Chapter 20 Cost-Volume Profit Analysis Chapter Review Questions

Week 5 Homework

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Chapter 20 Cost-Volume Profit Analysis -- Chapter Review Questions-

SAMPLE QUIZ QUESTIONS BELOW

Week 5 Lesson Synopsis
The relationship between costs and revenue and the level of business activity is the foundation of profit planning. We begin our presentation of cost-volume-profit analysis with an introduction to cost behavior relationships. Fixed, variable and semivariable cost functions are illustrated graphically and numerically. The distinction between the behavior of total and unit costs is explained and graphically illustrated as well.

With the various cost behavior patterns established, the chapter turns to the development of the basic CVP model. This analysis is initially presented graphically. Following discussion of the contribution margin concept the same results are established numerically. The model is solved for target levels of operating income and the margin of safety. A number of comparative static experiments illustrates the usefulness of the CVP model in a realistic planning situation. This example is developed form the point of view of managers of several different functional areas.

The chapter concludes with an examination of the significance of sales mix and the high-low method of estimating fixed and variable components of mixed costs.

Chapter 20 Learning Objectives
1. Explain how fixed, variable, and semivariable costs respond to changes in the volume of business activity.
2. Explain how economies of scale can reduce unit costs.
3. Prepare a cost-volume-profit graph.
4. Compute contribution margin and explain its usefulness.
5. Determine the sales volume required to earn a desired level of operating income.
6. Use the contribution margin ratio to estimate the change in operating income caused by a change in sales volume.
7. Use CVP relationships to evaluate a new marketing strategy.
8. Use CVP when a company sells multiple products.
9. Determine semivariable cost elements.

SAMPLE QUIZ QUESTIONS

A company's relevant range of production is:

Noble Corporation manufactures a single product. The selling price is $60 per unit, and variable costs amount to $48 per unit. The fixed costs are $12,000 per month.
What will be the monthly margin of safety (in dollars) if 1,500 units are sold each month?

A product sells for $120, variable costs are $78 and fixed costs are $35,000. If sales can be increased by 20% with a similar increase in variable costs, how many less units would have to be sold to earn $200,000?

The dollar amount by which sales can decline before an operating loss is incurred is called the

Empire Company produces a single product. The selling price is $50 per unit, and variable costs amount to $20 per unit. Empire's fixed costs per month total $80,000.
How many units must be sold each month to earn a monthly operating income of $25,000?

A fixed cost may include all of the following except

Product X sells for $30 per unit and has related variable costs of $20 per unit. The fixed costs of producing product X are $50,000 per month. How many units of product X must be sold each month to earn a monthly operating income of $90,000?

Handy Gadget Company produces a single product with a current selling price of $180. Variable costs are $120 per unit, and fixed costs per month average $4,320. Management is considering increasing the selling price to $200 per unit. Assume that the cost of the product and monthly fixed expenses will not change as a result of the proposed increase in selling price.
At the proposed increased selling price of $200 per unit, what dollar volume of sales per month is required to break even?

In cost-volume-profit analysis, income tax expense:

Empire Company produces a single product. The selling price is $50 per unit, and variable costs amount to $20 per unit. Empire's fixed costs per month total $80,000.
What will be Empire's monthly operating income if 3,500 units are sold each month?

In the area of cost-volume-profit analysis, the contribution margin ratio shows how much each dollar of sales contributes to:

The following information is available regarding the total manufacturing overhead of Allenby Company for a recent four-month period.

Allenby's projected August operations will require approximately 110,000 machine hours. Using the high-low method, compute total manufacturing overhead estimated for August.

All other things held constant, how will an increase in selling price effect the break even point measured in units?

If the monthly sales volume required to break even is $180,000 and monthly fixed costs are $54,000, the contribution margin ratio is:

A 45% contribution margin ratio means that:

Noble Corporation manufactures a single product. The selling price is $60 per unit, and variable costs amount to $48 per unit. The fixed costs are $12,000 per month.
What will be Noble's monthly operating income if 1,500 units are sold each month?

A company with an operating income of $65,000 and a contribution margin ratio of 55% has a margin of safety of:

GreenTree Associates sells only one product, with a current selling price of $70 per unit. Variable costs are 40% of this selling price, and fixed costs are $12,000 per month. Management has decided to reduce the selling price to $65 per unit in an effort to increase sales. Assume that the cost of the product and fixed operating expenses are not changed by this reduction in selling price.
At the reduced selling price of $65 per unit, the contribution margin ratio is (rounded, if necessary):

Noble Corporation manufactures a single product. The selling price is $60 per unit, and variable costs amount to $48 per unit. The fixed costs are $12,000 per month.
How many units must be sold each month to earn a monthly operating income of $5,000?

The above data are available for product no. CK34, manufactured and sold by Ward Corporation:
The contribution margin per unit for product no. CK34 is: