COST ACCOUNTING
Q1 CVP analysis has a number of uses. Describe two of these.
Q2 Suppose a service organization has a mixed cost function. When it experiences a 5% increase in sales, income increases by more than 5%. Explain why this occurs.
Q3 ABC Compagny is selling the unit of final product for $70. The projected income statement for 2014 follows:
Sales $4,000,000
Variable costs (2,000,000)
Contribution Margin 2,000,000
Fixed costs (1,500,000)
Pretax profit $ 500,000
a. Compute the contribution margin per unit and the number of units that must be sold to break even.[1 Point]
b. Compute the contribution margin ratio and the breakeven point in total revenue (in $).[1 Point]
c. What is the margin of safety in number of units?[1 Point]
d. Assume a tax rate of 25%. How many units must be sold to earn an after-tax profit of $300,000?[1 Point]
Q4. RSE Corporation sells its product for $11 per unit. Its variable cost is $2 per unit, and total fixed costs are $600. Assuming next period's estimated sales are 240 units and that 240 units is within the relevant range, calculate the following amounts:
a. Degree of operating leverage
b. Margin of safety in units
c. Margin of safety in revenues (in $)
d. Estimated income or loss (indicate which)