del Co. has fixed costs of $100,000 and breakeven sales of $800,000. What is its projected profit at $1,200,000 sales?

$50,000

What is Syl's breakeven point in sales dollars?

$50,000

What was Wampler's margin of safety?

$50,000

Part of the plant in which P is produced can easily be adapted to the production of S, but changes in quantities may make changes in sales prices advisable. If production of P is reduced to 500 units (to be sold at $12 each) and production of S is increased to 2,500 units (to be sold at $10.50 each), the total effect on income will be

$1,515 decrease.

If the sales price of R is increased to $8 with a decrease in the number of units sold to 1,500, the effect on income will be

$1,650 increase.

Wren's total annual fixed costs are $38,400. Wren sells four units of A for every unit of B. If operating income last year was $28,800, what was the number of units Wren sold?

10,500

For the next accounting period, if production and sales are expected to be 40,000 units, the company should anticipate a contribution margin per unit of

$13.30

Assuming that XYZ Company sells 80,000 units, what is the maximum that can be paid for an advertising campaign while still breaking even?

$135,000

During Year 1, Thor Lab supplied hospitals with a comprehensive diagnostic kit for $120. At a volume of 80,000 kits, Thor had fixed costs of $1 million and a profit before income taxes of $200,000. Because of an adverse legal decision, Thor's Year 2 liability insurance increased by $1.2 million over Year 1. Assuming the volume and other costs are unchanged, what should the Year 2 price be if Thor is to make the same $200,000 profit before income taxes?

$135.00

Using the high-low method, what is Jackson's fixed cost?

$160

The contribution by Division 1 was

$190,000

Based on potential sales of 500 units per year, a new product has estimated traceable costs of $990,000. What is the target price to obtain a 15% profit margin on sales?

$2,329

Day Mail Order Co. applied the high-low method of cost estimation to customer order data for the first 4 months of the current year. What is the estimated variable order-filling cost component per order?

$2.00

The breakeven point in units sold for Tierson Corporation is 44,000. If fixed costs for Tierson are equal to $880,000 annually and variable costs are $10 per unit, what is the contribution margin per unit for Tierson Corporation?

$20.00

Von Stutgatt International's breakeven point is 8,000 racing bicycles and 12,000 five-speed bicycles. If the selling price and variable costs are $570 and $200 for a racer and $180 and $90 for a five-speed, respectively, what is the weighted-average contribution margin?

$202

The dollar sales volume required in the coming year to earn the same after-tax net income as the past year is

$21,600,000

What amount is the company's breakeven point in sales?

$220,000

Product Cott has sales of $200,000, a contribution margin of 20%, and a margin of safety of $80,000. What is Cott's fixed cost?

$24,000

Assume three units of A are sold for each unit of B sold. How much will sales be in dollars of product B at the breakeven point?

$240,000

The plant in which R is produced can be used to produce a new product, T. Total variable costs and expenses per unit of T are $8.05, and 1,600 units can be sold at $9.50 each. If T is introduced and R is discontinued, the total effect on income will be

$3,220 increase.

The maximum after-tax profit that can be earned by Delphi Company from sales of the new product during the next fiscal year is

$30,000

Clove's margin of safety is

$300,000

The budgeted contribution margin for this product is

$5,500,000

What is Ebo's breakeven point in units?

37,500

An enterprise sells three chemicals: petrol, septine, and tridol. Petrol is the company's most profitable product; tridol is the least profitable. Which one of the following events will definitely decrease the firm's overall breakeven point for the upcoming accounting period?

An increase in anticipated sales of petrol relative to sales of septine and tridol.

Which of the following will result in raising the breakeven point?

An increase in the semivariable cost per unit.

Bjax Corporation has a separate production line for each of two products: A and B. Product A has a contribution margin of $4 per unit, Product B has a contribution margin of $5 per unit, and the corporation's nonvariable expenses of $200,000 are unchanged regardless of volume. Under these conditions, which of the following statements will always be applicable?

At a sales volume in excess of 25,000 units of A and 25,000 units of B, operations will be profitable.

Cost-volume-profit (CVP) analysis is a key factor in many decisions, including choice of product lines, pricing of products, marketing strategy, and use of productive facilities. A calculation used in a CVP analysis is the breakeven point. Once the breakeven point has been reached, operating income will increase by the

Contribution margin per unit for each additional unit sold.

The contribution margin per unit is the difference between the selling price and the variable cost per unit, and the contribution margin ratio is the ratio of the unit contribution margin to the selling price per unit. If the selling price and the variable cost per unit both increase 10% and fixed costs do not change, what is the effect on the contribution margin per unit and the contribution margin ratio?

Contribution margin per unit increases, and the contribution margin ratio remains unchanged.

The most likely strategy to reduce the breakeven point would be to

Decrease the fixed costs and increase the contribution margin.

The dollar amount of revenues needed to attain a desired income is calculated by dividing the contribution margin ratio (CMR) into

Desired income plus fixed costs.

Cost-volume-profit (CVP) analysis allows management to determine the relative profitability of a product by

Determining the contribution margin per unit and the projected profits at various levels of production.

In preparing a cost-volume-profit analysis for his candle manufacturing business, Joe Stark is considering raising his prices $1.00 per candle. Stark is worried about the impact the increase will have on his revenues from craft fairs. Stark is concerned about the

Elasticity of demand.

At the breakeven point, the contribution margin equals total

Fixed costs.

Which of the following is a characteristic of a contribution income statement?

Fixed expenses are listed separately from variable expenses.

In calculating the breakeven point for a multiproduct company, which of the following assumptions are commonly made when variable costing is used?

I, II, and III.

Which of the following options describes the phases of business cycle, in order of occurrence?

Peak, recession, trough, recovery.

A company is preparing the sales budget for two potential products. Both products require the use of the same manufacturing equipment, which is only available for 60 hours each month. The contribution margin of Product A is $95 per unit, and the contribution margin of Product B is $55 per unit. Product A requires 4 hours of machine time per unit, and Product B requires 2.5 hours per unit. In order to efficiently allocate the equipment resources, the company should manufacture

Product A because it will make better use of the equipment than Product B.

Breakeven analysis assumes over the relevant range that

Total costs are linear.

The contribution margin increases when revenues remain the same and

Variable cost per unit decreases.

The method of cost accounting that lends itself to breakeven analysis is

Variable costing.

Cost-volume-profit analysis assumes that over the relevant range total

Revenues are linear.

Cost-volume-profit relationships that are curvilinear may be analyzed linearly by considering only

A relevant range of volume.

A cost-volume-profit model developed in a dynamic environment determined that the estimated parameters used may vary between limits. Subsequent testing of the model with respect to all possible values of the estimated parameters is termed

A sensitivity analysis.

How much does each additional sales dollar contribute toward profit for a firm with $4 million breakeven level of revenues and $1.2 million in fixed costs including depreciation?

$0.30

If Product R is discontinued and a consequent loss of customers causes a decrease of 200 units in sales of Q, the total effect on income will be

$1,250 decrease.

Using the original $6 million projection, the wholesale distributing company's margin of safety in terms of revenues for Year 4 would be

$1,320,000

Delphi Company's management has stipulated that it will not approve the continued manufacture of the new product after the next fiscal year unless the after-tax profit is at least $75,000 the first year. The unit selling price to achieve this target profit must be at least

$39.00

Assuming that Jackson uses the high-low method of analysis, the estimated variable cost of steam per direct labor hour is

$4.00

The controller based the next year's budget on the assumption that fixed costs, unit sales, and the sales price would remain as they were in Year 1, but with operating income being reduced to $300,000. By July of Year 2, the controller was able to predict that unit sales would increase over Year 1 levels by 10%. Based on the Year 2 budget and the new information, the predicted Year 2 operating income would be

$420,000

Based upon the information presented above, the contribution margin for the company was

$470,000

Production of P can be doubled by adding a second shift, but higher wages must be paid, increasing the variable cost of goods sold to $3.50 for each additional unit. If the 1,000 additional units of P can be sold at $10 each, the total effect on income will be

$5,330 increase.

If the wholesale distributing company wants to earn the same before-tax operating income in Year 4 as budgeted for Year 3, the annual revenues would not be the projected $6 million but would have to be

$5,850,000

How much is Cobb's breakeven point in dollars?

$544,000

A company has the opportunity to increase annual sales by $100,000 by selling to a new, riskier group of customers. Based on sales, the uncollectible expense is expected to be 15%, and collection costs will be 5%. The company's manufacturing and selling expenses are 70% of sales, and its effective tax rate is 40%. If the company accepts this opportunity, after-tax profit will increase by

$6,000

Jackson's management expects machine hours for the month of May to be 1,400 hours. What is their expected total cost for the month of May using the high-low method?

$720

What amount of annual sales must the company achieve to break even?

$75,000

For the year just ended, a company's sales revenue was $450,000. The company's fixed costs were $120,000 and its variable costs amounted to $270,000. For the current year, sales are forecasted at $500,000. If the fixed costs do not change, the company's profits this year will be

$80,000

What amount of sales is required for Brewster to achieve a 15% return on sales?

$80,000

A company has sales of $500,000, variable costs of $300,000, and operating income of $150,000. If the company increased the sales price per unit by 10%, reduced fixed costs by 20%, and left variable cost per unit unchanged, what would be the new breakeven point in sales dollars?

$88,000

A not-for-profit social agency provides home health care assistance to as many patients as possible. Its budgeted appropriation (X) for next year must cover fixed costs of $5 million, and the annual per-patient cost (Y) of its services. However, the agency is preparing for a possible 10% reduction in its appropriation that will lower the number of patients served from 5,000 to 4,000. The reduced appropriation and the annual per-patient cost equal

$9,000,000 $1,000

If Product R is discontinued, the effect on income will be

$900 increase.

Suppose the sales manager chooses to devote the entire $160,000 to increased advertising for BD-4. The minimum increase in sales dollars of BD-4 required to offset the increased advertising would be

$960,000

A company is contemplating marketing a new product. Fixed costs will be $800,000 for production of 75,000 units or less and $1,200,000 if production exceeds 75,000 units. The variable cost ratio is 60% for the first 75,000 units. Variable costs will decrease to 50% of sales for units in excess of 75,000. If the product is expected to sell for $25 per unit, how many units must the company sell to break even?

111,000

Which one of the following should the manufacturer produce in order to maximize contribution margin?

120 units of Product Y.

If the company had an operating income of $22,000, the unit sales must have been

13,000 32,500

Assume that Cinnabar's product is redesigned. The result is that unit-based variable cost per unit is reduced to $16. If fixed costs are assumed to remain at $300,000 and operating income of $30,000 is desired, how many units must be sold according to traditional CVP analysis?

13,750

The total number of units needed to break even if the budgeted direct labor costs were $2 for plastic frames instead of $3 is

144,444 units.

The total number of units MultiFrame needs to produce and sell to break even is

150,000 units.

The total number of units needed to break even if sales were budgeted at 150,000 units of plastic frames and 300,000 units of glass frames with all other costs remaining constant is

153,947 units.

According to ABC analysis, how many units must be sold to generate operating income of $30,000?

16,500

According to traditional CVP analysis, how many units must be sold to generate operating income of $30,000?

16,500

Suppose the sales manager chooses to devote the entire $160,000 to increased advertising for XY-7. The minimum increase in sales units of XY-7 required to offset the increased advertising is

160,000 units.

Assume that an ABC analysis of the effects of the redesign of the product mentioned in the fact pattern unexpectedly revealed an increase in the batch-level cost per driver to $2,400 and in the quantity of the product-sustaining driver to 2,600. According to ABC analysis, how many units must be sold to break even if fixed costs are unchanged?

17,600

A company is reviewing its financial forecast. The selling price of the company's product is $22.50, the per unit contribution margin is $12.50, and total fixed costs are $175,000. How many units of the product must be sold to generate $50,000 of profit?

18,000

How much is Cobb's breakeven point in units?

2,000

If the selling price is $14 per unit, the breakeven point in units (rounded to the nearest hundred) for surge protectors is

20,000 units.

Based on these estimates, what is the approximate breakeven point in number of students?

200

Management plans to improve the quality of its sole product by (1) replacing a component that costs $3.50 with a higher-grade unit that costs $5.50 and (2) acquiring a $180,000 packing machine. The company will depreciate the machine over a 10-year life with no estimated salvage value by the straight-line method of depreciation. If the company wants to earn after-tax income of $172,800 in the upcoming period, it must sell

22,500 units.

A ceramics manufacturer sold cups last year for $7.50 each. Variable costs of manufacturing were $2.25 per unit. The company needed to sell 20,000 cups to break even. Net income was $5,040. This year, the company expects the following changes: sales price per cup to be $9.00, variable manufacturing costs to increase 33.3%, fixed costs to increase 10%, and the income tax rate to remain at 40%. Sales in the coming year are expected to exceed last year's sales by 1,000 units. How many units does the company expect to sell this year?

22,600

The marketing manager decided to spend $2 per unit for the first 5,000 items sold with no additional costs after that. The marketing manager confirmed that the current market price for the new product was $4,000 per 1,000 units. The plant manager told the CFO that the employees would be able to produce 500 units per hour. Approximately how many units would Green have to sell to break even?

23,215

How many surge protectors (rounded to the nearest hundred) must Bruell Electronics sell at a selling price of $14 per unit to gain $30,000 additional income before taxes?

25,000 units.

How many surge protectors (rounded to the nearest hundred) must Bruell Electronics sell at a selling price of $14 per unit to increase after-tax income by $30,000? Bruell Electronics' effective income tax rate is 40%.

28,300 units.

A retail company determines its selling price by marking up variable costs 60%. In addition, the company uses frequent selling price markdowns to stimulate sales. If the markdowns average 10%, what is the company's contribution margin ratio?

30.6%

Considering the company as a whole, the number of composite units to break even is

4,500 composite units.

A manufacturer is considering dropping a product line. It currently produces a multi-purpose woodworking clamp in a simple manufacturing process that uses special equipment. Variable costs amount to $6.00 per unit. Fixed overhead costs, exclusive of depreciation, have been allocated to this product at a rate of $3.50 a unit and will continue whether or not production ceases. Depreciation on the special equipment amounts to $20,000 a year. Fixed costs are $18,000. The clamp has a selling price of $10 a unit. Ignoring tax effects, the minimum number of units that would have to be sold in the current year to break even on a cash flow basis is

4,500 units.

A manufacturer sells its sole product for $10 per unit, with a unit contribution margin of $6. The fixed manufacturing cost rate per unit is $2 based on a denominator capacity of 1 million units, and fixed marketing costs are $1.5 million. If 900,000 units are produced, the absorption-costing breakeven point in units sold is

425,000 units.

A company has $450,000 per year of fixed production costs, of which $150,000 are noncash outlays. The variable cost per unit is $15, and the unit selling price is $25. The breakeven volume in sales units for this company would be

45,000 units.

The company has learned that a new direct material is available that will increase the quality of its product. The new material will increase the direct material costs by $3 per unit. The company will increase the selling price of the product to $50 per unit and increase its marketing costs by $1,575,000 to advertise the higher-quality product. The number of units the company has to sell in order to earn a 10% before-tax return on sales would be

478,125 units.

Sisk's breakeven point in number of units is

5,000

The number of units the company must sell in the coming year in order to reach its breakeven point is

583,200 units.

Snyder Co. manufactures fans with direct material costs of $10 per unit and direct labor of $7 per unit. A local carrier charges Snyder $5 per unit to make deliveries. Sales commissions are paid at 10% of the selling price. Fans are sold for $100 each. Indirect factory costs and administrative costs are $6,800 and $37,200 per month, respectively. How many fans must Snyder produce to break even?

648

A company plans to introduce a new product. The marketing manager forecasts a unit selling price of $500. The variable cost per unit is estimated to be $100. In addition, there is a total of $110,000 fixed indirect manufacturing costs, and $150,000 in fixed operating costs associated with these units. What quantity will the company have to sell to break even?

650 units.

How many additional units should have been sold in order for the company to break even in Year 8?

8,000

Given these data, which of the following responses is true?

800,000 420,000 1,180,000

How many units does XYZ Company need to produce and sell to make a before-tax profit of 10% of sales?

90,000 units.

What number of units above the breakeven level must be sold to earn the desired level of net income per month?

96

Which of the following would decrease unit contribution margin the most?

A 15% decrease in selling price.

Lake Co. has just increased its direct labor wage rates. All other budgeted costs and revenues were unchanged. How did this increase affect Lake's budgeted breakeven point and budgeted margin of safety?

Increase Decrease

The breakeven point in units increases when unit costs

Increase and sales price remains unchanged.

Two companies produce and sell the same product in a competitive industry. Thus, the selling price of the product for each company is the same. Company 1 has a contribution margin ratio of 40% and fixed costs of $25 million. Company 2 is more automated, making its fixed costs 40% higher than those of Company 1. Company 2 also has a contribution margin ratio that is 30% greater than that of Company 1. By comparison, Company 1 will have the <List A> breakeven point in terms of dollar sales volume and will have the <List B> dollar profit potential once the indifference point in dollar sales volume is exceeded.

Lower Lesser

Which product will result in the highest contribution margin per hour?

M

When an organization is operating above the breakeven point, the degree or amount that sales may decline before losses are incurred is called the

Margin of safety.

In using cost-volume-profit analysis to calculate expected unit sales, which of the following should be added to fixed costs in the numerator?

Predicted operating income.

Suppose Moorehead has only 100,000 machine hours that can be made available to produce additional units of XY-7 and BD-4. If the potential increase in sales units for either product resulting from advertising is far in excess of this production capacity, which product should be advertised and what is the estimated increase in contribution margin earned?

Product BD-4 should be produced, yielding a contribution margin of $250,000.

A company's breakeven point in sales dollars may be affected by equal percentage increases in both selling price and variable cost per unit (assume all other factors are constant within the relevant range). The equal percentage changes in selling price and variable cost per unit will cause the breakeven point in sales dollars to

Remain unchanged.

Cost-volume-profit analysis assumes that over the relevant range

Selling prices are unchanged.

Which of the following changes would cause a company's breakeven point in sales to increase?

The company's total fixed costs increases.

A company increased the selling price of its product from $1.00 to $1.10 a unit when total fixed costs increased from $400,000 to $480,000 and variable cost per unit remained unchanged. How will these changes affect the breakeven point?

The effect cannot be determined from the information given.

The least exact method for separating fixed and variable costs is

The high-low method.

An assembly plant accumulates its variable and fixed manufacturing overhead costs in a single cost pool, which is then applied to work in process using a single application base. The assembly plant management wants to estimate the magnitude of the total manufacturing overhead costs for different volume levels of the application activity base using a flexible budget formula. If there is an increase in the application activity base that is within the relevant range of activity for the assembly plant, which one of the following relationships regarding variable and fixed costs is true?

The variable cost per unit and the total fixed costs remain constant.

Breakeven quantity is defined as the volume of output at which revenues are equal to

Total costs.

If the fixed costs attendant to a product increase while variable costs and sales price remain constant, what will happen to contribution margin (CM) and breakeven point (BEP)?

Unchanged Increase

Cost-volume-profit analysis assumes that over the relevant range

Unit variable costs are unchanged.

All of the following are assumptions of cost-volume-profit analysis except

Variable costs per unit change proportionately with volume.