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Handout 7.2 ACC 312 Sample Questions

1. 6.Deere John Corp currently sells Tractors for $200 and incurs variable costs of $150 a tractor and total fixed costs of $8,000. Currently, it sells exactly the number of units to break even. At the end of the current year, Deere John Corp learns that for the next year it has an opportunity to automate its production process: this choice means that the following three things will all happen simultaneously: A.) Add additional fixed costs of $12,000; B.) Decrease current variable costs by $110 per unit; and C.) Decrease sales by 20% from its current level

1. What is Deere Johns current Unit Contribution Margin? __________200-150=50

2. What is Deere Johns current Break Even Volume in tractors? _________ 8,000/50=160this is also the number they currently are sellingWhat are Deere Johns expected total Fixed and Variable Costs if it makes the automating choice?

3. Fixed ___________ 4. Variable________ 8k+12k=20k 150-110=40 (total var costs $40 times 128 (160 less 20%) tractors = $5,120

5. What is Deere Johns expected Breakeven Revenue if it makes the automating choice?

$_________________$20,000 / (200-40) = 125 tractors times $200 = $25,000

6. What is Deere Johns expected profit if it makes the automating choice? $___________ $160 UCM times 128 tractors (160 tractors less 20%) less fixed costs of $20,000 = 480

7.Assume University T-Shirt Shop has a selling price of $25 and unit variable cost of $10 for its long-sleeve cotton shirts. Fixed costs total $1,000. University believes increasing its price to $27 will not cause a reduction in the number of shirts it will sell. If University's sales volume for the month is 300 shirts, how will net profit be affected by the change in selling price?

$_______________300 shirts time $2 (27-25) = $600

8.ABC Corporations contribution margin is currently positive. If both their selling price per unit and unit variable cost increase by 5% and fixed cost remain the same, which CVP relation is correct?Contribution Margin per UnitBreak Even in UnitsOverall Profit

A.)DecreaseIncreaseDecrease

B.)IncreaseDecreaseDecrease

C.)IncreaseIncreaseIncrease

D.)IncreaseDecreaseIncrease

E.)None of the above

9.The break-even point in sales for Rice Company is $360,000 and the company's contribution margin ratio is 30%.If Rice Company desires pretax profit of $84,000, total revenue would have to totalA.$108,000B.$444,000C.$480,000.D.$560,000.E.$640,000. If B/Even in Revenue = Fixed Costs / Contribution Margin Ratio$360,000= Fixed Costs/30% Solving Fixed Costs must be $108,000

Now we can solve ($108,000+ $84,000)/.3% = $640,000

10.The Bruggs & Strutton Company manufactures an engine for carpet cleaners called the "Snooper." Budgeted cost and revenue data for the "Snooper" are given below, based on sales of 40,000 units.Sales$1,600,000

Less: Cost of goods sold 1,120,000

Gross margin$ 480,000

Less: SG & A expenses 100,000

Net income$ 380,000

Cost of goods sold consists of $800,000 of variable costs and $320,000 of fixed costs. SG&A expenses consist of $40,000 of variable costs and $60,000 of fixed costs.

RequiredA.Calculate the break-even point in units and sales dollars.

20,000 $800,000

B.Calculate the break-even point in units and sales dollars if an AFTER TAX PROFIT OF $50,000 is required. The tax rate is 20%.23,289.5 units $931,578.95

11.Limon Inc. is a mail-order candy company. They offer two types of executive gift baskets: Premium and Average. The Premium has a selling price of $200 and unit variable cost of $100. The Average only sells for $100 and has unit variable cost of $50. In the current year they sold 2,400 total gift baskets of which 600 were Premiums. Fixed costs for this same period totaled $75,000.

Required: At the current mix, how many Premium baskets must be sold to breakeven? How many Average baskets?300/900

12You are given the following information: Sales Price =$22 and the Contribution Margin Ratio =60%. From this information determine the Unit Variable Cost. 8.80

Handout7.2