Chapter 7
Burlywood Company sells two products that are expected to produce total revenue of $222,500 and total variable cost of $129,050 next year. Total fixed cost is expected to equal $43,850. Determine the break-even point in sales dollars for Burlywood. Round all ratios to two decimal places.
$104,405 [
Boysenberry Company plans to sell 2,600 leather bags. The leather bags sell for $130 each. Variable cost per bag is $90, and total fixed cost amounts to $64,000. Determine the number of bags that Boysenberry must sell to break even.
1,600 bags [Break-Even Units = (Total Fixed Cost / Unit Contribution Margin)]
Which of following equations is used to obtain the total change in profits from a change in revenues?
Change in Profits = Contribution Margin Ratio × Change in Sales
Which of the following equations is used to calculate the break-even units?
Break-Even Units = Total Fixed Cost / (Price - Variable Cost per Unit)
In cost-volume-profit analysis, a multiple-product problem is converted into a single-product problem by:
defining a particular sales mix in units.
The quantity at which two systems produce the same operating income is referred to as the:
indifference point.
In general, assuming that fixed costs remain unchanged, the contribution margin ratio can be used to find the:
profit impact of a change in sales revenue.
In multiple-product break-even analysis, the sales mix is determined through:
sensitivity analysis.
The break-even point is:
the point where total revenue equals total cost.
The process of building a package contribution margin is followed in:
the units sold approach in a multiple-product setting.
In financial terms, operating leverage is concerned:
with the relative mix of fixed costs and variable costs of an organization.
If price is $10, unit variable cost is $2.50, and total fixed cost is 3,000, 240 units must be sold to breakeven.
False
If the gym's monthly unlimited plan cost $100 and the daily plan cost $12, Lacy would need to go to the gym at least 10 times per month for the monthly plan to be the better deal.
False
If the variable cost ratio is known, it can be subtracted from 100 to yield the contribution margin ratio.
False
Which of the following equations can be used to determine the number of units to be sold to earn a target income?
Number of Units to Earn Target Income = (Total Fixed Cost + Target Income) / Contribution Margin per Unit
If the gym's monthly unlimited plan cost $50 and the daily plan cost $8, Lacy should use the daily plan if she only intends to go to the gym 6 times per month.
True
Tacos-2-Go could reduce their variable costs by shopping at wholesale supplies over local groceries.
True
The breakeven in sales dollars equation is total fixed expenses divided by the contribution margin ratio.
True
The contribution margin is the difference between sales and variables expenses.
True
Total fixed costs, price, and unit variable costs all have an impact on the breakeven point.
True
Sapphire sells two products: ordinary laptops and premium laptops. Ordinary laptops are priced at $700 each and premium laptops are priced at $1,160 each. The variable cost per unit is $655 per ordinary laptop and $1,090 per premium laptop. Total fixed cost is $137,500. Sapphire's expected sales mix is four ordinary laptops to one premium laptop. Calculate the break-even point in units for ordinary laptops.
2,200 laptops
Which of the following is true of the cost-volume-profit graph?
The cost-volume-profit graph provides a rich view of revenue and cost information.
Which of the following is true of direct fixed expenses?
These costs can be traced to a particular segment.
Which of the following is true of common fixed expenses?
These costs will continue to exist even if one segment or product is eliminated.
Graphically, the breakeven point is where the contribution margin crosses the fixed cost line.
True
If price is $10, unit variable cost is $2.50, and total fixed cost is 3,000, the unit contribution margin is $7.50.
True
Aquamarine Company plans to sell 5,800 sewing machines at $75 each in the coming year. Aquamarine has unit variable cost of $60 and total fixed cost of $62,460. Compute the margin of safety for Aquamarine in terms of the number of units.
b.1,636 sewing machines [Contribution margin per sewing machine:: Break-Even Units = Total Fixed Cost / Contribution Margin:: Margin of Safety in Units = Sales - Break-Even Units::]
