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?