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Exam 17: Costvolumeprofit Relationships

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Question 31

Multiple Choice

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Match the items below by choosing the appropriate code letter : -A costing approach in which only variable manufacturing costs are product costs and fixed manufacturing costs are period costs (expenses) .

A) Activity level
B) Variable costs
C) Fixed costs
D) Sales mix
E) Relevant range
F) Mixed costs
G) Break-even point
H) Contribution margin
I) Margin of safety
J) Contribution margin ratio
K) Variable costing
L) Absorption costing

M) F) and K)
N) B) and K)

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Question 32

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Townsville Ltd estimates that variable costs will be 60% of sales and fixed costs will total $1,600,000. The selling price of the product is $10, and 500,000 units will be sold. Instructions : Using the mathematical equation: (a) Compute the break-even point in units and dollars. (b) Compute the margin of safety in dollars and as a ratio. (c) Compute profit.

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Question 33

Multiple Choice

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A company has contribution margin per unit of $18 and a contribution margin ratio of 40%. What is the unit selling price?

The CVP income statement classifies costs and expenses as:

Match the items below by choosing the appropriate code letter : -A costing approach in which all manufacturing costs are charged to the product.

Ace Ventura is considering opening a Kwik Oil Centre. He estimates that the following costs will be incurred during his first year of operations: Rent $6,000, Depreciation on equipment $7,000, Wages $13,700, Motor oil $1.20 per litre. He estimates that each oil change will require 5 litres of oil. Oil filters will cost $3.00 each. He must also pay the Kwik Corporation a franchise fee of $1.25 per oil change since he will operate the business as a franchise. In addition, water and light costs are expected to behave in relation to the number of oil changes as follows: Mr Ventura anticipates that he can provide the oil change service with a filter at $20.00 each. Instructions: (a) Using the high-low method, determine variable costs per unit and total fixed costs. (b) Determine the break-even point in number of oil changes and sales dollars. (c) Without regard to your answers in parts (a) and (b), determine the oil changes required to earn a target profit of $20,000, assuming fixed costs are $28,000 and the contribution margin per unit is $10.

A company requires $850,000 in sales to meet its target profit. Its contribution margin is 30%, and fixed costs are $150,000. What is the target profit?

Lucas Ltd has prepared the following cost-volume-profit graph: Instructions For the items listed , enter to the left of the item, the letter in the graph which best corresponds to the item. -Profit

Lucas Ltd has prepared the following cost-volume-profit graph: Instructions For the items listed , enter to the left of the item, the letter in the graph which best corresponds to the item. -Loss

Altitude Cycles Ltd is a small manufacturer of mountain bikes. The bikes sell for $750 each. The variable costs of each unit include the following: In addition, $180,000 of fixed overhead is incurred annually. Selling and administrative expenses are fixed costs totalling $140,000 and $100,000, respectively. Assume all the bikes that are manufactured are sold. Instructions: (a) Assuming Altitude Cycles uses absorption costing, compute the unit cost for one bike. (b) Assuming Altitude Cycles uses variable costing, compute the unit cost for one bike. (c) Compute the required sales in units necessary to achieve a target profit of $210,000. (d) Compute the margin of safety ratio for Altitude Cycles assuming actual sales of $1,125,000.

Match the items below by choosing the appropriate code letter : -Identifies the activity which causes changes in the behaviour of costs.