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Exam 3: Analysis of Cost, volume, and Pricing to Increase Profitability

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Question 51

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Can cost-volume-profit analysis be useful for a company that sells more than one product? If so,how? If not,why not?

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Question 52

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During the current year,Fairview Corporation sold 100,000 units of its product for $20 each.The variable cost per unit was $14,and Fairview's margin of safety was 40,000 units.What was the amount of Fairview's total fixed costs?

A) $240,000
B) $560,000
C) $840,000
D) $360,000

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

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Question 53

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Jasper Company has variable costs per unit of $20,fixed costs of $300,000,and a break-even point of 60,000 units.What will be the new break-even point in units if variable costs decrease by $3 per unit and fixed costs increase by $100,000?

How would a company use target pricing to identify the desired cost for a product or service?

The following information is for a product of Lanier Company: Last year,the variable cost per unit was $25.Total fixed costs were $800,000.At a volume of 170,000 units,the company achieved a profit of $50,000. Required: What was the unit sales price for the product last year?

Ng Company sells one product that has a sales price of $20 per unit,variable costs of $12 per unit,and total fixed costs of $300,000.What is the amount of sales volume in dollars necessary to attain a desired profit of $100,000?

Bleeker Street Company produces and sells two lines of business suits,the Contemporary and the Traditionalist.The following monthly data are provided: $\begin{array} { l c c } & \text { Contemporary } & \text { Traditionalist } \\\text { Estimated unit sales per month } & 500 & 1,000 \\\text { Selling price } & \$ 200 & \$ 175 \\\text { Variable marnufacturing costs } & 110 & 100 \\\text { Variable selling and adrninistrative costs } & 10 & 10\end{array}$ Budgeted net income is $45,000 per month. Required: 1)Calculate the monthly break-even sales in units and dollars based on the budgeted sales mix. 2)Calculate the firm's overall margin of safety in dollars. 3)Compute the firm's profit assuming 1,500 units are sold in a 1:1 sales mix. 4)Explain any difference between the firm's budgeted net income of $35,000 and your answer to Requirement 3.

Techpro has a selling price of $10 and variable costs of $6.If both the selling price and the variable costs increase by 10%,the break-even point will not change.

How can contribution margin per unit be used to find the break-even point in units?

Assume that the company sells two products,X and Y,with contribution margins per unit of $12 and $10,respectively.What happens to the break-even point if the sales mix shifts to favor product X? (In other words,sales of product X will make up a higher percentage of the sales mix.)

Bates Company currently produces and sells 4,000 units of a product that has a contribution margin of $5 per unit.The company sells the product for a sales price of $20 per unit.Fixed costs are $20,000.The company has recently invested in new technology and expects the variable cost per unit to fall to $12 per unit.The investment is expected to increase fixed costs by $15,000.After the new investment is made,how many units must be sold to break even?

For a company using target costing,market price minus profit equals target price.

Which of the following is not one of the assumptions underlying cost-volume-profit analysis?

The following information is for a product manufactured and sold by Richards Corporation: Sales price per unit,$70 Variable cost per unit,$40 Total fixed costs,$600,000 Last year,Richards earned a profit of $30,000. Required: 1)How many units did Richards sell last year? 2)Richards' managers are considering decreasing the sales price to $60 in an effort to increase market share.Also,the company wants a profit of $60,000.How many units would it have to sell at the lower selling price to achieve this target?

Target costing begins with determining the cost of the product and then focusing on developing ways to sell the product at a price that will enable the company to achieve its desired profit margin.

Fox Company believes that a market exists for an electronic game with a sales price of $40 per unit.The annual fixed costs are estimated at $700,000. Required: Fox forecasts sales of 50,000 units and wants to earn a profit of $200,000 per year.What is the maximum amount of variable costs per unit that will allow it to achieve its profit goal?

Canton Company produces and sells toasters.The following unit cost information assumes a production and sales volume of 15,000 units: $\begin{array}{lrr} \text { Direct materials} &\$9\\ \text { Direct labor } &6\\ \text { Variable overhead } &2\\ \text { Fixed overhead } &3\\ \text { Variable selling and administrative costs } &1\\ \text { Fixed selling and administrative costs } &4\\\end{array}$ Required: 1)Compute the budgeted selling price per unit assuming Canton uses a cost-plus pricing strategy and a markup equal to 75% of production cost. 2)Compute the firm's total fixed costs. 3)Compute the firm's contribution margin per unit given the budgeted selling price you computed in Requirement 1. 4)Compute the firm's break-even point in units and dollars,using the selling price you calculated in Requirement 1. 5)Using the unit contribution margin,compute the firm's estimated profit if 15,000 units are sold.

Lush Lawn,Inc.produces and sells electric lawn trimmers for $120 each.The variable costs of each mower total $80 while total monthly fixed costs are $6,000.Current monthly sales are $48,000.The company is considering a proposal that will decrease the selling price by 10%,increase monthly fixed costs by 50%,and increase unit sales to 450 units per month. Required: 1)Compute the company's current break-even point in units and dollars. 2)What is the company's current margin of safety in units,dollars,and percentage? 3)Compute the company's margin of safety in units assuming the proposal is accepted. 4)Compute the increase or decrease in profit assuming the proposal is accepted.

Chicago Company incurs annual fixed costs of $80,000.Variable costs are $3.00 per unit,and the sales price is $10 per unit.Chicago desires to earn an annual profit of $60,000. Required: Use the contribution margin ratio approach to determine the sales volume in dollars and units needed to earn the desired profit.

Phillips Company can sell 15,000 units of its new product at a selling price of $116.The unit cost is $72.The company's target profit is 40% of sales.The Vice President of Marketing has learned that a competitor plans to introduce a similar product for $104.The Vice President has recommended that Phillips match the competitor's price.She believes the lower selling price will increase sales volume by 20%. Required: 1)Compute the company's net income assuming the product is sold for $116 and the costs remain at $72.Assume there were no additional costs. 2)Compute the product's target cost if it is sold at a $116 selling price. 3)Compute the company's net income if the target cost computed in Requirement 2 is achieved. 4)Compute the change in income from Requirement 1 if the product is sold for $104,costs remain at $72,and volume is increased by 20%.