# Quiz 22: Cost-Volume-Profit Analysis

Business

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Q 3Q 3

Dividing a mixed cost into its separate fixed and variable cost components makes it more difficult to perform cost-volume-profit analysis.

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Q 8Q 8

The relevant range of operations includes extremely high and low levels of production that are unlikely to occur.

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Q 9Q 9

The relevant range of operations excludes extremely high and low levels of production that are not likely to occur.

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True False

Q 10Q 10

Cost-volume-profit analysis is frequently based on the assumption that the production level is the same as the sales level.

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Q 11Q 11

Cost-volume-profit analysis is a precise tool for perfectly predicting the profit consequences of cost changes, price changes, and volume changes.

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Q 12Q 12

Cost-volume-profit analysis provides approximate, but not precise, answers to questions about costs, volumes, and profits.

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Q 13Q 13

Cost-volume-profit analysis can be used to predict the effects of reduced selling prices, increased fixed costs, and reduced variable costs on break-even points.

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Q 15Q 15

The dollar amount of sales needed to achieve a target after-tax income is computed by dividing the sum of fixed costs plus the desired after-tax income plus income taxes by the contribution margin ratio.

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Q 16Q 16

The margin of safety can be expressed in units of product, in dollars, or as a percent of sales.

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Q 17Q 17

The method most likely to produce the most precise line of cost behavior is the scatter diagram.

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Q 19Q 19

The contribution margin per unit is equal to the sales price per unit minus the variable costs per unit.

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Q 20Q 20

The extent, or relative size, of fixed costs in the total cost structure is known as operating leverage.

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Q 21Q 21

Degree of operating leverage (DOL) is defined as total contribution margin in dollars divided by pretax income.

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Q 22Q 22

Least-squares regression is a statistical method for deriving an estimated line of cost behavior.

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Q 25Q 25

A visual line fit to points in a scatter diagram may be used to identify the approximate relation between past cost and volume.

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Q 26Q 26

There are only two methods to derive an estimated line of cost behavior; the high-low method and the scatter diagram.

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Q 28Q 28

To determine the slope of the variable cost from a scatter diagram, divide the change in volume by the change in cost.

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Q 29Q 29

The high-low method is used to derive an estimated line of cost behavior by graphically connecting the two cost amounts identified with the highest and lowest volume levels.

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Q 32Q 32

The break-even point is the sales level at which a company neither earns a profit nor incurs a loss.

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Q 33Q 33

The contribution margin per unit is the price at which a unit must be sold in order for the company to break even.

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Q 34Q 34

To calculate the break-even point in units, one must know unit fixed cost, unit variable cost, and sales price.

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Q 35Q 35

The contribution margin ratio is the percent by which the margin of safety exceeds the break-even point.

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Q 37Q 37

A cost-volume-profit (CVP) chart is a graph that plots volume on the horizontal axis and costs and sales on the vertical axis.

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Q 38Q 38

On a typical cost-volume-profit graph, unit sales are shown on the horizontal axis and both dollars of sales and dollars of costs are represented on the vertical axis.

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Q 39Q 39

Cost-volume-profit analysis cannot be used when a firm produces and sells more than one product.

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True False

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Q 41Q 41

An important assumption in multiproduct analysis is that the sales mix is known and remains constant.

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Q 42Q 42

A cost that remains the same in total even when volume of activity varies is a:
A) Fixed cost.
B) Curvilinear cost.
C) Variable cost.
D) Step-wise variable cost.
E) Standard cost.

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Multiple Choice

Q 43Q 43

A cost that changes in proportion to changes in volume of activity is a(n):
A) Differential cost.
B) Fixed cost.
C) Incremental cost.
D) Variable cost.
E) Product cost.

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Multiple Choice

Q 44Q 44

A cost that changes with volume, but not at a constant rate, is called a:
A) Variable cost.
B) Curvilinear cost.
C) Step-wise variable cost.
D) Fixed cost.
E) Differential cost.

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Multiple Choice

Q 45Q 45

A cost that remains constant over a limited range of volume, but increases by a lump sum when volume increases beyond a maximum amount, is a(n):
A) Step-wise cost.
B) Fixed cost.
C) Curvilinear cost.
D) Incremental cost.
E) Opportunity cost.

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Multiple Choice

Q 46Q 46

A cost that can be separated into fixed and variable components is called a:
A) Mixed cost.
B) Step-variable cost.
C) Composite cost.
D) Curvilinear cost.
E) Differential cost.

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Multiple Choice

Q 47Q 47

Curvilinear costs always increase:
A) With decreases in volume.
B) In constant proportion to changes in production levels.
C) When management performs break-even analysis.
D) When volume increases, but not at a constant rate.
E) On a per unit basis when volume of activity goes down.

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Multiple Choice

Q 48Q 48

Which one of the following statements is not ?
A) Total fixed costs remain the same regardless of volume within the relevant range.
B) Total variable costs change with volume.
C) Total variable costs decrease as the volume increases.
D) Fixed costs per unit increase as the volume decreases.
E) Variable costs per unit remain the same regardless of the volume.

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Multiple Choice

Q 49Q 49

An important tool in predicting the volume of activity, the costs to be incurred, the sales to be earned, and the profit to be received is:
A) Target income analysis.
B) Cost-volume-profit analysis.
C) Least-squares regression of costs.
D) Variance analysis.
E) Process costing.

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Multiple Choice

Q 50Q 50

Select cost information for Winfrey Enterprises is as follows: Based on this information:
A) Both direct materials and rent expense are variable costs.
B) Utilities expense is a mixed cost and rent expense is a variable cost.
C) Utilities expense is a mixed cost and rent expense is a fixed cost.
D) Direct materials is a fixed cost and utilities expense is a mixed cost.
E) Both direct materials and utilities expense are mixed costs.

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Multiple Choice

Q 51Q 51

A company's normal operating range, which excludes extremely high and low volumes that are not likely to occur, is called the:
A) Margin of safety.
B) Contribution range.
C) Break-even point.
D) Relevant range.
E) High-low point.

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Multiple Choice

Q 52Q 52

A term describing a firm's normal range of operating activities is:
A) Relevant range of operations.
B) Break-even level of operations.
C) Margin of safety of operations.
D) Relevant operating analysis.
E) High-low level of operations.

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Multiple Choice

Q 53Q 53

Cost-volume-profit analysis is based on three basic assumptions. Which of the following is not one of these assumptions?
A) Total fixed costs remain constant over changes in volume.
B) Curvilinear costs change proportionately with changes in volume throughout the relevant range.
C) Variable costs per unit of output remain constant as volume changes.
D) Sales price per unit remains constant as volume changes.
E) All of these are basic assumptions.

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Multiple Choice

Q 54Q 54

A target income refers to:
A) Income at the break-even point.
B) Income from the most recent period.
C) Income planned for a future period.
D) Income only in a multiproduct environment.
E) Income at the minimum contribution margin.

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Multiple Choice

Q 55Q 55

The margin of safety is the excess of:
A) Break-even sales over expected sales.
B) Expected sales over variable costs.
C) Expected sales over fixed costs.
D) Fixed costs over expected sales.
E) Expected sales over break-even sales.

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Multiple Choice

Q 56Q 56

If a firm's forecasted sales are $250,000 and its break-even sales are $190,000, the margin of safety in dollars is:
A) $60,000.
B) $250,000.
C) $190,000.
D) $440,000.
E) $24,000.

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Multiple Choice

Q 57Q 57

The excess of expected sales over the sales level at the break-even point is known as the:
A) Sales turnover.
B) Profit margin.
C) Contribution margin.
D) Relevant range.
E) Margin of safety.

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Multiple Choice

Q 58Q 58

A firm expects to sell 25,000 units of its product at $11 per unit. Pretax income is predicted to be $60,000. If the variable costs per unit are $5, total fixed costs must be:
A) $65,000.
B) $90,000.
C) $125,000.
D) $215,000.
E) $275,000.

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Multiple Choice

Q 59Q 59

During its most recent fiscal year, Simon Enterprises sold 200,000 electric screwdrivers at a price of $15 each. Fixed costs amounted to $400,000 and pretax income was $600,000. What amount should have been reported as variable costs in the company's contribution margin income statement for the year in question?
A) $2,400,000.
B) $1,600,000.
C) $3,000,000.
D) $2,000,000.
E) $1,000,000.

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Multiple Choice

Q 60Q 60

Hartman Co. has fixed costs of $36,000 and a contribution margin ratio of 24%. If expected sales are $200,000, what is the margin of safety as a percent of sales?
A) 6%.
B) 25%.
C) 33%.
D) 50%.
E) 75%.

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Multiple Choice

Q 61Q 61

A product sells for $200 per unit, and its variable costs per unit are $130. The fixed costs are $420,000. If the firm wants to earn $35,000 pretax income, how many units must be sold?
A) 6,500.
B) 6,000.
C) 500.
D) 5,000.
E) 5,500.

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Multiple Choice

Q 62Q 62

Management anticipates fixed costs of $72,500 and variable costs equal to 40% of sales. What will pretax income equal if sales are $325,000?
A) $57,500.
B) $122,500.
C) $130,000.
D) $181,250.
E) $252,500.

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Multiple Choice

Q 63Q 63

Conan Company has total fixed costs of $112,000. Its product sells for $35 per unit and variable costs amount to $25 per unit. Next year Conan Company wishes to earn a pretax income that equals 10% of fixed costs. How many units must be sold to achieve this target income level?
A) 1,120.
B) 8,214.
C) 11,200.
D) 12,320.
E) 14,080.

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Multiple Choice

Q 64Q 64

Ivan Company has a goal of earning $70,000 after-tax income. Ivan would need to pay $20,000 of income taxes at the target level of income. The contribution margin ratio is 30%. What amount of dollar sales must be achieved to reach the goal if fixed costs are $36,000?
A) $23,333.
B) $36,000.
C) $300,000.
D) $353,333.
E) $420,000.

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Multiple Choice

Q 65Q 65

Use the following information to determine the margin of safety in dollars:
A) $88,500.
B) $108,500.
C) $173,600.
D) $326,400.
E) $500,000.

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Multiple Choice

Q 66Q 66

The budgeted income statement presented below is for Griffith Corporation for the coming fiscal year. If Griffith Corporation's income tax rate is 40%, compute the number of units that must be sold in order to achieve a target pretax income of $130,000.
A) 53,165.
B) 81,250.
C) 36,207.
D) 50,000.
E) 58,621.

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Multiple Choice

Q 67Q 67

The budgeted income statement presented below is for Griffith Corporation for the coming fiscal year. If Griffith Corporation is able to achieve the budgeted level of sales, its margin of safety in dollars would be:
A) $172,420.
B) $150,000.
C) $262,500.
D) $275,862.
E) $310,115.

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Multiple Choice

Q 68Q 68

In cost-volume-profit analysis, the unit contribution margin is:
A) Sales price per unit less cost of goods sold per unit.
B) Sales price per unit less unit fixed cost per unit.
C) Sales price per unit less total variable cost per unit.
D) Sales price per unit less unit total cost per unit.
E) The same as the contribution margin ratio.

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Multiple Choice

Q 69Q 69

The contribution margin ratio:
A) Is the percent of each sales dollar that remains after deducting total unit variable cost.
B) Is the percent of each sales dollar that remains after deducting total unit fixed cost.
C) Is the percent of each sales dollar that remains to cover fixed costs and contribute to the managers' incomes.
D) Cannot be used in conjunction with other analytical tools.
E) Is the same as the unit contribution margin.

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Multiple Choice

Q 70Q 70

Total contribution margin in dollars divided by pretax income is the:
A) Degree of operating leverage.
B) Contribution margin ratio.
C) Margin of safety.
D) Sales mix.
E) Break-even point in units.

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Multiple Choice

Q 71Q 71

Which of the following is the correct interpretation of a degree of operating leverage of 5?
A) Operating leverage of 5 means that sales can decrease by 5% before the firm's current level of sales will hit the break-even point.
B) Operating leverage of 5 means that if sales increase by 5% the firm will hit its break-even point.
C) Operating leverage of 5 means that if sales increase by 5%, there will be a 25% increase in the firm's pretax profit.
D) Operating leverage of 5 measures the degree of debt employed by the firm's debt structure.
E) Operating leverage of 5 means that the company would need to increase sales by 5 times in order to hit its break-even point.

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Multiple Choice

Q 72Q 72

A statistical method for deriving an estimated line of cost behavior is the:
A) Scatter diagram method.
B) High-low method.
C) Composite method.
D) CVP charting method.
E) Least-squares regression method.

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Multiple Choice

Q 73Q 73

The least-squares regression method is:
A) A graphical method to identify cost behavior.
B) An algebraic method to identify cost behavior.
C) A statistical method to identify cost behavior.
D) The only identify cost estimation method allowed by GAAP.
E) A cost estimation method that only uses the two extreme values.

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Multiple Choice

Q 74Q 74

A graph used to analyze past cost behaviors by displaying costs and volume levels for each period as points on the diagram is called a:
A) Least-squares diagram.
B) Step-wise diagram.
C) Scatter diagram.
D) Break-even diagram.
E) Composite diagram.

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Multiple Choice

Q 75Q 75

A line on a scatter diagram that is intended to reflect the past relation between cost and volume is the:
A) Margin of safety line.
B) Break-even line.
C) Contribution margin line.
D) Estimated line of cost behavior.
E) Standard cost line.

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Multiple Choice

Q 76Q 76

A method that estimates cost behavior by connecting the costs linked to the highest and lowest volume is called the:
A) Scatter method.
B) High-low method.
C) Least-squares method.
D) Break-even method.
E) Step-wise method.

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Multiple Choice

Q 77Q 77

The sales level at which a company neither earns a profit nor incurs a loss is the:
A) Relevant range.
B) Margin of safety.
C) Step-wise variable level.
D) Break-even point.
E) Contribution margin.

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Multiple Choice

Q 78Q 78

A company's product sells at $12 per unit and has a $5 per unit variable cost. The company's total fixed costs are $98,000.The contribution margin per unit is:
A) $5.00.
B) $7.00.
C) $8.17.
D) $12.00.
E) $17.00.

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Multiple Choice

Q 79Q 79

A company's product sells at $12 per unit and has a $5 per unit variable cost. The company's total fixed costs are $98,000. The break-even point in units is:
A) 5,158.
B) 7,000.
C) 8,167.
D) 14,000.
E) 19,600.

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Multiple Choice

Q 80Q 80

Brown Company's contribution margin ratio is 24%. Total fixed costs are $84,000. What is Brown's break-even point in sales dollars?
A) $20,160.
B) $110,526.
C) $350,000.
D) $240,000.
E) $84,000.

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Multiple Choice

Q 81Q 81

A product sells for $200 per unit, and its variable costs per unit are $130. The fixed costs are $420,000. What is the break-even point in dollar sales?
A) $2,100.
B) $6,000.
C) $420,000.
D) $646,154.
E) $1,200,000.

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Multiple Choice

Q 82Q 82

A product sells for $30 per unit and has variable costs of $18 per unit. The fixed costs are $720,000. If the variable costs per unit were to decrease to $15 per unit and fixed costs increase to $900,000, and the selling price does not change, break-even point in units would:
A) Increase by 20,000.
B) Equal 6,000.
C) Increase by 6,000.
D) Decrease by 20,000.
E) Not change.

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Multiple Choice

Q 83Q 83

The difference between sales price per unit and variable cost per unit is the:
A) Gross profit from sales.
B) Gross margin per unit.
C) Fixed cost per unit.
D) Margin of safety per unit.
E) Contribution margin per unit.

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Multiple Choice

Q 84Q 84

The contribution margin per unit expressed as a percentage of the product's selling price is the:
A) Volume variance.
B) Margin of safety.
C) Contribution margin ratio.
D) Break-even point.
E) Rate of return on sales.

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Multiple Choice

Q 85Q 85

A company manufactures and sells a product for $120 per unit. The company's fixed costs are $68,760, and its variable costs are $90 per unit. The company's break-even point in units is:
A) 2,292.
B) 573.
C) 764.
D) 327.
E) 840.

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Multiple Choice

Q 86Q 86

A company manufactures and sells a product for $120 per unit. The company's fixed costs are $68,760, and its variable costs are $90 per unit. The company's break-even point in dollars is:
A) $91,680.
B) $68,760.
C) $2,292.
D) $275,040.
E) $206,280.

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Multiple Choice

Q 87Q 87

A company has fixed costs of $90,000. Its contribution margin ratio is 30% and the product sells for $75 per unit. What is the company's break-even point in dollar sales?
A) $60,000.
B) $128,571.
C) $180,000.
D) $210,000.
E) $300,000.

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Multiple Choice

Q 88Q 88

Lee Company manufactures and sells widgets for $2.00 per unit. Its variable cost per unit is $1.70. Lee's total fixed costs are $10,500. How many widgets must Lee Company sell to break even?
A) 5,250.
B) 6,176.
C) 35,000.
D) 52,500.
E) 61,760.

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Multiple Choice

Q 89Q 89

The Haskins Company manufactures and sells radios. Each radio sells for $23.75 and the variable cost per unit is $16.25. Haskin's total fixed costs are $25,000, and budgeted sales are 8,000 units. What is the contribution margin per unit?
A) $7.50.
B) $16.25.
C) $23.75.
D) $60,000.
E) $1.25.

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Multiple Choice

Q 90Q 90

Ginger Company's product has a contribution margin per unit of $11.25 and a contribution margin ratio of 22.5%. What is the selling price of the product?
A) $5.
B) $20.
C) $30.
D) $40.
E) $50.

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Multiple Choice

Q 91Q 91

Yamaguchi Company's break even point in units is 1,000. The sales price per unit is $10 and variable cost per unit is $7. If the company sells 2,500 units, what will net income be?
A) $4,500
B) $7,500
C) $17,000
D) $35,000
E) Fixed costs must be known in order to predict net income.

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Multiple Choice

Q 92Q 92

Mueller Corp. manufactures compact discs that sell for $5.00. Fixed costs are $28,000 and variable costs are $3.60 per unit. Mueller can buy a newer production machine that will increase fixed costs by $8,000 per year, but will decrease variable costs by $0.40 per unit. What effect would the purchase of the new machine have on Mueller's break-even point in units?
A) 4,444 unit increase.
B) 9,850 unit decrease.
C) 5,714 unit increase.
D) 4,444 unit decrease.
E) No effect on the break-even point in units.

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Multiple Choice

Q 93Q 93

At Flint Company's break-even point of 9,000 units, fixed costs are $180,000 and variable costs are $540,000 in total. The unit sales price is:
A) $20.
B) $40.
C) $60.
D) $80.
E) $100.

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Multiple Choice

Q 94Q 94

Assume that sales are predicted to be $3,750, the expected contribution margin is $1,500, and a net loss of $250 is anticipated. The break-even point in sales dollars is:
A) $1,750.
B) $2,500.
C) $4,000.
D) $4,250.
E) $4,375.

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Multiple Choice

Q 95Q 95

During a recent fiscal year, Dawson Company reported pretax income of $125,000, a contribution margin ratio of 25% and total contribution margin of $400,000. Total variable costs must have been:
A) $1,100,000.
B) $1,200,000.
C) $500,000.
D) $1,600,000.
E) $2,100,000.

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Multiple Choice

Q 96Q 96

In Davis Corporation's most recent fiscal year, the company reported pretax earnings of $215,000. Fixed costs totaled $325,800, the unit selling price of the firm's only product was $60, and the variable costs per unit were 40% of the selling price. Based on this information, the firm's break-even point in units was:
A) 13,575 units.
B) 15,023 units.
C) 13,750 units.
D) 9,050 units.
E) 8,750 units.

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Multiple Choice

Q 97Q 97

A cost-volume-profit chart is also known as a(n)
A) Operating profit chart.
B) Operating leverage chart.
C) Break-even chart.
D) Margin of safety chart.
E) Sales chart.

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Multiple Choice

Q 98Q 98

When graphing cost-volume-profit data on a CVP chart:
A) Units are plotted on the horizontal axis; costs on the vertical axis.
B) Units are plotted on the vertical axis; costs on the horizontal axis.
C) Both units and costs are plotted on the horizontal axis.
D) Both units and cost are plotted on the vertical axis.
E) Data points always represent expected future points.

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Multiple Choice

Q 99Q 99

A CVP graph presents data on:
A) Profit and loss on a per unit basis.
B) Profit, loss, and break-even on a total dollar basis.
C) Profit, loss, and break-even on a per unit basis.
D) Only profit and loss on a total basis.
E) Profit and loss on a budget and actual basis.

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Multiple Choice

Q 100Q 100

A firm sells two products, A andB. For every unit of A the firm sells, two units of B are sold. The firm's total fixed costs are $1,612,000. Selling prices and cost information for both products follow. The contribution margin per composite unit is:
A) $12.
B) $20.
C) $32.
D) $44.
E) $52.

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Multiple Choice

Q 101Q 101

A firm sells two products, A and
A) 31,000 of A and 31,000 of B
B) 31,000 of A and 62,000 of B.
C) 10,333 of A and 20,667 of B.
D) 36,167 of A and 72,333 of B.
E) 62,000 of A and 31,000 of B.

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Multiple Choice

Q 102Q 102

The ratio of the sales volume for the various products sold by a company is called the:
A) Current product mix.
B) Relevant mix.
C) Sales mix.
D) Inventory cost ratio.
E) Production ratio.

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Multiple Choice

Q 103Q 103

Baker Company's sales mix is 3 units of A, 2 units of B, and 1 unit of C. Selling prices for each product are $20, $30, and $40, respectively. Variable costs per unit are $12, $18, and $24, respectively. Fixed costs are $320,000. What is the break-even point in composite units?
A) 1,111.
B) 1,600.
C) 2,666.
D) 4,000.
E) 5,000.

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Multiple Choice

Q 104Q 104

Camden Corporation sells three products (M, N, and O) in the following mix: 3:1:2. Unit price and cost data are: Total fixed costs are $340,000. The break-even point in sales dollars for the current sales mix is (round to the nearest thousand):
A) $20,000.
B) $289,000.
C) $400,000.
D) $629,000.
E) $740,000.

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Multiple Choice

Q 105Q 105

Wayward Enterprises manufactures and sells three distinct styles of bicycles: the Youth model sells for $300 and has a unit contribution margin of $105; the Adult model sells for $850 and has a unit contribution margin of $450; and the Recreational model sells for $1,000 and has a unit contribution margin of $500. The company's sales mix includes: 5 Youth models; 9 Adult models; and 6 Recreational models. If the firm's annual fixed costs total $6,500,000, calculate the firm's break-even point in sales dollars.
A) $13,250,000.
B) $13,000,000.
C) $12,750,000.
D) $12,900,050.
E) $12,750,625.

Free

Multiple Choice

Q 106Q 106

Winthrop Manufacturing produces a product that sells for $50.00. Fixed costs are $260,000 and variable costs are $24.00 per unit. Winthrop can buy a new production machine that will increase fixed costs by $11,400 per year, but will decrease variable costs by $3.50 per unit. Compute the contribution margin per unit if the machine is purchased.
A) $22.50.
B) $26.00.
C) $29.50.
D) $28.50.
E) $27.50.

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Multiple Choice

Q 107Q 107

Winthrop Manufacturing produces a product that sells for $50.00. Fixed costs are $260,000 and variable costs are $24.00 per unit. Winthrop can buy a new production machine that will increase fixed costs by $11,400 per year, but will decrease variable costs by $3.50 per unit. Compute break-even point in units if the new machine is purchased.
A) 10,438 units.
B) 8,814 units.
C) 10,000 units.
D) 9,200 units.
E) 9,869 units.

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Multiple Choice

Q 108Q 108

Winthrop Manufacturing produces a product that sells for $50.00. Fixed costs are $260,000 and variable costs are $24.00 per unit. Winthrop can buy a new production machine that will increase fixed costs by $11,400 per year, but will decrease variable costs by $3.50 per unit. What effect would the purchase of the new machine have on Winthrop's break-even point in units?
A) 800 unit increase.
B) 800 unit decrease.
C) 5,714 unit increase.
D) 4,444 unit decrease.
E) No effect on the break-even point in units.

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Multiple Choice

Q 109Q 109

Winthrop Manufacturing produces a product that sells for $50.00. Fixed costs are $260,000 and variable costs are $24.00 per unit. Winthrop can buy a new production machine that will increase fixed costs by $11,400 per year, but will decrease variable costs by $3.50 per unit. Compute break-even point in dollars with the purchase of the new machine.
A) $500,000.
B) $440,678.
C) $521,923.
D) $480,000.
E) $460,000.

Free

Multiple Choice

Q 110Q 110

Baines Brothers manufactures and sells two products, A and Z in the ratio of 4:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the contribution margin per composite unit.
A) $270.
B) $240.
C) $300.
D) $330.
E) $285.

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Multiple Choice

Q 111Q 111

Baines Brothers manufactures and sells two products, A and Z in the ratio of 4:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the break-even point in composite units.
A) 1,748.
B) 1,468.
C) 1,550.
D) 1,395.
E) 1,270.

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Multiple Choice

Q 112Q 112

Baines Brothers manufactures and sells two products, A and Z in the ratio of 4:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the number of units of Product A Baines must sell to break even.
A) 5,080.
B) 6,200.
C) 5,580.
D) 3,100.
E) 9,300.

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Q 113Q 113

Baines Brothers manufactures and sells two products, A and Z in the ratio of 4:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the number of units of Product Z Baines must sell to break even.
A) 5,080.
B) 6,200.
C) 2,540.
D) 3,100.
E) 2,790.

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Q 114Q 114

Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are $300. Annual fixed costs are $990,000. Current sales volume is $4,200,000. Compute the contribution margin per unit.
A) $480.
B) $300.
C) $200.
D) $190.
E) $180.

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Q 115Q 115

Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are $300. Annual fixed costs are $990,000. Current sales volume is $4,200,000. Compute the contribution margin ratio.
A) 37.5%.
B) 62.5%.
C) 55.0%.
D) 50.0%.
E) 47.5%.

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Q 116Q 116

Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are $300. Annual fixed costs are $990,000. Current sales volume is $4,200,000. Compute the break-even point in units.
A) 3,750.
B) 10,000.
C) 5,500.
D) 3,300.
E) 6,000.

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Q 117Q 117

Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are $300. Annual fixed costs are $990,000. Current sales volume is $4,200,000. Compute the break-even point in dollars.
A) $2,790,000.
B) $2,640,000.
C) $2,880,000.
D) $2,475,000.
E) $2,500,000.

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Q 118Q 118

Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are $300. Annual fixed costs are $990,000. Current sales volume is $4,200,000. Dunkin company management targets an annual after-tax income of $843,750. The company is subject to a 25% income tax rate. Compute the unit sales to earn the target after-tax net income.
A) 12,000.
B) 10,188.
C) 6,672.
D) 11,750.
E) 14,688.

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Q 119Q 119

Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are $300. Annual fixed costs are $990,000. Current sales volume is $4,200,000. Dunkin company management targets an annual after-tax income of $843,750. The company is subject to a 25% income tax rate. Compute the dollar sales to earn the target after-tax net income.
A) $4,890,000.
B) $5,640,000.
C) $4,327,500.
D) $5,043,750.
E) $5,050,000.

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Q 120Q 120

Dunkin Company manufactures and sells a single product that sells for $480 per unit; variable costs are $300. Annual fixed costs are $990,000. Current sales volume is $4,200,000. Compute the current margin of safety in dollars for Dunkin Company.
A) $3,210,000.
B) $2,640,000.
C) $1,560,000.
D) $2,440,000.
E) $3,500,000.

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Q 121Q 121

Shown below are terms or phrases preceded by letters a through j followed by a list of definitions. Match the terms or phrases 1 through 10 with the correct definitions by placing the letter of the term or phrase in the answer space provided at the beginning of each definition.

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Q 123Q 123

What are the basic assumptions of CVP analysis with regard to variable cost, fixed cost, and selling price per unit? (Assume a single product).

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Q 124Q 124

Describe what happens to the net income of a company under each of the following assumptions: (a) Sales volume is less than break-even sales. (b) Sales volume is greater than break-even sales. (c) Sales volume is equal to the break-even point.

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Q 126Q 126

What is an important feature that must be remembered when using cost identifying and behavior methods?

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Q 127Q 127

What are the unit contribution margin and the contribution margin ratio? What do these measures reveal about a company's cost structure?

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Q 128Q 128

What is operating leverage? How can the degree of operating leverage be used in analyzing changes in sales?

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Q 133Q 133

Describe how a cost-volume-profit analysis would be performed for a company that sells more than one product. (Assume that the sales mix is known.)

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Q 134Q 134

A company has a goal of earning $100,000 in after-tax income. The company must pay $28,000 in income tax if it achieves the goal. The contribution margin ratio is 30%. What dollar amount of sales must be achieved to reach the goal if fixed costs are $64,000?

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Q 135Q 135

A company has total fixed costs of $200,000. Its product sells for $25 per unit and variable costs amount to $15 per unit. The company wishes to earn an after-tax income of $35,000. Assume that the company has a 30% tax rate. How many units must be sold to achieve this after-tax income level?

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Q 136Q 136

Davison Company has fixed costs of $315,000 and a contribution margin ratio of 24%. If sales are expected to be $1,500,000, what is the percentage of the margin of safety?

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Q 137Q 137

Hiller Co. anticipates total fixed costs of $120,000 and variable costs equal to 40% of sales. What is the pretax income if sales are $650,000?

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Q 138Q 138

Legacy Company is considering the production and sale of a new product with the following sales and cost data: unit sales price $18; unit variable costs $8.10; and total fixed costs of $8,250. Legacy is subject to a 25% tax rate. Determine the dollar sales needed to generate an after-tax income of $33,000.

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Q 139Q 139

Boston Co. is considering the production and sale of a new product with the following sales and cost data: unit sales price, $300; unit variable costs, $180; total fixed costs, $270,000; and projected sales, $900,000. What is the margin of safety:
(a) In dollar sales?
(b) As a percent of sales?

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Q 140Q 140

Herriot Co. has total fixed costs of $180,000 and a contribution margin ratio of 40%. Assume that an additional advertising expenditure of $4,000 would increase sales by $8,000. Should the company spend this additional amount on advertising? (Support your answer with calculations.)

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Q 141Q 141

Rudy Co. has total fixed costs of $520,000. A unit of product sells for $15 and variable costs per unit are $11.
a) Prepare a contribution margin income statement showing predicted net income (loss) if Rudy Co. sells 100,000 units for the year ended December 31.
b) At a minimum, how many units must Rudy Co. sell in order not to incur a loss?

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Q 142Q 142

Thomas Company has total fixed costs of $360,000 and variable costs of $14 per unit. If the unit sales price is reduced from $24 to $20 and advertising is increased by $10,000, sales will increase from 40,000 to 65,000 units. Should Thomas reduce its per unit sales price and pay for the additional advertising? (Support your answer with calculations.)

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Q 143Q 143

The following data relate to a product sold by Nelson Company:
(a) Calculate the number of units expected to be sold.
(b) Calculate the expected total dollar sales.

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Q 144Q 144

A product is sold for $45 and has variable costs of $33 per unit. The total fixed costs for the firm are $180,600. If the firm desires to earn a pretax income of $77,400, how many units must be sold?

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Q 145Q 145

A firm produces and sells a product with a contribution margin of $32 per unit. The firm is presently selling 90,000 units and earning $240,000 in after-tax income. Taxes are $80,000 at a 25% tax rate. If the firm desires to increase its after-tax income to $300,000, how many more units must it sell?

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Q 146Q 146

Abrams Co. has total fixed costs of $240,000 and a contribution margin ratio of 40%. If rent expense increases by $5,000, how much will sales have to increase to cover this increase in costs?

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Q 147Q 147

A company is looking into two alternative methods of producing its product. The following information about the two alternatives is available. If the company's expected sales volume is 35,000 units, which alternative should be selected? Prepare forecasted income statements and compute degree of operating leverage to assess the alternatives.

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Q 148Q 148

Plymouth Industries incurs the following costs during the current year:
Sales for the year were $80,000 and Plymouth Industries determined that only the direct production costs (prime costs) and sales commissions are to be classified as variable costs; all other costs are classified as fixed costs. Plymouth sold 400 units.
(a) Calculate the unit contribution margin and the contribution margin ratio for Plymouth
Industries.
(b) Plymouth Industries is considering plans that would increase the contribution margin ratio for next year. Should it pursue these plans? Explain.

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Q 149Q 149

Hanover Hats produces specialty logo baseball caps for a variety of customers. Selected cost data for Hanover follows: direct materials cost $8,000; sales commissions, $9,000; depreciation on factory equipment, $21,000; factory labor, $16,000; factory lease, $24,000. If Hanover Hats sells 6,100 caps at an average price of $12 for each cap, what is the company's contribution margin?

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Q 150Q 150

Abington Corporation provides the following data from a recent period for its manufacture of shoes: variable manufacturing costs, $24,000; variable selling costs, $12,000; and total fixed costs, $40,000. Sales were $60,000 based on 12,000 units sold during the period. Calculate the contribution margin and the contribution margin ratio.

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Q 151Q 151

A company has total fixed costs of $360,000. Its product sells for $40 per unit and variable costs amount to $25 per unit. What is the break-even point in dollar sales?

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Q 152Q 152

The following information describes a product expected to be produced and sold by Pepin Corporation:
Required:
(a) Calculate the contribution margin per unit.
(b) Calculate the break-even point in units.

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Q 153Q 153

A company manufactures and sells spotlights. Each spotlight sells for $145. The variable cost per unit is $98, and the company's total fixed costs are $235,000. Predicted sales are 15,000 units. What is the contribution margin per unit?

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Q 154Q 154

Duxbury Co. reports the following data for the current year:
Required:
(a) Calculate Duxbury's pretax income.
(b) Calculate Duxbury's degree of operating leverage.

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Q 155Q 155

Outback Products reports the following information:
Required:
(a) Calculate Outback Products' degree of operating leverage (DOL).
(b) Outback Products forecasts a 6% increase in sales. What is the expected effect in percent on pretax income?

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Q 156Q 156

Kelley Company and Mason Company each have sales of $200,000 and costs of $140,000. Kelley Company's costs consist of $40,000 fixed and $100,000 variable, while Mason Company's costs consist of $100,000 fixed and $40,000 variable. Which company will suffer the greatest decline in profits if sales volume declines by 15%? Prepare income statements and compute degree of operating leverage to assess.

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Q 157Q 157

Macleod Company's product has a contribution margin per unit of $62.50 and a contribution margin ratio of 25%. What is the per unit selling price of the product?

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Q 158Q 158

A company sells a single product that has a contribution margin ratio of 24%. If the company's total fixed costs are $84,000, what is the break-even point in dollar sales?

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Q 159Q 159

Hess Co. manufactures a product that sells for $12 per unit. Total fixed costs are $96,000 and variable costs are $7 per unit. Hess can buy a newer production machine that will increase total fixed costs by $22,800 but variable costs will be decreased by $0.40 per unit. What effect would the purchase of the new machine have on Hess's break-even point in units?

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Q 160Q 160

Narrows Co. is considering the production and sale of a new product line with the following sales and cost data: unit sales price $125; unit variable costs $75; and total fixed costs of $140,000. Calculate the break-even point:
(a) In units.
(b) In dollar sales.

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Q 161Q 161

Torville Company's contribution margin income statement is presented below. Sales for the current period consisted of 5,000 units. Determine the company's break-even point in dollars.

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Q 162Q 162

A company manufactures a product and sells it for $120 per unit. The total fixed costs of manufacturing and selling the product are expected to be $155,250, and the variable costs are expected to be $75 per unit. What is the company's break-even point in (a) units and (b) dollar sales?

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Q 163Q 163

A product has a contribution margin per unit of $17 and sells at $25 per unit. If the break-even point is 82,000 units, calculate (a) the variable costs per unit and (b) the total fixed costs.

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Q 164Q 164

A firm provides the following sales data:
Required: (a) Calculate the break-even point in dollar sales.
(b) Calculate the margin of safety in dollar sales.

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Q 165Q 165

Wilson Co. is preparing next period's forecasts. Total fixed costs are expected to be $300,000 and the contribution margin ratio is expected to be 30%. The applicable income tax rate is 25%.
(a) Calculate the company's break-even point in dollar sales.
(b) If sales are $1,800,000 above the break-even point, what will income be (i) pretax income and (ii) after-tax income?

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Q 166Q 166

The following information describes a product expected to be produced and sold by Hadley Company:
Required:
(a) Calculate the contribution margin ratio.
(b) Calculate the break-even point in dollar sales.
(c) What dollar amount of sales would be necessary to achieve a pretax income of $120,000?

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Q 168Q 168

The sales mix of Palm Company is 5 units of A, 3 units of B, and 1 unit ofC. Per unit sales prices for each product are $30, $40, and $50, respectively. Variable costs per unit are $14, $24, and $34, respectively. Fixed costs are $597,600. What is the break-even point in composite units and in units of A, B, and C?

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Q 169Q 169

A firm sells two different products, A andA. Total fixed costs for this firm are $1,260,000. Additional selling prices and cost information for both products follow:
Required: (a) Calculate the contribution margin per composite unit.
(b) Calculate the break-even point in units of each individual product.
(c) If pretax income before taxes of $294,000 is desired, how many units of A and B must be sold?
B. For each unit of B, the firm sells two units of

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Q 170Q 170

Joseph Co. has three products A, B, and C, and its fixed costs are $69,000. The sales mix for its products are 3 units of A, 4 units of B, and 1 unit of C. Information about the three products follows:
(a) Calculate the company's break-even point in composite units and sales dollars.
(b) Calculate the number of units of each individual product to be sold at the break-even point.

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Q 171Q 171

Thomas Co. produces and sells Ultra, Super, and Mega, and has total fixed costs of $52,000. Sales and cost data follow:
Calculate the break-even point in composite units.

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Q 172Q 172

Browning Company sells a mix of three related products. Total fixed costs are $144,000. The following additional information is available for Browning Company.
Use the weighted average method to determine the company's break-even point for composite units.

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Q 173Q 173

Wilton Company is analyzing two alternative methods of producing its product. The production manager indicates that variable costs can be reduced 40% by installing a machine that automates production, but fixed costs would increase. Alternative 1 shows costs before installing the machine; Alternative 2 shows costs after the machine is installed. (a) Compute the break-even point in units and dollars for both alternatives. (b) Prepare a forecasted income statement for both alternatives assuming that 30,000 units will be sold. The statements should report sales, total variable costs, contribution margin, fixed costs, income before taxes, income taxes, and net income. Below the income statement, compute the degree of operating leverage. Which alternative would you recommend and why?

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Q 174Q 174

Spruce Company is considering the production and sale of a new product with the following sales and cost data: unit sales price, $350; unit variable costs, $180; total fixed costs, $399,500; and projected sales, $910,000. Round your answers to the nearest whole unit or dollar.
(a) Calculate break-even in units.
(b) Calculate break-even in dollars (use four decimal places when calculating the contribution margin ratio).
(c) Calculate number of units that would need to be sold to generate an after-tax profit of $420,000 assuming a 30% tax rate.
(d) Calculate dollar sales that would be needed to generate the same profit as above.
(e) Calculate the margin of safety stated as a percentage using the $910,000 projected sales level.
Be sure to label each calculation and show all calculations.

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Q 175Q 175

Magee Windows manufactures two standard size windows, F and M, in the ratio of 5:3. F has a selling price of $150 and M has a selling price of $200. The variable cost of F is $75.00 and the variable cost of M is $90.00. Fixed costs are $352,500. Compute the (a) weighted average contribution margin, (b) break-even point in units, (c) number of units of each product that will be sold at the break-even point.

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Q 176Q 176

Bristol Company's contribution margin income statement is presented below. Sales for the current period consisted of 7,500 units. Compute the company's break-even point in (a) units, and (b) dollars. Compute the margin of safety in (c) dollars and (d) percent.

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Q 177Q 177

A _______________ cost is one that remains unchanged in amount when volume of activity varies from period to period within a relevant range. A ______________ cost is one that changes in proportion to changes in volume of activity.

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Q 178Q 178

A __________ cost is one that includes both fixed and variable cost components; a ______________ cost is one that reflects a step pattern.

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Q 179Q 179

Three important assumptions in cost-volume-profit analysis is that (1) _______________ per unit is constant, (2) _____________ per unit is constant, and (3) ______________ are constant in total.

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Q 180Q 180

Solving problems to determine the relationship of cost, volume, and profit often commences with the measurement of the _____________ point. Further analysis emphasizing profitability may be accomplished by measuring the _______________ and ________________.

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Q 181Q 181

There are at least three different methods to separate costs into fixed and variable. These methods are the ______________, ______________, and _______________ methods.

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Q 182Q 182

The unit contribution margin divided by the selling price per unit is the ___________________.

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Q 183Q 183

The difference between the unit sales price and the unit variable cost of an item is defined as the ________________________.

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Q 184Q 184

Examining strategies that impact several estimates in the CVP analysis is known as ______________________.

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Q 185Q 185

One aid in measuring cost behavior involves creating a display of the data about past costs in graphical form. Such a visual display is called a _____________________.

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Q 186Q 186

When using the high-low method for estimating cost behavior, the slope, or variable cost per sales dollar, is calculated by __________________________________.

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Q 187Q 187

___________________________ is a statistical method of identifying an estimated line of cost behavior.

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Q 188Q 188

The ______________________ is the sales level at which a company neither earns a profit nor incurs a loss.

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Q 189Q 189

A graphic presentation of cost-volume-profit data is known as a __________________ graph (or chart); this presentation is also sometimes called a ______________ chart.

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Q 190Q 190

The ratio of the volumes of the various products sold by a company is called the _____________________________.

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