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Exam 6: Cost-Volume-Profit Analysis

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Question 41

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Ironwood Inc. has a variable cost ratio of 60% and fixed costs of $90,000. What sales revenue is needed to generate a $120,000 profit?

A) $128,572
B) $225,000
C) $375,000
D) $525,000

E) None of the above
F) A) and D)

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Question 42

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The margin of safety tells managers:

A) how much sales would have to increase to hit the target profit.
B) how much profit would drop if sales decreased.
C) how much sales could drop before the firm no longer earns profits.
D) how much profit would have to increase to hit target sales.

E) B) and C)
F) C) and D)

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Question 43

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The formula for target units is:

Knoll, Inc. currently sells 15,000 units a month for $50 each, has variable costs of $20 per unit, and fixed costs of $300,000. Knoll is considering increasing the price of its units to $60 per unit. If the price is changed, how many units will Knoll need to sell for profit to remain the same as before the price change?

Vesper Company has sales of $200,000, variable costs of $8 per unit, fixed costs of $50,000, and a profit of $30,000. How many units were sold?

Indigo Corp. has a selling price of $45 and variable costs of $30 per unit. When 10,000 units are sold, profits equaled $25,000. What is the margin of safety?

Which of the following statements is correct about the break-even point?

Duncan had revenues of $900,000 in March. Fixed costs in March were $480,000 and profit was $60,000. Answer the following questions: a. What was the contribution margin percentage? b. What monthly sales volume (in dollars) would be needed to break-even? c. What was the margin of safety for March?

The margin of safety is the difference between:

Virgil Corp. has a selling price of $30 per unit, and variable costs of $20 per unit. When 12,000 units are sold, profits equaled $55,000. How many units must be sold to break-even?

Break-even units can be found by dividing fixed costs by the unit contribution margin

Degree of operating leverage is calculated by dividing sales by profit

Leather Company sold 20,000 units, had variable costs of $12 per unit, fixed costs of $100,000, and profits of $60,000. What is the selling price per unit?

Managers can use cost-volume-profit analysis to evaluate changes in cost structure

Bugle Corp. has sales of $400,000, a variable cost ratio of 40%, and a profit of $40,000. If 10,000 units were sold, what is the contribution margin per unit?

Martol, Inc. has fixed costs of $200,000 and a contribution margin ratio of 40%. How much sales revenue must be earned for a profit of $80,000?

Frontier Corp. sells units for $50, has unit variable costs of $20, and fixed costs of $300,000. Frontier sells 15,000 units. If sales increase 20%, by how much will profits increase?

Pecan, Inc., has a contribution margin of 50% and fixed costs of $220,000. What sales revenue is needed to attain a $60,000 profit?

Thunder Corp. has a selling price of $25 per unit, variable costs of $20 per unit, and fixed costs of $35,000. How many units must be sold to break even?

At a sales level of 20,000 units, Pony Corp. has sales of $400,000, a variable cost ratio of 60%, and a profit of $40,000. What is the break-even point in units?