Blocher 8e chapter 09 tb PDF

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Cost Management: A Strategic Emphasis, 8e (Blocher) Chapter 9 Short-Term Profit Planning: Cost-Volume-Profit (CVP) Analysis 1) The contribution income statement would require a firm to: A) Separate costs into fixed and variable categories. B) Separate revenue into different categories. C) Round off amounts to the nearest dollar. D) Ignore some estimated fixed expenses, such as depreciation, that don't involve a cash outlay. E) Restructure its accounting system to accommodate activity-based costing. 2) From a strategic management perspective, the primary reason a firm performs CVP analysis is to find the level of sales that: A) Produces a desired (or targeted) level of profit for the firm. B) Will allow the firm to compete in a market place. C) Will just cover all fixed costs. D) Promises a satisfactory growth in revenue. E) Reduces the threat of bankruptcy. 3) CVP analysis for revenue and cost planning has the primary objective of: A) Maximizing revenue. B) Minimizing costs. C) Both revenue maximization and cost minimization. D) Achieving a desired level of sales and profits. E) Consistently producing sales above the breakeven level. 4) The breakeven point is: A) The sales volume at which revenues equal total cost plus an operating profit of zero. B) The sales volume at which revenues equal variable cost and profit is zero. C) The sales volume at which revenues equal fixed cost and profit is zero. D) The point at which revenues meet the budget target. E) The sales volume at which the total contribution margin exceeds total variable costs. 5) CVP analysis using activity-based costs will tend to shift some costs from fixed to variable classifications, resulting in: A) Lower breakeven sales. B) Higher breakeven sales. C) Higher or lower breakeven sales, depending on batch size. D) A higher contribution margin per unit. E) A lower contribution margin per unit. 6) Calculating the margin of safety (MOS) measure will help a firm answer which of the following questions? A) Will we break even? B) Are we using our debt wisely? C) How much will profits change if sales change? D) How much profit will we earn? E) How much revenue can we lose before we drop below the breakeven point? 1 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

7) A relatively low margin of safety ratio (MOS%) for a product is usually an indication that the product: A) Is losing money. B) Has a high contribution margin. C) Is riskier than a product with a higher margin of safety ratio. D) Is less risky than a product with a higher margin of safety ratio. E) Requires heavy fixed cost to produce or sell. 8) High operating leverage represents increased risk associated with relatively: A) High variable costs in the firm's cost structure. B) High fixed cost in the firm's cost structure. C) High sales revenue combined with high variable costs. D) High asset turnover. E) High levels of unit-level (i.e., volume-related) costs. 9) CVP analysis with multiple products assumes that sales will continue at the same mix of products, expressed in either sales units or sales dollars. This assumption is essential, because a change in the product mix will probably change: A) The average sales price per unit. B) The average variable cost per unit. C) The weighted-average contribution margin (per unit or ratio). D) The total fixed cost. E) The average contribution margin (per unit or ratio). 10) The CVP profit-planning model assumes that over the relevant range of activity: A) Only revenues are linear. B) Only revenues and fixed costs are linear. C) Only revenues and variable costs are linear. D) Variable cost per unit decreases because of increases in productivity. E) Both revenues and total costs are linear. 11) In performing short-term CVP analysis for a new product or service, the decision-maker would: A) Include all current and future fixed costs. B) Include only current fixed costs. C) Include only future fixed costs. D) Include only incremental fixed costs. E) Include only allocated fixed costs. 12) In measuring the variable cost per unit, CVP analysis includes: A) Only variable production costs. B) Only variable distribution and selling costs. C) Both variable production and variable selling/distribution costs. D) Only variable and semi-variable production costs.

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13) The difference between sales price per unit and variable cost per unit is the: A) Contribution margin per unit (cm). B) Total contribution margin (CM). C) Contribution margin ratio. D) Margin of safety (MOS). E) Breakeven point. 14) The contribution margin per unit multiplied by the number of units sold is the: A) Segment margin. B) Total contribution margin (CM). C) Contribution margin ratio. D) Margin of safety (MOS). E) Breakeven point. 15) Which one of the following is the most useful measure for comparing the risk of two alternative products? A) Contribution margin ratio. B) Margin of safety ratio (MOS%). C) Financial leverage. D) Breakeven point. E) Gross profit ratio. 16) Which one of the following is defined, at any given sales volume, as the ratio of the total contribution margin to operating profit at that sales volume? A) Contribution margin ratio. B) Margin of safety ratio (MOS%). C) Degree of operating leverage (DOL). D) Breakeven point. E) Margin of safety (MOS). 17) Which one of the following is not included as a factor in CVP analysis? A) Total fixed costs. B) Variable cost per unit. C) Desired (targeted) profit. D) Selling price per unit. E) Expected production level. 18) Which of the following is not an underlying assumption of a conventional CVP analysis? A) Learning-curve effects (i.e., productivity gains with experience). B) Fixed costs, in total, do not change as sales mix or total sales volume change. C) Selling price per unit is unrelated to assumed sales volume. D) Inputs to the profit-planning model are known with certainty. E) Variable costs per unit are unrelated to changes in volume.

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19) Grant's Western Wear is a retailer of western hats located in Atlanta, Georgia. Although Grant's carries numerous styles of western hats, each hat has approximately the same price and invoice purchase cost, as shown below. Sales personnel receive large commissions to encourage them to be more aggressive in their sales efforts. Currently the economy of Atlanta is really humming, and sales growth at Grant's has been great. However, the business is very competitive, and Grant has relied on its knowledgeable and courteous staff to attract and retain customers, who otherwise might go to other western wear stores. Also, because of the rapid growth in sales, Grant is finding it more difficult to manage certain aspects of the business, such as restocking of inventory and hiring and training new salespeople. Sales price Per-unit variable costs: Invoice cost Sales commissions Total per-unit variable costs Total annual fixed costs: Advertising Rent Salaries Total fixed costs

$

36.00

$

18.60 5.40 24.00

$

$

24,000 30,000 126,000 180,000

The annual breakeven point in unit sales is calculated to be: A) 15,000 units. B) 14,000 units. C) 16,000 units. D) 13,000 units. E) 17,000 units.

4 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

20) Grant's Western Wear is a retailer of western hats located in Atlanta, Georgia. Although Grant's carries numerous styles of western hats, each hat has approximately the same price and invoice purchase cost, as shown below. Sales personnel receive large commissions to encourage them to be more aggressive in their sales efforts. Currently the economy of Atlanta is really humming, and sales growth at Grant's has been great. However, the business is very competitive, and Grant has relied on its knowledgeable and courteous staff to attract and retain customers, who otherwise might go to other western wear stores. Also, because of the rapid growth in sales, Grant is finding it more difficult to manage certain aspects of the business, such as restocking of inventory and hiring and training new salespeople. Sales price Per-unit variable costs: Invoice cost Sales commissions Total per-unit variable costs Total annual fixed costs: Advertising Rent Salaries Total fixed costs

$

36.00

$

18.60 5.40 24.00

$

$

24,000 30,000 126,000 180,000

The annual breakeven point in dollar sales is calculated to be: A) $504,000. B) $576,000. C) $468,000. D) $612,000. E) $540,000.

5 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

21) Grant's Western Wear is a retailer of western hats located in Atlanta, Georgia. Although Grant's carries numerous styles of western hats, each hat has approximately the same price and invoice purchase cost, as shown below. Sales personnel receive large commissions to encourage them to be more aggressive in their sales efforts. Currently the economy of Atlanta is really humming, and sales growth at Grant's has been great. However, the business is very competitive, and Grant has relied on its knowledgeable and courteous staff to attract and retain customers, who otherwise might go to other western wear stores. Also, because of the rapid growth in sales, Grant is finding it more difficult to manage certain aspects of the business, such as restocking of inventory and hiring and training new salespeople. Sales price Per-unit variable costs: Invoice cost Sales commissions Total per-unit variable costs Total annual fixed costs: Advertising Rent Salaries Total fixed costs

$

36.00

$

18.60 5.40 24.00

$

$

24,000 30,000 126,000 180,000

If 24,000 hats were sold, Grant's operating income (πB) would be: A) $100,800. B) $115,200. C) $93,600. D) $108,000. E) $122,400.

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22) Stylish Sitting is a retailer of office chairs located in San Francisco, California. Due to increased market competition, the CFO of Stylish Sitting has grown worried about the firm's upcoming income stream. The CFO asked you to use the company financial information provided below. Sales price Per-unit variable costs: Invoice cost Sales commissions Total per-unit variable costs Total annual fixed costs: Advertising Rent Salaries Total annual fixed costs

$

75.00

$

41.70 18.30 60.00

$

$

56,000 78,000 226,000 360,000

The annual breakeven point, in unit sales, is: A) 15,000 units. B) 24,000 units. C) 36,000 units. D) 13,000 units. E) 19,000 units. 23) Stylish Sitting is a retailer of office chairs located in San Francisco, California. Due to increased market competition, the CFO of Stylish Sitting has grown worried about the firm's upcoming income stream. The CFO asked you to use the company financial information provided below. Sales price Per-unit variable costs: Invoice cost Sales commissions Total per-unit variable costs Total annual fixed costs: Advertising Rent Salaries Total annual fixed costs

$

75.00

$

41.70 18.30 60.00

$

$

56,000 78,000 226,000 360,000

The annual breakeven point, in dollar sales, is: A) $1,300,000. B) $1,500,000. C) $1,100,000. D) $1,600,000. E) $1,800,000. 7 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

24) Stylish Sitting is a retailer of office chairs located in San Francisco, California. Due to increased market competition, the CFO of Stylish Sitting has grown worried about the firm's upcoming income stream. The CFO asked you to use the company financial information provided below. Sales price Per-unit variable costs: Invoice cost Sales commissions Total per-unit variable costs Total annual fixed costs: Advertising Rent Salaries Total annual fixed costs

$

75.00

$

41.70 18.30 60.00

$

$

56,000 78,000 226,000 360,000

If 40,000 office chairs were sold, Stylish Sitting's operating income (πB) would be: A) $240,000. B) $280,000. C) $210,000. D) $340,000. E) $120,000. 25) Premium Beds is a retailer of luxury bed frames located in Los Angeles, California. Due to a recent industry-wide financial crisis, the CFO of Premium Beds fears a significant drop in the firm's upcoming income stream. The CFO asked you to use the company financial information provided below. Sales price per unit Per-unit variable costs: Invoice cost Sales commissions Total per-unit variable costs Total annual fixed costs: Advertising Rent Salaries Total annual fixed costs

$

3,000.00

$

2,218.80 281.20 2,500.00

$

$

236,000 178,000 386,000 800,000

The annual breakeven point in units is: A) 1,600 units. B) 2,000 units. C) 3,400 units. D) 1,300 units. E) 2,600 units. 8 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

26) Premium Beds is a retailer of luxury bed frames located in Los Angeles, California. Due to a recent industry-wide financial crisis, the CFO of Premium Beds fears a significant drop in the firm's upcoming income stream. The CFO asked you to use the company financial information provided below. Sales price per unit Per-unit variable costs: Invoice cost Sales commissions Total per-unit variable costs Total annual fixed costs: Advertising Rent Salaries Total annual fixed costs

$

3,000.00

$

2,218.80 281.20 2,500.00

$

$

236,000 178,000 386,000 800,000

The annual breakeven point in dollars is: A) $4,800,000. B) $4,500,000. C) $4,100,000. D) $4,600,000. E) $4,300,000. 27) Premium Beds is a retailer of luxury bed frames located in Los Angeles, California. Due to a recent industry-wide financial crisis, the CFO of Premium Beds fears a significant drop in the firm's upcoming income stream. The CFO asked you to use the company financial information provided below. Sales price per unit Per-unit variable costs: Invoice cost Sales commissions Total per-unit variable costs Total annual fixed costs: Advertising Rent Salaries Total annual fixed costs

$

3,000.00

$

2,218.80 281.20 2,500.00

$

$

236,000 178,000 386,000 800,000

If 4,000 bed frames were sold, Premium Bed's operating income (πB) would be: A) $1,240,000. B) $1,280,000. C) $1,200,000. D) $1,340,000. E) $1,120,000. 9 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

28) During the current year, OutlyTech Corp. expected to sell 24,000 telephone switches. Fixed costs for the year were expected to be $12,144,000, the unit sales price was budgeted at $3,200, and unit variable costs were budgeted at $1,440. OutlyTech's margin of safety (MOS) in units is (rounded up to nearest whole number): A) 18,270. B) 17,100. C) 20,880. D) 16,970. E) 22,190. 29) During the current year, OutlyTech Corp. expected to sell 24,000 telephone switches. Fixed costs for the year were expected to be $12,144,000, the unit sales price was budgeted at $3,200, and unit variable costs were budgeted at $1,440. OutlyTech's margin of safety (MOS) in sales dollars is: A) $76,577,000. B) $87,517,000. C) $82,044,000. D) $54,720,000. E) $66,900,000. 30) During the current year, OutlyTech Corp. expected to sell 24,000 telephone switches. Fixed costs for the year were expected to be $12,144,000, the unit sales price was budgeted at $3,200, and unit variable costs were budgeted at $1,440. OutlyTech's margin of safety ratio (MOS %) is: A) 71.25%. B) 87.00%. C) 70.25%. D) 92.50%. E) 76.15%. 31) For the current year, Power Cords Corp. expected to sell 42,000 industrial power cords. Fixed costs were expected to total $1,650,000; unit sales price was expected to be $3,750; and unit variable costs were budgeted at $2,250. Power Cords Corp.'s margin of safety (MOS) in units is: A) 48,800. B) 39,000. C) 40,900. D) 36,100. E) 32,500.

10 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

32) For the current year, Power Cords Corp. expected to sell 42,000 industrial power cords. Fixed costs were expected to total $1,650,000; unit sales price was expected to be $3,750; and unit variable costs were budgeted at $2,250. Power Cord Corp.'s margin of safety (MOS) in sales dollars is: A) $153,375,000. B) $187,550,000. C) $159,295,000. D) $171,100,000. E) $142,925,000. 33) For the current year, Power Cords Corp. expected to sell 42,000 industrial power cords. Fixed costs were expected to total $1,650,000; unit sales price was expected to be $3,750; and unit variable costs were budgeted at $2,250. Power Cord Corp.'s margin of safety ratio (MOS%) is (rounded to two decimal points): A) 91.59%. B) 97.38%. C) 90.71%. D) 99.47%. E) 93.15%. 34) In the current year, Becker Sofa Company expected to sell 12,000 leather sofas. Fixed costs for the year were expected to be $8,400,000; unit sales price was budgeted at $4,600; and unit variable costs were expected to be $2,200. Becker Sofa Company's margin of safety (MOS) in units is: A) 8,800. B) 8,000. C) 9,900. D) 9,100. E) 8,500. 35) In the current year, Becker Sofa Company expected to sell 12,000 leather sofas. Fixed costs for the year were expected to be $8,400,000; unit sales price was budgeted at $4,600; and unit variable costs were expected to be $2,200. Becker Sofa Company's margin of safety (MOS) in sales dollars is: A) $36,200,000. B) $42,600,000. C) $33,300,000. D) $46,700,000. E) $39,100,000.

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36) In the current year, Becker Sofa Company expected to sell 12,000 leather sofas. Fixed costs for the year were expected to be $8,400,000; unit sales price was budgeted at $4,600; and unit variable costs were expected to be $2,200. Becker Sofa Company's margin of safety ratio (MOS %) is (rounded to two decimal places): A) 71.29%. B) 77.98%. C) 70.83%. D) 79.27%. E) 73.35%. 37) The sales and cost data for two companies in the transportation industry are as follows: X Company Sales Variable costs Contribution margin Fixed costs Operating income (πB)

Amount $ 120,000 72,000 48,000 36,000 $ 12,000

Percent 100 60 40

Y Company Amount $ 120,000 36,000 84,000 72,000 $ 12,000

Percent 100 30 70

The annual breakeven point in sales dollars for X Company is: A) $102,857. B) $90,000. C) $63,000. D) $110,769. E) $91,657. 38) The sales and cost data for two companies in the transportation industry are as follows: X Company Sales Variable costs Contribution margin Fixed costs Operating income (πB)

Amount $ 120,000 72,000 48,000 36,000 $ 12,000

Percent 100 60 40

Y Company Amount $ 120,000 36,000 84,000 72,000 $ 12...