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Exam 9: Short-Term Profit Planning: Cost-Volume-Profit Cvp Analysis

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Question 41

Multiple Choice

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The sales dollars required for Kelvin Co. to make a before-tax profit of $10,000 are:

A) $300,000.
B) $309,000.
C) $276,000.
D) $306,000.
E) $312,000.

F) C) and E)
G) A) and B)

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Question 42

Multiple Choice

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The annual breakeven point in unit sales is calculated to be:

A) 15,000 units.
B) 14,000 units.
C) 16,000 units.
D) 13,000 units.
E) 17,000 units.

F) B) and D)
G) A) and C)

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Question 43

Multiple Choice

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The sales units required by Framing House to make a before-tax profit of $15,000 are calculated to be:

Due to the sluggish economy, the Bi-Wheels Company has experienced some difficulty in selling its bicycles. The following data relate to the current year: Required: 1. Compute Bi-Wheels' annual breakeven point, in both units and dollars. Also, compute the contribution margin ratio. 2. The manager believes that a $40,000 increase in advertising would result in a $120,000 increase in annual sales. If the manager is right, what will be the effect on the company's operating income? 3. Refer to the original data. The vice-president in charge of sales is certain that a 10% reduction in selling price in combination with a $30,000 increase in advertising will cause sales volume to increases by 50%. What effect would this strategy have on operating income of the company? 4. Refer to the original data. In the following year, Bi-Wheels saved $5 of total variable costs per bicycle by buying parts from a different manufacturer. However, Bi-Wheels' rent and insurance increased by $5,600. The store sold 11,000 bikes. What was its operating income for the year?

The contribution income statement would require a firm to:

The non-profit University Hospital is contemplating purchasing a new blood gas machine at a cost of $1,500,000. Useful life of this machine is 10 years. The hospital currently serves 5,000 patients per year, 40 percent of whom need blood gas analysis data as part of the diagnostic tests. The blood samples are presently sent to a private laboratory that charges $150 per sample. In-house variable expenses are estimated to be $85 per sample if the hospital purchases the analysis machine. Required: Round your answers up, to the nearest whole number. 1. Determine the indifference point (expressed in number of tests per year) between purchasing the machine and using the private laboratory. 2. Determine how many additional patients would be needed so that the hospital would be indifferent between purchasing the analysis machine and paying the $150 lab charge. 3. Determine the amount of the private laboratory charge so that the hospital would be indifferent as to purchasing the machine or using the private laboratory, assuming the current service level of 5,000 patients per year.

Cost/volume/profit (CVP) analysis is a technique available to management to understand better the interrelationships of several factors that combine to determine a firm's profit. As with many such techniques, the accountant oversimplifies the real world by making assumptions. Which of the following is not a major assumption underlying CVP analysis?

The following information pertains to Korning Corp: How many total units must be sold to obtain an after-tax profit of $47,775?

Nantucket Company has the following cost-volume-profit (CVP) relationships: What is the variable cost per unit?

Daley Co. manufactures computer monitors. Following is a summary of its basic cost and revenue data: Assume that Daley Co. is currently selling 700 computer monitors per month. Fixed costs are expected to be $96,000. Required: Calculate Daley Co.'s margin of safety ratio (MOS%) if 700 units are sold. Round your answer to 2 decimal places, e.g., 0.1234 would be 12.34%.

Income taxes have the following effect on the breakeven point calculation:

Assuming that sales mix remains constant in units, what is the breakeven point in total units? (Round intermediate calculations to 2 decimal places and final answer to the nearest whole number.)

Firms Y and Z both produce and sell small gasoline engines. The sales price is $200 per engine. Data for both firms at a sales volume of 50 units are as follows: Required: From the existing level of sales, which firm's operating income is more sensitive to changes in sales volume? Show calculations and round your answers to 2 decimal places.

Which of the following statements is true with respect to the degree of operating leverage (DOL) ?

Which of the following is a technique most suited to deal with uncertainty regarding the inputs to a CVP (profit-planning) model?

In measuring variable cost per unit for cost-volume-profit (CVP) analysis purposes:

EZ Carry Corp. is the maker of high quality golf bags. They currently have three different lines of bags, which they sell to sporting goods and golf shops throughout the world. EZ Carry sells a constant mix of 4 small bags for each medium-sized bag and 5 medium bags for each large-sized bag. Total fixed costs for the year are expected to be $2,027,562. (Note: round all decimals to three decimal places.) The breakeven point in units (for the year) would be:

The annual breakeven point in dollar sales is calculated to be:

The sales dollars required by Framing House to make an after-tax profit of $10,000, given an income tax rate of 20 percent, are calculated to be (round intermediate calculation(s) to nearest whole number) :

What is Staley Co.'s degree of operating leverage (DOL) at this sales volume? (Round your answer to three decimal places.)