(CVP Analysis)
Use the following to answer questions 1-8:
1. Line A is the:
2. Line C represents the level of:
3. The slope of line A is equal to the:
4. The slope of line B is equal to the:
5. The vertical distance between the total cost line and the total revenue line represents:
6. Assume that the firm whose cost structure is depicted in the figure expects to produce a loss for the upcoming period. The loss would be shown on the graph:
7. At a given sales volume, the vertical distance between the fixed cost line and the total cost line represents:
8. Assume that the firm whose cost structure is depicted in the figure expects to produce a profit for the upcoming accounting period. The profit would be shown on the graph by the letter:
9. At a volume level of 120,000 units, Palm Beach reported the following information:
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Sales price
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$40
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Variable cost per unit
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16
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Fixed cost per unit
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8
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The company's contribution-margin ratio is:
10. Grimes is studying the profitability of a change in operation and has gathered the following information:
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Current Operation
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Anticipated Operation
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Fixed costs
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$38,000
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$48,000
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Selling price
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$16
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$22
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Variable cost
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$10
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$12
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Sales (units)
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9,000
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6,000
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|
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Should Grimes make the change?
11. Maxie's budget for the upcoming year revealed the following figures:
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Sales revenue
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$840,000
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Contribution margin
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504,000
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Net income
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54,000
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If the company's break-even sales total $750,000, what is Maxie's safety margin?
12. Vince's Pizza delivers pizzas to dormitories and apartments near a major state university. The company's annual fixed costs are $48,000. The sales price averages $9, and it costs the company $3 to make and deliver each pizza.
Required:
A. How many pizzas must Vince's sell to break even?
B. How many pizzas must the company sell to earn a target net profit of $54,000?
C. If budgeted sales total 9,900 pizzas, how much is the company's safety margin?
D. Vince's assistant manager, an accounting major, has suggested that the firm should try to increase the contribution margin per pizza. Explain the meaning of "contribution margin" in layman's terms.
13. The following information relates to Knight Company:
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Sales revenue
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$5,000,000
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Contribution margin
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2,000,000
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Net income
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500,000
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Required:
1. Calculate Knight's operating leverage factor.
2. If Sales increase by 30% what is the expected change in Net Income?
3. If Sales decreased by 40% what is the expected change in net income?