Question : SHORT-ANSWER ESSAY QUESTIONS S-A E  206 A cost-volume-profit graph frequently used in : 1311738

SHORT-ANSWER ESSAY QUESTIONS

S-A E  206

A cost-volume-profit graph is frequently used in business meetings because it presents a picture of cost relationships within a company. Briefly describe the type of information and data that you would need in order to prepare a CVP graph. After a CVP graph is prepared, what are the major points that could be made from the graph that would be of interest to management?

S-A E  207

A CVP income statement is frequently prepared for internal use by management. Describe the features of the CVP income statement that make it more useful for management decision-making than the traditional income statement that is prepared for external users.

S-A E  208

(a)Matt Sampson asks your help in understanding the term “activity index.” Explain the meaning and importance of this term for Matt.

(b)State the two ways that variable costs may be defined.

S-A E  209

How should mixed costs be classified in CVP analysis? What approach is used to effect the appropriate classification?

S-A E  210(Ethics)

Hanson, Inc. requires its marketing managers to submit estimated cost-volume-profit data on all requests for new products, or expansions of a product line.

Nancy Stephens is a new manager. Her calculations show a fixed cost for a new project at $100,000 and a variable cost of $5. Since the selling price is only $15 for the proposed product, 10,000 would need to be sold to break even. That is approximately twice the volume estimate for the first year. She shares her dismay with Patti Patterson, another manager.

Patti strongly advises her to revise her estimates. She points out that several of the costs that had been classified as fixed costs could be considered variable, since they are step costs and mixed costs. When the data has been revised classifying those costs as variable costs, the project appears viable.

Required:

1.Who are the stakeholders in this decision?

2.Is it ethical for Nancy to revise the costs as indicated? Briefly explain.

3.What should Nancy do?

S-A E 211(Communication)

For two years, Annette Larson has been the manager of the production department of a company manufacturing toys made of plastic-coated cardboard. One of the toys is a paper doll, whose “clothes” are made of acetate, and stay on the doll with static electricity. The company’s sales were mainly to large educational institutions until last year, when the dolls were sold for the first time to a large discount retailer. The dolls were sold out immediately, and enough orders were received to keep the department at full capacity for the immediate future.

The fixed costs for the department are $50,000, with $1 per unit variable costs. A paper doll and one set of clothes sell for $3. The maximum volume is 80,000 units. With the increased volume, Ms. Larson is considering two options to improve profitability. One would reduce variable costs to $0.75, and the other would reduce fixed costs to $35,000.

Required:

Given the fact that sales are increasing, make a short (one paragraph) recommendation to Ms. Larson about which option she should choose. Support your recommendation with a calculation showing her how profitability will change with each option.