Assignment 2

Cost-Volume-Profit Analysis

Name:

Date:

Match

Match each of the following terms with the phrase that most closely describes it. Each answer may be
used only once.

_____ 1. Break-even point

_____ 2. Contribution margin

_____ 3. Fixed costs

_____ 4. Margin of safety

_____ 5. Mixed costs

_____ 6. Operating leverage

_____ 7. Regression analysis

_____ 8. Relevant range

_____ 9. Scattergraph

_____ 10. Variable costs

A. Difference between the expected level of sales and the break-even sales
B. A plot of activity levels and the corresponding costs
C. Number of units that must be sold for a company to have a net income of $0
D. Uses all available historical data to estimate the slope and intercept of the total cost line
E. Levels of activity for which estimates, and predictions are likely to be accurate
F. Costs that change in total in proportion to changes in volume or activity
G. Level of fixed versus variable costs in a firm’s cost structure
H. Costs that do not change in total in response to changes in activity levels within the
relevant range
I. Difference between selling price and variable cost per unit
J. Costs that contain both a variable cost element and a fixed cost element
Exercises

1. Dave’s Dogs sells steamed hot dogs for $2.50 each. The company provided the following units
and total cost data concerning its hotdog sales for the last six months of 2017:
.
Cost Units
July $3,020 2,400
August 2,795 2,150
September 3,040 2,300
October 2,700 2,250
November 2,750 2,160
December 3,085 2,340

a. Use the high-low method to estimate fixed and variable costs.

b. Estimate total profit in a month when 2,200 hotdogs are sold.
c. Based on these estimates, calculate the number of hotdogs that must be sold to break-even.
d. How does linear regression differ from the high-low method in estimating fixed and variable
costs?

2. Disc Buddy, Inc. produces flash drives. The selling price is $8 per drive. The variable cost of
production is $2.40 per unit and the fixed cost per month is $3,600.

a. Calculate the contribution margin associated with each flash drive.

b. In August, the company sold 200 more flash drives than planned. What is the expected
effect on profit of selling the additional drives?
c. Calculate the contribution margin ratio associated with one flash drive.
d. In October, the company had sales that were $2,400 higher than planned. What is the
expected effect on profit related to the additional sales?