Question :
11) Explain when a manager would use cost-volume-profit analysis and : 1217156
11) Explain when a manager would use cost-volume-profit analysis and sensitivity analysis.
Objective 3.6
Answer the following questions using the information below:
Southwestern College is planning to hold a fundraising banquet at one of the local country clubs. It has two options for the banquet:
OPTION 1:Crestview Country Club
a. Fixed rental cost of $1,000
b. $12 per person for food
OPTION 2:Tallgrass Country Club
a. Fixed rental cost of $3,000
b. A caterer who charges $8.00 per person for food
Southwestern College has budgeted $1,800 for administrative and marketing expenses. It plans to hire a band which will cost another $800. Tickets are expected to be $30 per person. Local business supporters will donate any other items required for the event.
1) Which option provides the least amount of risk?
A) Option one
B) Option two
C) Both options provide the same amount of risk.
D) Neither option has risks.
2) Which option has the lowest breakeven point?
A) Option one
B) Option two
C) Both options have the same breakeven point.
D) The lowest breakeven point cannot be determined.
Option 2: $30X – $8X – $3,000 – $1,800 – $800 = 0; X = $255
3) Which option provides the greatest operating income if 600 people attend?
A) Option one
B) Option two
C) Operating incomes are identical.
D) Operating income is indeterminable.
4) Which option provides the greatest degree of operating leverage if 600 people attend?
A) Option one
B) Option two
C) Both options provide equal degrees of operating leverage.
D) Operating leverage is indeterminable.
5) Option 1: Fixed costs of $10,000 and a breakeven point of 500 units.
Option 2: Fixed costs of $20,000 and a breakeven point of 700 units.
Which option should you choose if you are expecting to produce 600 units?
A) Option one
B) Option two
C) Both options are equally desirable.
D) The best option is indeterminable.
6) Mrs. Tannenbaum is going to sell Christmas tree lights for $40 a box. The lights cost Mrs. Tannenbaum $10 a box and any unsold lights can be returned for a full refund. She is planning to rent a booth at the upcoming Happy Holidays Convention, which offers three options:
1.paying a fixed fee of $3,000, or
2.paying a $1,000 fee plus 10% of revenues made at the convention, or
3.paying 25% of revenues made at the convention.
Which of the following statements is FALSE?
A) Her decision will determine the risk she faces.
B) Contribution margin will vary depending upon the option chosen.
C) One of the options will allow Mrs. Tannenbaum to break even, even if she doesn’t sell any lights.
D) Operating income will be the greatest for Option 3.
7) In a company with low operating leverage:
A) fixed costs are high and variable costs are low
B) large changes in sales volume result in small changes in net income
C) there is a higher possibility of net loss than a higher-leveraged firm
D) less risk is assumed than in a highly leveraged firm
8) If the contribution margin ratio is 0.40, targeted operating income is $80,000, and targeted sales volume in dollars is $500,000, then total fixed costs are:
A) $80,000
B) $100,000
C) $120,000
D) $200,000
