Which of the following are underlying assumptions of cost volume profit analysis quizlet?

A company currently has a contribution margin ratio or 30% and sales of $300,000. Fixed expenses total $225,000. The company has decided to expand production and, as a result, is expecting to increase sales by $70,000. The change will also result in an increase in fixed expenses of $15,000. What will be the impact on net operating income?
a) Net operating income will decrease by $15,000.
b) Net operating income will increase by $21,000.
c) Net operating income will decrease by $27,000.
d) Net operating income will increase by $6,000.

Students also viewed

*CVP analysis is always conducted for a specified time horizon

*One extreme is a very short-term horizon; for example, some vacation cruises offer deep price discounts for people who offer to take any cruise on a day's notice.

*One day prior to a cruise, most costs are fixed

*The other extreme is several years
--hence, a much higher percentage of total costs typically is variable
--CVP itself is not made any less relevant when the time horizon lengthens
--What happens is that many items classified as fixed in the short run may become variable costs with a longer time horizon

Donaldson Trucking uses cargo miles driven (CMD) as an activity base. The company reports the following breakdown of cost behaviors:

Fixed Costs per Year
License fees = $12,000
Insurance = $28,000
Depreciation = $160,000
Office & Clerical = $190,000

Variable Costs per CMD
Driver wages = $0.40/CMD
Fuel = $1.25/CMD

Semivariable Costs/CMD
Maintenance & Service Costs = $10,000 + $0.35/CMD

1. The intercept of the company's total cost graph is $______.

2. The slope of the company's total cost line is $_____.

3. The company's estimated total cost at 1 million CMD is $_____.

TopSail Company

TopSail Company produces one type of machine with the following costs and revenues for the year

Total revenues $5,600,000
Total fixed costs $2,700,000
Total variable costs $1,400,000
Total units produced and sold 700,000

22. Refer to the TopSail Company. Calculate the break-even point in units.
a. 700,000
b. 2,100,000
c. 1,400,000
d. 450,000

TopSail Company

TopSail Company produces one type of machine with the following costs and revenues for the year

Total revenues $5,600,000
Total fixed costs $2,700,000
Total variable costs $1,400,000
Total units produced and sold 700,000

23. Refer to the TopSail Company; how many units must be sold to make an operating profit of
$300,000 for the year?
a. 500,000
b. 1,000,000
c. 1,500,000
d. 2,000,000

Sun Devil, Inc.

Sun Devil, Inc. is considering the introduction of a new product with the following price and cost characteristics

Sales price $75 each
Variable cost $25 each
Fixed cost $300,000 per year

It expects to sell 70,000 units for the year.

38. Refer to Sun Devil, Inc; how many units must be sold to make an operating profit of $15,000?
a. 4,200
b. 12,600
c. 6,300
d. 3,150

Sun Devil, Inc.

Sun Devil, Inc. is considering the introduction of a new product with the following price and cost characteristics

Sales price $75 each
Variable cost $25 each
Fixed cost $300,000 per year

It expects to sell 70,000 units for the year.

39. Refer to Sun Devil, Inc; if 7,000 units are sold, what operating profit is expected?
a. $ 225,000
b. $ 50,000
c. $ 525,000
d. $ 350,000

Sun Devil, Inc.

Sun Devil, Inc. is considering the introduction of a new product with the following price and cost characteristics

Sales price $75 each
Variable cost $25 each
Fixed cost $300,000 per year

It expects to sell 70,000 units for the year.

41. Refer to Sun Devil, Inc; what would be the break-even point in units if fixed costs were increased by $50,000?
a. 7,000
b. 4,667
c. 14,000
d. 3,500

66. In planning its operations for next year based on a sales forecast of $3,000,000, Jan's Auto Company, Inc. prepared the following estimated costs and expenses:

Variable Fixed
Direct Material $ 650,000
Direct Labor 700,000
Factory Overhead 300,000 $450,000
Selling Expense 120,000 180,000
General Admin. Expense 30,000 70,000
TOTAL $1,800,000 $700,000

Calculate sales dollars at the break-even point.
a. $1,125,000
b. $1,750,000
c. $2,000,000
d. $2,650,000

Recommended textbook solutions

Century 21 Accounting: General Journal

11th EditionClaudia Bienias Gilbertson, Debra Gentene, Mark W Lehman

1,012 solutions

Accounting: What the Numbers Mean

9th EditionDaniel F Viele, David H Marshall, Wayne W McManus

345 solutions

Fundamentals of Financial Management, Concise Edition

10th EditionEugene F. Brigham, Joel Houston

777 solutions

Financial Accounting

4th EditionDon Herrmann, J. David Spiceland, Wayne Thomas

1,097 solutions

Which of the following are underlying assumptions of cost volume profit analysis?

Which of the following are assumptions of cost volume profit analysis quizlet?

What are the assumption of the cost volume analysis?

Which of the following is not an underlying assumption of cost volume profit analysis?