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Exam 22: Cost-Volume-Profit Analysis

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Question 61

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

A) True
B) False

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Question 62

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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.

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

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Question 63

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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.

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?

A cost that changes in proportion to changes in volume of activity is a(n) :

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.

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?

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 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 graphic depiction of the break-even point is known as a cost-volume-profit (CVP) chart.

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

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

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.

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

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

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

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.

The margin of safety is the amount that sales can drop before the company incurs a loss.

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?

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?