END-OF-CHAPTER EXERCISES

ASSIGNMENTS

Questions

1.

Describe the components of the profit equation.

2.

What is the difference between a variable cost and a fixed cost? Provide examples of each.

3.

You are asked to find the break-even point in units and in sales dollars. What does this mean?

4.

You are asked to find the target profit in units and in sales dollars. What does this mean?

5.

For a company with one product, describe the equation used to calculate the break-even point or target

profit in (a) units, and (b) sales dollars.

6.

Distinguish between contribution margin per unit and contribution margin ratio.

7.

What does the term

margin of safety

mean? How might management use this information?

8.

Review

"Business in Action 6.1"

. How do airlines measure break-even points? According to the information

presented, which airline had the lowest break-even point?

9.

How does the break-even point equation change for a company with multiple products or services

compared to a single-product company?

10.

Describe the assumptions made to simplify the cost-volume-profit analysis described in the chapter.

11.

What is sensitivity analysis and how might it help those performing cost-volume-profit analysis?

12.

Review

"Business in Action 6.2"

. What were the owners concerned about with regard to projected profits?

What were the results of the calculations made to address the owners' concerns?

13.

If you are asked to review the cost structure of an organization, what are you being asked to do?

14.

When might the contribution margin per unit of constraint be more effective than the contribution

margin per unit for making decisions?

15.

Describe the three steps used to calculate the target profit for companies that incur income tax costs.

16.

Describe the difference between absorption costing and variable costing.

17.

Why do some organizations use variable costin