Compute the break-even point in units and dollars


Assignment

Part 1: Multiple Choice

Q1.CVP analysis can be used to study the effect of:
A. changes in selling prices on a company's profitability.
B. changes in variable costs on a company's profitability.
C. changes in fixed costs on a company's profitability.
D. changes in product sales mix on a company's profitability.
E. All of the answers are correct.

Q2.The break-even point is that level of activity where:
A. total revenue equals total cost.
B. variable cost equals fixed cost.
C. total contribution margin equals the sum of variable cost plus fixed cost.
D. sales revenue equals total variable cost.
E. profit is greater than zero.

Q3.The unit contribution margin is calculated as the difference between:
A. selling price and fixed cost per unit.
B. selling price and variable cost per unit.
C. selling price and product cost per unit.
D. fixed cost per unit and variable cost per unit.
E. fixed cost per unit and product cost per unit.

Q4.Which of the following would produce the largest increase in the contribution margin per unit?
A. A 7% increase in selling price.
B. A 15% decrease in selling price.
C. A 14% increase in variable cost.
D. A 17% decrease in fixed cost.
E. A 23% increase in the number of units sold.

Q5.Which of the following occurs if a company was able to reduce its variable cost per unit?
Contribution Margin Break-even Point
A. Increase Increase
B. Increase Decrease
C. Decrease Increase
D. Decrease Decrease
E. Increase No effect

Q6. Which of the following occurs if a company experiences an increase in its fixed costs?
A. Net income would increase.
B. The break-even point would increase.
C. The contribution margin would increase.
D. The contribution margin would decrease.
E. More than one of the answers would occur.

Q7.Assuming no change in sales volume, an increase in company's per-unit contribution margin would:
A. increase income.
B. decrease income.
C. have no effect on income.
D. increase fixed costs.
E. decrease fixed costs.

Q8. A company that desires to lower its break-even point should strive to:
A. decrease selling prices.
B. reduce variable costs.
C. increase fixed costs.
D. sell more units.
E. achieve more than one of the answers listed.

Q9. At a volume of 20,000 units, Almount Industries reported sales revenues of $1,000,000, variable costs of $300,000, and fixed costs of $260,000. The company's contribution margin per unit is:
A. $22.
B. $28.
C. $35.
D. $37.
E. None of the answers is correct.

Q10. At a volume of 20,000 units, Almount Industries reported sales revenues of $1,000,000, variable costs of $300,000, and fixed costs of $260,000. The company's break-even point in units is:
A. 7,027 (rounded).
B. 8,667 (rounded).
C. 9,286 (rounded).
D. 7,429 (rounded).
E. None of the answers is correct.

Q11. A formal budget program will almost always result in:
A. higher sales.
B. more cash inflows than cash outflows.
C. decreased expenses.
D. improved profits.
E. a detailed plan against which actual results can be compared.

Q12. The comprehensive set of budgets that serves as a company's overall financial plan is commonly known as:
A. an integrated budget.
B. a pro-forma budget.
C. a master budget.
D. a financial budget.
E. a rolling budget.

Q13. A company's plan for the acquisition of long-lived assets, such as buildings and equipment, is commonly called a:
A. pro-forma budget.
B. master budget.
C. financial budget.
D. profit plan.
E. capital budget.

Q14. A company's expected receipts from sales and planned disbursements to pay bills is commonly called a:
A. pro-forma budget.
B. master budget.
C. financial budget.
D. profit plan.
E. cash budget.

Q15. A manufacturing firm would begin preparation of its master budget by constructing a:
A. sales budget.
B. production budget.
C. cash budget.
D. capital budget.
E. set of pro-forma financial statements.

Q16. Which of the following budgets is based on many other master-budget components?
A. Direct labor budget.
B. Overhead budget.
C. Sales budget.
D. Cash budget.
E. Selling and administrative expense budget.

Q17. Which of the following would depict the logical order for preparing (1) a production budget, (2) a cash budget, (3) a sales budget, and (4) a direct-labor budget?
A. 1-3-4-2.
B. 2-3-1-4.
C. 2-1-3-4.
D. 3-1-4-2.
E. 3-1-2-4.

Q18. Which of the following organizations is not likely to use budgets?
A. Manufacturing firms.
B. Merchandising firms.
C. Firms in service industries.
D. Nonprofit organizations.
E. None of the answers is correct, because all are likely to use budgets.

Q19. A manufacturer develops bud¬gets for the direct materials, direct labor, and overhead that will be required in the produc¬tion process from which of the following?
A. The selling and administrative expenses budget.
B. The budget for merchandise purchases.
C. The sales budget.
D. The production budget.
E. The cash budget.

Q20. Which of the following would have no effect, either direct or indirect, on an organization's cash budget?
A. Sales revenues.
B. Outlays for professional labor.
C. Advertising expenditures.
D. Raw material purchases.
E. None of the answers is correct, since all of these items would have some influence.

Part 2: Problems

1. In the month of June, Bedford Company sold 350 widgets. The average sales price was $34. During the month, fixed costs were $6,320 and variable costs were 40% of sales.

Instructions

A. Determine the contribution margin in dollars, per unit, and as a ratio.
B. Compute the break-even point in units and dollars.
C. How much can sales decline before Bedford Company experiences a loss? (hint: compute margin of safety)
D. What would be the sales dollars and number of units sold if Bedford Company wishes to have a target profit of $4,000. (30 points)

2. Fly GenX Inc. has the following budgeted sales for the next quarter.

Month:

1

2

3

Units

10,000

11,000

12,000

Inventory of finished goods on hand at the beginning of the quarter is 4,000 units. The company desires to maintain ending inventory equal to beginning inventory plus 1,000 units every month.

Calculate the quantity to be produced during the quarter through completing the following production budget.

3. ABC Inc. manufactures bedding sets. The budgeted production is for 55,000 comforters in 2012. Each comforter requires 7 yards of material. So 385,000 yards will be needed. The estimated January 1, 2012, beginning inventory is $124,000 in material. The desired ending balance is $120,000 in material. If the material costs $4.00 per yard, determine the direct materials budget for 2012.

4. Amnesty Elements uses a standard cost system, applying manufacturing overhead on the basis of machine hours. The company's overhead standards per unit are shown below.

Variable overhead: 4 hours at $9 per hour
Fixed overhead: 4 hours at $6* per hour
*Based on planned monthly activity of 120,000 machine hours
Actual data for May were:
Number of units produced: 29,000
Number of machine hours worked: 125,000
Variable overhead costs incurred: $1,085,000
Fixed overhead costs incurred: $755,000

Required:

A. Calculate the spending and efficiency variances for variable overhead.
B. Calculate the budget and volume variances for fixed overhead.

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