1. How do changes in volume affect the break even point?
2. What important information is conveyed by the margin of safety calculations in CVP analysis?
3. Why are fixed costs generally more relevant in long run decisions than short run decisions?
4. What is the relationship between scarce resources and an organization’s production capacity?
5. What are some factors that a company must consider when deciding to raise or lower sales prices on products?
6. Caron Company produces and sells two products: A and B in the ratio 3A to 5B. Selling prices for A and B are respectively, $1,200 and $240; respective costs are $480 $160. The company fixed costs are $1,800,000 per year.
Compute the volume of sales in units of each product needed to:
Required:
a. break even
b. earn $800,000 of income after income taxes, assuming a 30 percent tax rate.
c. earn 12 percent on sales revenue in before tax income.
d. earn 12 percent on sales revenue in after tax income, assuming a 30 percent tax rate.
7. Whitmore Corporation predicts it will produce and sell 40,000 units of its sole product in the current year. At that level of volume, it projects a sales price of $30 per unit, a contribution margin ratio of 40 percent, and fixed costs of $5 per unit.
Refer to Whitmore Corporation. What is the company’s projected breakeven point in dollars and units?
1. How do changes in volume affect the break even point? 2. What important information is conveyed by the margin of safety calculations in CVP analysis? 3. Why are fixed costs generally more relevant in long run decisions than short run decisions? 4. What is the relationship between scarce resources and an organization’s production capacity? 5. What are some factors that a company must consider when deciding to raise or lower sales prices on products? 6. Caron Company produces and sells two products: A and B in the ratio 3A to 5B. Selling prices for A and B are respectively, $1,200 and $240; respective costs are $480 $160. The company fixed costs are $1,800,000 per year. Compute the volume of sales in units of each product needed to: Required:?a. break even b. earn $800,000 of income after income taxes, assuming a 30 percent tax rate. c. earn 12 percent on sales revenue in before tax income. d. earn 12 percent on sales revenue in after tax income, assuming a 30 percent tax rate. 7. Whitmore Corporation predicts it will produce and sell 40,000 units of its sole product in the current year. At that level of volume, it projects a sales price of $30 per unit, a contribution margin ratio of 40 percent, and fixed costs of $5 per unit. Refer to Whitmore Corporation. What is the company’s projected breakeven point in dollars and units?
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