Question;Cost-Volume-Profit;Analysis, Multiple Products;76. Boise Company manufactures and sells three;products: Good, Better, and Best. Annual;fixed costs are $3,315,000, and data about the three products follow.;Good;Better;Best;Sales mix in;units;30%;50%;20%;Selling price;$250;$350;$500;Variable cost;100;150;250;Required;A.;Determine;the weighted-average unit contribution margin.;B.;Determine;the break-even volume in units for each product.;C.;Determine;the total number of units that must be sold to obtain a profit for the company;of $234,000.;D.;Assume;that the sales mix for Good, Better, and Best is changed to 50%, 30%, and 20%;respectively. Will the number of units;required to break-even increase or decrease?;Explain. Hint: Detailed;calculations are not needed to obtain the proper solution.;Cost-Volume-Profit;Analysis, Multiple Products;77. Alphabet Corporation sells three products: J;K, and L. The following information was;taken from a recent budget;J;K;L;Unit sales;40,000;130,000;30,000;Selling price;$60;$80;$75;Variable cost;40;65;50;Total;fixed costs are anticipated to be $2,450,000.;Required;A.;Determine;Alphabet's sales mix.;B.;Determine;the weighted-average contribution margin.;C.;Calculate;the number of units of J, K, and L that must be sold to break even.;D.;If;Alphabet desires to increase company profitability, should it attempt to;increase or decrease the sales of product K relative to those of J and L? Briefly explain.;Traditional;and Contribution Income Statements;78. Price Publications, Inc., produces and sells;business books. The results of the;company's operations for the year ended December 31, 20x1, are given below.;Sales revenue;$400,000;Manufacturing;costs;Fixed;100,000;Variable;200,000;Selling;costs;Fixed;10,000;Variable;20,000;Administrative;costs;Fixed;24,000;Variable;6,000;Required;A.;Prepare;a traditional income statement for the company.;B.;Prepare;a contribution income statement for the company.;C.;Which;income statement (traditional or contribution) would an operating manager most;likely use to study changes in operating income that are caused by changes in;sales? Why?;Traditional;and Contribution Income Computations;79.;High;Point Corporation reported sales revenues of $1,850,000 for the period just;ended. Cost of goods sold, selling expenses;and administrative expenses totaled $1,200,000, $280,000, and $170,000;respectively. A detailed analysis of the;latter three amounts revealed respective fixed cost components of $780,000;$60,000, and $130,000.;Required;A.;Determine;the amounts that High Point would report on a traditional income statement for;(1) gross margin, (2) contribution margin, and (3) net income.;B.;Determine;the amounts that High Point would report on a contribution income statement for;(1) gross margin, (2) contribution margin, and (3) net income.;C.;Which;of the two income statements (traditional or contribution) is more useful for;studying a company's cost-volume-profit relationships.;Cost;Structure, Operating Leverage;80. Once upon a time, two brothers (Barry and;Larry) dreamt about owning and operating companies in the same line of;business. Barry believed in maintaining;a very large, highly efficient manual labor force, Larry, on the other hand;favored automated-production processes.;One business was located in Madison and the other was located in;Austin. Recent data follow.;Madison;Austin;Sales;$2,000,000;$2,000,000;Contribution margin;1,700,000;400,000;Net income;150,000;150,000;Required;A.;Which;of the two businesses, Madison or Austin, has the highest level of (1) variable;cost and (2) highest level of fixed cost?;Explain how you determined your answer.;B.;Determine;the probable owner of the firm located in (1) Madison and (2) Austin. Briefly explain your logic.;C.;Compute;the operating leverage factor for Madison and Austin.;D.;Suppose;that both Madison and Austin had the opportunity to increase sales by 10%. Which of the two locations would experience a;larger percentage change in net income?;Why?;Operating;Leverage;81. Metropolitan Enterprises is studying the;addition of a new product that would have an expected selling price of $160 and;expected variable cost of $100.;Anticipated demand is 8,000 units.;A;new salesperson must be hired because the company's current sales force is;working at capacity. Two compensation;plans are under consideration;Plan 1: An annual salary of $32,000 plus;10% commission based on gross sales dollars;Plan 2: An annual salary of $140,000 and no commission;Required;A.;What;is meant by the term "operating leverage"?;B.;Calculate;the contribution margin and net income of the two plans at 8,000 units.;C.;Compute;the operating leverage factor of the two plans at 8,000 units. Which of the two plans is more highly;leveraged? Why?;D.;Assume;that a general economic downturn occurred during year no. 2, with product;demand falling from 8,000 to 6,400 units.;By using the operating leverage factors, determine and show which plan;would produce a larger percentage decrease in net income.;DISCUSSION QUESTIONS;Cost-Volume-Profit;Analysis;82. The BoSan Corporation makes major household;appliances such as refrigerators, stoves, and dishwashers. Sales are heavily dependent on the number of;housing starts and the level of disposable income. Next year, the number of housing starts in;the Central region is expected to be the same as this year's, however, about;two-thirds of these starts will be for rental apartments as compared to an;historical average of one-third. The;remaining housing starts will be for single-family homes and upscale;condominiums.;BoSan;generally makes two models of each product: Economy (fully functional, but with;few special features) and Prestige (with the most popular special;features). BoSan assumes a product mix;of 40% Economy and 60% Prestige.;Required;A.;Explain;how a cost-volume-profit (CVP) analysis may be used by management.;B.;One;of the assumptions that underlies CVP analysis is a constant sales mix over the;relevant range of activity. What are;three other assumptions of CVP analysis?;C.;Describe;how the percentage change in rental units could create a problem with BoSan's;CVP analysis.;Contribution;Margin;83. Maddox Corporation's product no. H647 has a;negative contribution margin. How can;such a situation arise? Should the;company continue to stock and sell product no. H647? Explain..;Cost;Structure and Operating Leverage;84. Operating leverage is an important concept;for many companies.;Required;A.;Define;operating leverage.;B.;Assume;that a firm pays no income taxes and is planning to increase its selling;price. If sales volume in units does not;change, what will be the effect on the operating leverage factor? Explain.;C.;Assume;that another firm that pays no income taxes is planning to increase fixed;manufacturing costs and decrease variable manufacturing costs per unit. At the present volume of production, the total;manufacturing costs will be unchanged. What;will this change do to the operating leverage factor? Explain.;Advanced;Manufacturing Effects on Cost-Volume-Profit Relationships;85. Many firms are moving toward flexible;manufacturing systems and adopting the just-in-time (JIT) philosophy.;Required;A.;How;is cost behavior altered in the typical flexible manufacturing environment as;compared to a traditional manufacturing system?;What is the impact on the break-even point? Explain.;B.;One;of the assumptions underlying cost-volume profit analysis is that sales volume;and production volume are equal. Stated;another way, inventories are assumed to remain constant. Is this assumption likely to be violated;under an ongoing JIT philosophy?;Explain.
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