Ch07 SM ManAcct4e

Ch07 SM ManAcct4e - Chapter 7 Cost-Volume-Profit Analysis...

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Chapter 7 Cost-Volume-Profit Analysis and Variable Costing Multiple Choice 1. (LO 1 – Cost behavior) Answer: C 2. (LO 1 – Cost behavior and contribution margin) Answer: D 3. (LO 1 – Format of contribution margin statement) Answer: B 4. (LO 2 – Contribution margin and net income) Answer: D 5. (LO 2 – Contribution margin and net income) Answer: C 6. (LO 2 – Contribution margin per unit and net income) Answer: B The net income will increase by the contribution margin per unit multiplied by the increase in units sold. The contribution margin per unit is $1.25 ($4.50 sales price - $3.25 variable cost). 7. (LO 3 – Operating leverage) Answer: C Operating leverage = Contribution margin Net income Operating leverage = $200,000 = 2 $100,000 8. (LO 3 – What-if decisions) Answer: B 7 - 1
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Solutions Manual 9. (LO 3 – What-if decisions) Answer: D A $25,000 reduction in sales will decrease contribution margin by $8,500 ($25,000 x .34). If fixed costs increase by $7,000, income will decrease by $15,500. 10. (LO 4 – CVP analysis in a multi-product environment) Answer: B 11. (LO 4 – Break-even dollars) Answer: C BE ($) = Fixed Costs Contribution margin ratio where CM ratio = $4.00/$6.00 BE ($) = $12,000 66.67% BE ($) = $18,000 12. (LO 4 – Break-even units) Answer: C BE (units) = Fixed Costs Contribution margin per unit CM ratio = CM per unit Sales price per unit .35 = CM per unit $6 CM per unit = $2.10 BE (units) = $42,000 = 20,000 units $2.10 7 - 2
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Chapter 7: Cost-Volume-Profit Analysis and Variable Costing 13. (LO 4 – Break-even units) Answer: B BE (units) = Fixed Costs Contribution margin per unit BE (units) = $10,000 = 2,000 units $5.00 14. (LO 5 – Break-even in ABC) Answer: D 15. (LO 6 – Sales volume and after-tax profit) Answer: D Sales Volume ($) to reach after-tax profit = [FC + After-tax profit/(1 – tax rate)] CM ratio Sales Volume ($) to reach after-tax profit = [$20,000 + 60,000/(1 - .40)] .80 Sales Volume ($) to reach after-tax profit = $150,000 16. (LO 7 – CVP assumptions) Answer: A 17. (LO 8 – Absorption vs. variable costing) Answer: C Variable costing : Sales revenue (25,000 X $20) $500,000 Less: Variable costs 50,000 Direct materials (25,000 X $7.50) 187,500 Variable overhead (25,000 X $2.25) 56,250 Direct labor (25,000 x $1.25) 31,250 Contribution margin 175,000 Less: Fixed costs 50,000 Fixed overhead 75,000 Net income $ 50,000 7 - 3
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Solutions Manual Absorption costing : Sales revenue (25,000 X $20) $500,000 Less: Cost of goods sold [(25,000 x ($7.50 + $2.25 + $1.25)] + $75,000 350,000 Gross margin 150,000 Less: Selling and admin. Costs 50,000 50,000 Net income $ 50,000 Note: Since the numbers of units produced and sold are equal, variable and absorption costing will yield the same net income. 18.
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This note was uploaded on 03/18/2008 for the course ACIS 2116 taught by Professor Cmeasterwood during the Spring '08 term at Virginia Tech.

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Ch07 SM ManAcct4e - Chapter 7 Cost-Volume-Profit Analysis...

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