1. Explain how to calculate contribution margin per unit.
2. What is the break-even point for a company?
3. How can contribution margin per unit be used to find the break-even point in units?
4. Gamble Company has contribution margin of $20 per unit and a break-even point of 10,000 units. If Gamble sells 9,999 units, what would be its net income or loss? Explain how you calculated your answer.
5. How can the contribution margin ratio be used in cost-volume-profit analysis?
6. How would a company use target pricing to identify the desired cost for a product or service?
7. What is prestige pricing? Under what circumstances should a company consider using prestige pricing?
8. Compare and contrast a cost-plus pricing strategy to a target pricing strategy.
9. What are the assumptions on which cost-volume-profit analysis is based? Are there any additional assumptions for a multiproduct company?
10. How does an increase in variable costs affect the break-even volume of sales?
11. The assumptions underlying cost-volume-profit analysis seldom are entirely valid. How does that affect the usefulness of the technique?
12. Company A makes and sells a single product, unless otherwise indicated. For each of the following changes, indicate whether the break-even point increases (i.e., break even would occur at a higher volume of sales), decreases, is not affected, or the direction of change cannot be determined from the information given. Assume that nothing changes except the given item(s). What happens to the break-even volume when the variable cost per unit decreases?
13. Assume that the company sells two products, X and Y, with contribution margins per unit of $8 and $4, respectively. What happens to the break-even sales volume if the sales mix shifts to favor product Y? (In other words, X makes up a higher percentage of the sales mix)
14. 120.If you were drawing a cost-volume-profit graph for a company, what lines would you plot on the graph?
15. What does the margin of safety measure?
16. Taylor Mayberry is sales manager for a specialty products company that has over 100 product lines. The company uses twenty-five vendors and competes with dozens of competitors. It has been the company's practice to match competitor prices on the products it sells. Describe a technique that will assist Taylor in assessing the impact of constantly changing purchase costs, selling prices, and volumes.
17. Can cost-volume-profit analysis be useful for a company that sells more than one product? If so, how? If not, why not?
18. How is weighted average contribution margin calculated, and how can it be used in cost-volume-profit analysis?
19. Hatfield Company sells several different products. It calculated that, for the current year, it would break even if it achieved sales of $850,000. The company actually achieved sales of $856,000, but it incurred a loss of $6,500. What could have caused this result? The costs and selling prices for the individual products did not change.