# Chap 9

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1. Which of the following is a technique most suited to deal with uncertainty regarding the inputs to a CVP (profit-planning) model?
Sensitivity analysis.
2. Which of the following is not an assumption of conventional cost/volume/profit (CVP) analysis?
The variable cost per unit varies over the relevant range of activity.
3. The sales and cost data for two companies in the transportation industry are as follows:

The annual breakeven point in sales dollars for X Company is:

Break-even point, in sales dollars = Fixed costs contribution margin ratio = \$36,000 0.40 = \$90,000
\$90,000.
4. The contribution income statement would require a firm to:
Separate costs into fixed and variable categories.
5. Kelvin Co. produces and sells socks. Variable costs are budgeted at \$4 per pair, and fixed costs for the year are expected to total \$90,000. The selling price is expected to be \$6 per pair. The sales units required for Kelvin Co. to make a before-tax profit of \$12,000 are:
51,000 units.
6. Kelvin Co. produces and sells socks. Variable costs are budgeted at \$4 per pair, and fixed costs for the year are expected to total \$90,000. The selling price is expected to be \$6 per pair. The sales dollars required to make an after-tax profit for Kelvin Co. of \$15,000, given an income tax rate of 40%, are calculated to be:
\$345,000.
7. EZ Carry Corp. is the maker of high quality golf bags. They currently have three different lines of bags, which they sell to sporting goods and golf shops throughout the world. EZ Carry sells a constant mix of 4 small bags for each medium-sized bag and 5 medium bags for each large-sized bag. Total fixed costs for the year are expected to be \$2,027,562. (Note: round all decimals to three decimal places.)
34,808 small, 8,700 medium, 1,740 large.
8. For the current year, Power Cords Corp. expected to sell 42,000 industrial power cords. Fixed costs were expected to total \$1,650,000; unit sales price was expected to be \$3,750; and unit variable costs were budgeted at \$2,250. Power Cord Corp.'s margin of safety (MOS) in sales dollars is:

1. Break-even point, in dollars = \$1,650,000 ÷ [(\$3,750 − \$2,250)/unit ÷ \$3,750/unit] = \$1,650,000 ÷ 0.40 = \$4,125,0002. Margin of Safety (MOS) = Budgeted sales dollars - Breakeven sales dollars = (42,000 units × \$3,750/unit) - \$4,125,000 = \$157,500,000 - \$4,125,000 = \$153,375,000. Alternatively, margin of safety (MOS) units 40,900 × \$3,750 selling price per unit = \$153,375,000.
\$153,375,000.
9. At the breakeven point, total fixed cost is:
Equal to the total contribution margin.
10. Calculating the margin of safety (MOS) measure will help a firm answer which of the following questions?
How much revenue can we lose before we drop below the breakeven point?
11. Which one of the following is the most useful measure for comparing the risk of two alternative products?
Margin of safety ratio (MOS%).
12. CVP analysis with multiple products assumes that sales will continue at the same mix of products, expressed in either sales units or sales dollars. This assumption is essential, because a change in the product mix will probably change:
The weighted-average contribution margin (per unit or ratio).
13. Framing House, Inc. produces and sells picture frames. Variable costs are expected to be \$17 per frame; fixed costs for the year are expected to total \$130,000. The budgeted selling price is \$25 per frame. The sales units required by Framing House to make a before-tax profit of \$15,000 are calculated to be:
18,125 units.
14. Stylish Sitting is a retailer of office chairs located in San Francisco, California. Due to increased market competition, the CFO of Stylish Sitting has grown worried about the firm's upcoming income stream. The CFO asked you to use the company financial information provided below.

The annual breakeven point, in unit sales, is:

\$360,000 (\$75.00 \$60.00) = \$360,000 \$15.00/unit = 24,000 units
24,000 units.
15. Grant's Western Wear is a retailer of western hats located in Atlanta, Georgia. Although Grant's carries numerous styles of western hats, each hat has approximately the same price and invoice purchase cost, as shown below. Sales personnel receive large commissions to encourage them to be more aggressive in their sales efforts. Currently the economy of Atlanta is really humming, and sales growth at Grant's has been great. However, the business is very competitive, and Grant has relied on its knowledgeable and courteous staff to attract and retain customers, who otherwise might go to other western wear stores. Also, because of the rapid growth in sales, Grant is finding it more difficult to manage certain aspects of the business, such as restocking of inventory and hiring and training new salespeople

If 24,000 hats were sold, Grant's operating income would be:

[(\$36 \$24)/unit 24,000 units] \$180,000 = \$288,000 - \$180,000 = \$108,000
\$108,000.
16. Which of the following is not an underlying assumption of a conventional CVP analysis?
Learning-curve effects (i.e., productivity gains with experience)
17. Calculating the margin of safety (MOS) measure will help a firm answer which of the following questions?
How much revenue can we lose before we drop below the breakeven point?

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 Author: Anonymous ID: 306124 Filename: Chap 9 Updated: 2015-08-06 23:04:09 Tags: Accounting Cost Folders: Description: Chapter 9 Break-even CVP etc. Show Answers:

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