ACCOUNTING EXAM II math

Future Corporation has a single product; the product selling price is $100 and variable costs are $60. The company's fixed expenses are $10,000. What is the company's break-even point in sales dollars? a. $25,000 b. $2,500 c. $250 d. $16,667

a CM ratio = (Sales - Variable expenses) ÷ Sales = ($100 - $60) ÷ $100 = $40 ÷ $100 = 40% or 0.40 Dollar sales to break-even = Fixed expenses ÷ CM Ratio = $10,000 ÷ 0.40 = $25,000

Walton Corporation is currently selling 104 units of its product. The company is deciding the price that it should charge for a bulk order of 40 units. The variable cost per unit is $200. This order will not involve any additional fixed costs and the company's current sales will not be affected. The company targets a profit of $4,000 on the bulk order. What selling price per unit should the company quote for the bulk order? Selling Price per unit: _______

$300 Variable Price per unit ($200) + Profit required per unit ($4,000/$40= $100)= Selling Price per unit ($300)

Johnson Corporation-- Target profit: $120,000 Unit CM: $40 Fixed exp.: $40,000 CM ratio: $0.40 Selling price: $100 What are the sales dollars required to attain a target profit of $120,000? a. $400,000 b. $300,000 c. $10,000 d. $60,000

a Dollar sales to attain the target profit = (Target profit + Fixed expenses) ÷ CM ratio Dollar sales to achieve the target profit = ($120,000 + $40,000) ÷ 0.40 = $400,000

Atlas Corporation sells 100 bicycles during a month. The contribution margin per bicycle is $200. The monthly fixed expenses are $8,000. What is the profit from the sale of 100 bicycles? a. $12,000 b. $10,000 c. $20,000 d. $8,000

a Profit = (Sales - Variable expenses) - Fixed expenses = CM - Fixed expenses Profit = (100 units x Unit CM of $20) - $8,000 = $20,000 - $8,000 = $12,000

Income Statement of Base Corporation: Sales -- $100,000 Variable expenses -- $50,000 Contribution margin -- $50,000 Fixed expenses -- $20,000 Net Operating income -- $30,000 If sales increase by $50,000, what will be the net operating income for the company? a. $25,000 b. $55,000 c. $15,000 d. $50,000

b CM ratio = Total CM ÷ Total sales = $50,000 ÷ $100,000 =50% Profit = (CM ratio × Sales) − Fixed Expenses = (50% × $150,000) − $20,000= $55,000

Cartier Corporation currently sells its products for $50 per unit. The company's variable costs are $20 per unit. Fixed expenses amount to a total of $5,000 per month. What is the company's contribution margin ratio? a. 40% b. 60% c. 100% d. 20%

b CM ratio = Unit CM ÷ Unit selling price = ($50 − $20) ÷ $50 = 60%

Taylor Company has current sales of 1,000 units, which generates sales revenue of $190,000, variable costs of $76,000 and fixed expenses of $96,000. The company believes sales will increase by 300 units if advertising increases by $20,000. What is the change in net operating income after the changes? a. Increase of $20,000 b. Decrease of $20,000 c. Increase of $14,200 d. Decrease of $12,000

c Contribution margin per unit = ($190,000 − $76,000)/1,000 units = $114 per unit Increase in total CM ($114 per unit * 300 units) - fixed costs = change in NOI (114*300)-20,000=$14,200

Summarized data for Ralph Corporation: Selling price: $200 per unit Variable expense: $150 per unit Fixed expenses: $1,000,000 per year Unit sales: 25,000 per year What is Ralph Corporation's margin of safety in dollars? a. $4 million b. $5 million c. $1 million d. $2.2 million

c Margin of safety in dollars = Total budgeted (or actual) sales − Break-even sales Total budgeted (or actual sales) = $200 per unit x 25,000 units = $5,000,000 CM Ratio = (Sales - Variable expenses) ÷ Sales = ($200 - $150) ÷ $200 = $50 ÷ $200 = 25% or 0.25 Break-even sales = Fixed expenses ÷ CM ratio = $1,000,000 ÷ 0.25 = $4,000,000 Margin of safety in dollars = $5,000,000 − $4,000,000 = $1,000,000

Johnson Corporation-- Target profit: $120,000 Unit CM: $40 Fixed exp.: $40,000 CM ratio: $0.40 Selling price: $100 What are the unit sales required to attain a target profit of $120,000? a. 400,000 units b. 400 units c. 1,600 units d. 4,000 units

d Unit sales to attain the target profit = (Target profit + Fixed Expenses) ÷ Unit CM. Unit sales to achieve the target profit = ($120,000 + $40,000) ÷ $40 = 4,000 units.

Winter Corporation's current sales are $500,000. The contribution margin is $300,000 and the net operating income is $100,000. What is the company's degree of operating leverage? a. 3.00 b. 0.60 c. 2.00 d. 1.67

a Degree of operating leverage = Contribution margin ÷ Net operating income Degree of operating leverage = $300,000 ÷ $100,000 = 3.00

Summarized data for Ralph Corporation: Selling price: $200 per unit Variable expense: $150 per unit Fixed expenses: $1,000,000 per year Unit sales: 25,000 per year What is Ralph Corporation's margin of safety in percentage? 20% 100% 80% 50%

a Margin of safety in dollars = Total budgeted (or actual) sales − Break-even sales Total budgeted (or actual sales) = $200 per unit x 25,000 units = $5,000,000 CM Ratio = (Sales - Variable expenses) ÷ Sales = ($200 - $150) ÷ $200 = $50 ÷ $200 = 25% or 0.25 Break-even sales = Fixed expenses ÷ CM ratio = $1,000,000 ÷ 0.25 = $4,000,000 Margin of safety Percentage = Margin of safety in dollars ÷ Total budgeted (or actual) sales in dollars = ($5,000,000 − $4,000,000) ÷ $5,000,000 = 20%

Taylor Company has current sales of 1,000 units, at a selling price of $190 per unit, variable costs per unit of $76 and fixed expenses of $96,000. The company believes sales will increase by 300 units if the company introduces sales commissions as an incentive for the sales staff. The change will decrease the selling price to $175 per unit, increase variable cost per unit to $100 and decrease fixed expenses by $20,000. What is the net operating income after the changes? a. $21,500 b. $30,000 c. $24,500 d. $22,000

a New CM per unit = $175 − $100 = $75 New CM = $75 × 1,300 units = $97,500 New fixed cost = $96,000 − 20,000 = $76,000 New NOI = $97,500 − 76,000 = $21,500

Cartier Corporation currently sells its products for $50 per unit. The company's variable costs are $20 per unit. Fixed expenses amount to a total of $5,000 per month. What is the company's variable cost ratio? a. 40% b. 60% c. 100% d. 20%

a Variable expense ratio = Variable expenses ÷ Sales = $20 ÷ $50 = 40%

The current sales of Trent, Inc., are $400,000, with a contribution margin of $200,000. The company's degree of operating leverage is 2. If the company anticipates a 30% increase in sales, what is the percentage change in net operating income for Trent, Inc.? a. 24% b. 30% c. 60% d. 25%

c Percentage change in net operating income = Degree of operating leverage × Percentage change in sales = 2 × 30% = 60%.

Atlas Corporation sells 100 bicycles during a month at a price of $500 per unit. The variable expenses amount to $300 per bicycle. How much does profit increase if it sells one more bicycle? a. $500 b. $300 c. $200 d. $20,200

c Unit CM = Selling price per unit - Variable expenses per unit = $500 - $300 = $200

Jan: DL-Hrs: 5,000 Maintenance Cost Incurred: $2,900 Feb: DL-Hrs: 4,000 Maintenance Cost Incurred: $2,500 Mar: DL-Hrs: 7,000 Maintenance Cost Incurred: $3,200 Apr: DL-Hrs: 8,000 Maintenance Cost Incurred: $3,400 May: DL-Hrs: 3,000 Maintenance Cost Incurred: $2,100 Jun: DL-Hrs: 9,000 Maintenance Cost Incurred: $4,000 Jul: DL-Hrs: 6,000 Maintenance Cost Incurred: $3,100 Aug: DL-Hrs: 2,000 Maintenance Cost Incurred: $1,900 Using the high-low method, what is the variable cost? a. $2 per direct-labor hour. b. $2.31 per direct-labor hour. c. $0.30 per direct-labor hour. d. $3.33 per direct-labor hour.

c Variable cost = Change in cost ÷ Change in activity Variable cost = ($4,000 − $1,900) ÷ (9,000 direct labor-hours − 2,000 direct labor-hours) = $0.30 per direct-labor-hour

CornFlakes-- Sales: Amt: $2,000,000 %: 100% Variable exp: Amt: $800,000 %: 40% CM: Amt: $1,200,000 %: 60% Fixed exp: NOI: Frosted Flakes-- Sales: Amt: $500,000 %: 100% Variable exp: Amt: $250,000 %: 50% CM: Amt: $250,000 %: 50% Fixed exp: NOI: Total-- Sales: Amt: $2,500,000 %: 100% Variable exp: Amt: $1,050,000 %: 42% CM: Amt: $1,450,000 %: 58% Fixed exp: 870,000 NOI: $580,000 What is the amount of the break-even sales for Grace Food Company? $1.2 million $2.2 million $2.0 million $1.5 million

d Sales mix percentages: Corn Flakes = $2,000,000 ÷ $2,500,000 = 0.80 Frosted Flakes = $500,000 ÷ $2,500,000 = 0.20 Overall CM ratio = (60% × 0.80) + (50% × 0.20) = 58% Break-even point = Total fixed expenses ÷ Overall CM ratio = $870,000 ÷ 0.58 = $1.5 million

Frank Corporation has a single product. Its selling price is $80 and the variable costs are $30. The company's fixed expenses are $5,000. What is the company's break-even point in unit sales? a. 63 units b. 167 units c. 50 units d. 100 units

d Unit CM = Selling price of $80 − Variable expense of $30 = $50 Unit sales to break-even = Fixed expenses of $5,000 ÷ Unit CM of $50 = 100 units.