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Exam 22: Cost-Volume-Profit

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Question 101

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The contribution margin ratio is calculated by multiplying the unit contribution margin by the unit sales price.

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B) False

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Question 102

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When applying the high-low method, the variable cost element of a mixed cost is calculated before the fixed cost element.

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Question 103

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Townsend, Inc. collected the following production data for the past month: If the high-low method is used, what is the monthly total cost equation?

A cost-volume-profit graph is frequently used in business meetings because it presents a picture of cost relationships within a company. Briefly describe the type of information and data that you would need in order to prepare a CVP graph. After a CVP graph is prepared, what are the major points that could be made from the graph that would be of interest to management? 1. Who are the stakeholders in this decision? 2. Is it ethical for Gina to revise the costs as indicated? Briefly explain. 3. What should Gina do?

A fixed cost remains constant in total and on a per unit basis at various levels of activity.

If more units are sold than are produced in a period, variable costing income will be greater than absorption costing income.

Fleming Company sells a product for $50 per unit. The fixed costs are $525,000 and the variable costs are 60% of the selling price. As a result of new automated equipment, it is anticipated that fixed costs will increase by $125,000 and variable costs will be 50% of the selling price. The new break-even point in units is:

A company requires $1,020,000 in sales to meet its net income target. Its contribution margin is 30%, and fixed costs are $180,000. What is the target net income?

The high-low method is used in classifying a mixed cost into its variable and fixed elements.

Norman Company sells MP3 players for $60 each. Variable costs are $40 per unit, and fixed costs total $60,000. How many MP3 players must Norman sell to earn net income of $140,000?

An assumption of CVP analysis is that all costs can be classified as either variable or fixed.

In the month of June, Natalie's Beauty Salon gave 2,500 haircuts, shampoos, and permanents at an average price of $40. During the month, fixed costs were $19,000 and variable costs were 75% of sales. Instructions (a) Determine the contribution margin in dollars, per unit, and as a ratio. (b) Using the contribution margin technique, compute the break-even point in dollars and in units. (c) Compute the margin of safety dollars and as a ratio.

At the break-even point of 2,000 units, variable costs are $55,000, and fixed costs are $32,000. How much is the selling price per unit?

Dempster Company reported the following results from the sale of 5,000 units in May: sales $300,000, variable costs $180,000, fixed costs $90,000, and net income $30,000. Assume that Dempster increases the selling price by 10% on June 1. How many units will have to be sold in June to maintain the same level of net income?

Small Tots Toys has actual sales of $400,000 and a break-even point of $260,000. How much is its margin of safety ratio?

The contribution margin ratio of 40% means that 60 cents of each sales dollar is available to cover fixed costs and to produce a profit.

An activity index identifies the activity that has a causal relationship with a particular cost.

A mixed cost contains

Fletcher, Inc. produces hair brushes. The selling price is $20 per unit and the variable costs are $8 per brush. Fixed costs per month are $4,800. If Fletcher sells 15 more units beyond breakeven, how much does profit increase as a result?

Quinn Company reports the following results for the month of November: Management is considering the following independent courses of action to increase net income. 1. Increase selling price by 6% with no change in total variable costs. 2. Reduce variable costs to 65% of sales. 3. Reduce fixed costs by $20,000. Instructions If maximizing net income is the objective, which is the best course of action?