ch 20
If Pacific Coast Railway's fixed costs total $ 50,000 per month, the variable cost per passenger is $ 20, and tickets sell for $ 60, what is the breakeven point in units?
50,000 / (60-20) = 1250 passengers
For Smart Touch Learning, straight-line depreciation on its factory equipment is considered a ______ cost. A. Fixed B. Mixed C. Direct D. Variable
A. Fixed
Assume Smart Touch Learning pays its only sales representative a $ 23,000 salary per year plus a $ 9 commission for every tablet she sells. What is her total compensation for the year if the sales representative sells 9,000 tablets during the year? A. $ 81,000 B. $ 104,000 C. $ 46,000 D. $ 23,000
B. $ 104,000 (Base Salary + (comission x sales))
For Frank's Funky Sounds, straight-line depreciation on the trucks is a A. high-low cost. B. mixed cost. C. variable cost. D. fixed cost.
D. fixed cost.
A company with an operating leverage of 1.5 is considered riskier than a company that has an operating leverage of 2.5.
False
A company with an operating leverage of 1.5 means the percent change in operating income will be 1.5 times the percentage change in sales volume.
True
A furniture manufacturer specializes in wood tables. The tables sell for $ 160 and incur $ 72 in variable costs. The company has $ 14,080 in fixed costs per month. The company desires to earn an operating profit of $ 15,840 per month. (Abbreviation used; CM = contribution margin.) 13. Calculate the required sales in units to break even using the contribution margin method. Select the formula labels and then enter the amounts to compute the required sales in units to break even using the contribution margin method. (Complete all cells. For items with a zero value, enter "0".)
(Fixed costs + Target profit) / CM per unit = Required sales in units ($14,080 + $0) / $88 = 160
Madlock, Inc. sells a product with a contribution margin of $ 50 per unit. Fixed costs are $ 2,500 per month. How many units must Madlock sell to earn an operating income of $ 20,000? Begin by showing the formula and then entering the amounts to calculate the units Madlock must sell to earn an operating income of $ 20,000. (Abbreviation used: CM = contribution margin.)
(Fixed costs + Target profit) / CM per unit = Required sales in units ($2,500 + $20,000) / $50 = 450
Ice Company sells a product with a contribution margin ratio of 30%. Fixed costs are $ 1,550 per month. What amount of sales (in dollars) must Ice Company have to earn an operating income of $ 2,500? If each unit sells for $ 30, how many units must be sold to achieve the desired operating income? Begin by showing the formula and then entering the amounts to calculate the sales in dollars Ice must have to earn an operating income of $ 2,500. (Abbreviation used: CM = contribution margin.)
(Fixed costs + Target profit) / CM ratio = Required sales in dollars ($1,550 + $2,500) / 30% = $13,500 Now show the formula and enter the amounts to calculate the units Ice must sell to earn an operating income of $ 2 comma 500. (Abbreviation used: CM = contribution margin.) Required sales/Sales price per unit=Required sales in units $13,500/$30=450
The Outdoor Company buys hiking socks for $ 14 per pair and sells them for $ 20. Management budgets monthly fixed costs of $ 3,000 for sales volumes between 0 and 12,000 pairs of socks. Requirement 2. Use the contribution margin ratio approach to compute the breakeven point in sales dollars. Begin by selecting the formula, then enter the amounts and compute the breakeven point in sales dollars. (Enter a "0" for any zero amounts.)
(Fixed costs + Target profit) / CM ratio = Required sales in dollars ($3,000 + $0) / 30% = $10,000
A furniture manufacturer specializes in wood tables. The tables sell for $ 160 and incur $ 72 in variable costs. The company has $ 14,080 in fixed costs per month. The company desires to earn an operating profit of $ 15,840 per month. (Abbreviation used; CM = contribution margin.) 12. Calculate the required sales in dollars to earn the target profit using the contribution margin ratio method. Select the formula labels and then enter the amounts to compute the required sales in dollars.
(Fixed costs + Target profit) / CM ratio =Required sales in dollars ($14,080 + $15,840) / 55% = $54,400
Following is a list of costs for a furniture manufacturer that specializes in wood tables. Classify each cost as variable, fixed, or mixed relative to tables produced and sold. 1. Wood used to build tables 2. Depreciation on saws and other manufacturing equipment 3. Compensation for sales representatives paid on a salary plus commission basis 4. Supervisor's salary 5. Wages of production workers
1. Wood used to build tables - Variable 2. Depreciation on saws and other manufacturing equipment - Fixed 3. Compensation for sales representatives paid on a salary plus commission basis - Mixed 4. Supervisor's salary - Fixed 5. Wages of production workers - Variable
During the year, Smart Touch Learning sold 2,900 tablets for $ 360 each and incurred $ 270 in variable costs in producing each tablet. What is the total contribution margin for Smart Touch Learning? A. $ 261,000 B. $ 1,044,000 C. $ 24,300 D. $ 348,000
A. $ 261,000 ($360 - $270) x 2,900 = 261,000
Smart Touch Learning sells two types of tablets: a low-end tablet and a high-end tablet. Last month, the company sold 28,000 low-end tablets and 10,000high-end tablets. What is the correct sales mix for Smart Touch Learning in its simplest form? A. 14:5 Low-end tablets to high-end tablets B. 28:10 Low-end tablets to high-end tablets C. 10:28 Low-end tablets to high-end tablets D. 5:14 Low-end tablets to high-end tablets
A. 14:5 Low-end tablets to high-end tablets
Assume Smart Touch Learning sells tablets for $ 360. The variable cost per unit is $ 240, and total fixed costs for the month are $ 6,000. How many tablets does the company need to sell to breakeven? (Round your answer up to the nearest whole number.) A. 50 B. 150 C. 180 D. 90
A. 50 (360-240)/6000
Suppose Smart Touch Learning provides a cell phone to each of its sales representatives and pays the monthly flat-fee of $60 for each cell phone. This $60 cell phone fee per month would be considered (check all that apply) A. A fixed cost in relation to the number of tablets sold during the month B. A variable cost in relation to the number of sales representatives working for Smart Touch Learning C. A variable cost in relation to the number of tablets sold during the month D. A fixed cost in relation to the number of sales representatives working for Smart Touch Learning
A. A fixed cost in relation to the number of tablets sold during the month C. A variable cost in relation to the number of tablets sold during the month
Sensitivity analysis is A. A "what if" technique that estimates profit or loss results if sales price, costs, volume, or underlying assumptions change B. A "what if" technique that estimates how changes in sales price affect fixed costs C. A technique used to determine the breakeven point for companies that sell more than one product D. A technique used to determine how much sales can decrease before a company incurs an operating loss
A. A "what if" technique that estimates profit or loss results if sales price, costs, volume, or underlying assumptions change
Which of the following are assumptions used within the relevant range when using cost-volume-profit analysis? (check all that apply) A. Managers classify costs as either variable, fixed, or mixed B. Fixed costs change C. The only factor that affects costs is changes in volume D. There are no changes in inventory level
A. Managers classify costs as either variable, fixed, or mixed C. The only factor that affects costs is changes in volume D. There are no changes in inventory level
The high-low method is used A. To separate mixed costs into their variable and fixed components B. To calculate the break-even point for a product C. To calculate the highest fixed cost and lowest fixed cost over a relevant range D. When a company only has variable costs
A. To separate mixed costs into their variable and fixed components
Which of the following would be considered a variable cost in relation to the production of tablets for Smart Touch Learning (check all that apply) A. Wages of assembly workers B. Salary of the factory supervisor C. Cost of computer chips put into the tablets D. Monthly insurance premiums for the factory
A. Wages of assembly workers C. Cost of computer chips put into the tablets
If Adirondack Railway's fixed costs total $ 70,000 per month, the variable cost per passenger is $ 20, and tickets sell for $ 100, how much revenue must the Railway generate to earn $ 180,000 in operating income per month? A. $ 3,125 B. $ 312,500 C. $ 1,250,000 D. $ 250,000
B. $ 312,500 (180,000 + 70,000) / (100-20) = 3125 3125 * 100 = 31250
Assume Smart Touch Learning sells tablets for $ 490, incurs $ 310 of variable costs per tablet, and $ 7,000 of fixed costs per month. Due to decreasing gas prices, the variable costs per unit decreases to $ 305 per tablet. What is the breakeven point in units both a) before the change in variable costs and b) after the change in variable costs? (Round your answer to the nearest whole unit.) A. 179; 34 B. 39; 38 C. 179; 38 D. 179; 39
B. 39; 38 Before: 7000 / (490-310) After: 7000 / (490-305)
Smart Touch Learning sells two types of tablets: a low-end tablet and a high-end tablet at a product mix ratio of 3:2 low-end to high-end tablets. Assume the weighted-average contribution margin for these tablets is $ 76. The required units for the "package" of tablets to be sold for the company to hit its target profit of $ 34,000 if fixed costs are $ 4,000 is _____ units. A. 447 B. 500 C. 380 D. 330
B. 500
Assume Smart Touch Learning sells tablets for $ 400, incurs $ 300 of variable costs per tablet, and $ 7,000 of fixed costs per month. Due to increasing competition, the Smart Touch Learning decided to drop the price to $ 320 per tablet. What is the breakeven point in units both a) before the price change and b) after the price change? A. 350; 175 B. 70; 350 C. 70; 105 D. 105; 350
B. 70; 350 Before: 7000/(400-300) After: 7000/ (320-300)
Which of the following equations properly describes the format on a contribution margin income statement? A. Net Sales Revenue - Cost of Goods Sold = Contribution Margin - Selling & Administrative Expenses = Operating Income B. Net Sales Revenue - Variable Costs = Contribution Margin - Fixed Costs = Operating Income C. Net Sales Revenue - Selling & Administrative Expenses = Contribution Margin - Cost of Goods Sold = Operating Income D. Net Sales Revenue - Fixed Costs = Contribution Margin - Variable Costs = Operating Income
B. Net Sales Revenue - Variable Costs = Contribution Margin - Fixed Costs = Operating Income
If Adirondack Railway's fixed costs total $ 55 comma 000 per month, the variable cost per passenger is $ 15, and tickets sell for $ 60, what is the contribution margin per unit and contribution margin ratio? A. $ 45 per passenger; 25% B. $ 15 per passenger; 75% C. $ 45 per passenger; 75% D. $ 15 per passenger; 25%
C. $ 45 per passenger; 75%
During the year, Smart Touch Learning sold 2,900 tablets for $ 360 each and incurred $270 in variable costs in producing each tablet. What is the unit contribution margin for the tablets? A. $ 1,044 B. $ 360 C. $ 90 D. $ 270
C. $ 90 ($360 - $270 = $90)
Assume Smart Touch Learning sells tablets for $ 360. The variable cost per unit is $ 240, and total fixed costs for the month are $ 6,000. If Smart Touch Learning desires a profit of $ 6,000 each month, how many tablets does the company need to sell? (Round your answer up to the nearest whole number.) A. 25 B. 50 C. 100 D. 75
C. 100
During the year, Smart Touch Learning sold 3,300 tablets for $ 500 each and incurred $ 280 in variable costs in producing each tablet. What is the unit contribution margin ratio for the tablets? A. 8% B. 18% C. 44% D. 17%
C. 44% ($500 - $280) / 500 = .44 = 44%
Assume Smart Touch Learning sells tablets for $ 590, incurs $ 340 of variable costs per tablet, and $ 15,000 of fixed costs per month. Due to increased property taxes, the fixed costs per month increases to $ 16,000. What is the breakeven point in units both a) before the change in fixed costs and b) after the change in fixed costs? A. 55; 60 B. 75; 80 C. 60; 64 D. 64; 70
C. 60; 64 Before: 15,000/(590-340)= 60 After: 16,000/(590-340)=64
The _________ of a company is its proportion of fixed costs to variable costs. A. Margin of Safety B. Contribution Margin C. Cost Structure D. Operating Leverage
C. Cost Structure
The degree of operating leverage measures the effects _______ costs have on changes in operating income when sales volume changes A. Mixed B. Product C. Fixed D. Variable
C. Fixed
Contribution margin is the amount that contributes to covering A. Period costs and then to providing sales revenue B. Variable costs and then to providing operating income C. Fixed costs and then to providing operating income D. Product costs and then to providing sales revenue
C. Fixed costs and then to providing operating income
The ___________ is the amount sales can decrease before the company incurs an operating loss. A. Breakeven Point B. Target Profit C. Margin of Safety D. Operating Leverage
C. Margin of Safety
Assume Smart Touch Learning pays its only sales representative a $30,000 salary per year plus a $10 commission for every tablet she sells. The compensation for this sales representative would be considered a _____ cost. A. Fixed B. Variable C. Mixed D. High-Low
C. Mixed
The ___________ is the combination of products that makes up total sales A. Sales Combination B. Cost of Goods Sold C. Sales Mix D. Revenue Mix
C. Sales Mix
During the year, Smart Touch Learning sold the least amount of tablets during February (200 tablets) and the most tablets during December (800 tablets). The company's total manufacturing equipment maintenance cost in February was $3,000 and in December it was $6,000. Using the high-low method, what is the equation that shows the behavior for manufacturing equipment maintenance cost? A. Total Manufacturing Maintenance Cost = ($ 8X Tablets Sold) + $ 2,000 B. Total Manufacturing Maintenance Cost = $ 5X Tablets Sold C. Total Manufacturing Maintenance Cost = ($ 5X Tablets Sold) + $ 2,000 D. Total Manufacturing Maintenance Cost = ($ 15X Tablets Sold) + $ 2,000
C. Total Manufacturing Maintenance Cost = ($ 5X Tablets Sold) + $ 2,000
On a CVP graph, the total cost line intersects the vertical (dollars) axis at A. the origin. B. the breakeven point. C. the level of the fixed costs. D. the level of the variable costs.
C. the level of the fixed costs.
Smart Touch Learning sells two types of tablets: a low-end tablet and a high-end tablet. Last month, the company sold 16 comma 000 low-end tablets and 10 comma 000 high-end tablets. The low end tablets sell for $ 325 and incur variable costs of $ 240 while the high-end tablets sell for $ 540 and incur variable costs of $ 325. What is the weighted-average contribution margin? A. $ 120 B. $ 25 C. $ 150 D. $ 135
D. $ 135
Assume Smart Touch Learning sells tablets for $ 300. The variable cost per unit is $ 250, and total fixed costs for the month are $ 9,000. If Smart Touch Learning desires a profit of $ 18,000 each month, what are the sales dollars required to reach the target profit? A. $ 9,500 B. $ 27,500 C. $ 18,500 D. $ 162,000
D. $ 162,000
Assume Smart Touch Learning sells tablets for $ 500. The variable cost per unit is $ 220, and total fixed costs for the month are $ 14,000. What are the sales dollars required for the company to breakeven? A. $ 50,000 B. $ 36,000 C. $ 39,000 D. $ 25,000
D. $ 25,000 14000/(500-220)= 50 50 * 500 = $25,000
During the year, Smart Touch Learning sold the least amount of tablets during February (130 tablets) and the most tablets during December (440 tablets). The company's total manufacturing equipment maintenance cost in February was $1,500 and in December it was $4,600. Using the high-low method, what would the total manufacturing equipment maintenance cost be if 475 tablets were sold during a month? A. $ 200 B. $ 4,555 C. $ 4,600 D. $ 4,950
D. $ 4,950
Smart Touch Learning expects to sell 400 tablets this month at a price of $ 450/tablet. Assume the breakeven point is 340 tablets. What is the company's margin of safety in terms of a) units, b) dollars, and c) a ratio? A. 60 units; $ 25,000; 25% B. 60 units; $ 27,000; 85% C. 340 units; $ 25,000; 15% D. 60 units; $ 27,000; 15%
D. 60 units; $ 27,000; 15%
The range of volume where total fixed costs and variable costs per unit remains constant is called the ______ range A. Volume B. Production C. Realistic D. Relevant
D. Relevant
The operating income that results when sales revenue minus variable and fixed costs equals management's profit goal is called A. Breakeven point B. Net income C. Contribution margin D. Target profit
D. Target profit
A mixed cost will be $0 when the total volume of units produced/sold is zero.
False
As Smart Touch Learning produces more tablets, the company's total fixed costs increase, but its fixed cost per unit remains constant.
False
Companies with lower fixed costs are at greater risk when sales decrease, but have the opportunity for greater rewards when sales increase compared to a company that has higher fixed costs.
False
If total fixed costs increase, then the contribution margin per unit decreases and the company's breakeven point increases.
False
Smart Touch Learning sells two types of tablets: a low-end tablet and a high-end tablet at a product mix ratio of 3:2 low-end to high-end tablets. Assume the weighted-average contribution margin for these tablets is $100. The required units for the "package" of tablets to be sold for the company to breakeven if fixed costs are $20,000 is 150 units.
False
A furniture manufacturer specializes in wood tables. The tables sell for $ 160 and incur $ 72 in variable costs. The company has $ 14,080 in fixed costs per month. The company desires to earn an operating profit of $ 15,840 per month. (Abbreviation used; CM = contribution margin.) 11. Calculate the required sales in units to earn the target profit using the contribution margin method.
Fixed Costs + Target Profit / CM per unit= Required Sales in unit ($14,080 + $15,840) / $88 = 340
A furniture manufacturer specializes in wood tables. The tables sell for $ 160 and incur $ 72 in variable costs. The company has $ 14,080 in fixed costs per month. The company desires to earn an operating profit of $ 15,840 per month. (Abbreviation used; CM = contribution margin.) 10. Calculate the required sales in units to earn the target profit using the equation method. Rearrange the formula you determine above and compute the required sales in units.
Net Salves Revenue - Variable Costs - Fixed Costs = Target profit The required sales in units to earn the target profit using the equation method is 340
The Outdoor Company buys hiking socks for $ 14 per pair and sells them for $ 20. Management budgets monthly fixed costs of $ 3,000 for sales volumes between 0 and 12,000 pairs of socks. Requirement 1. Use both the equation approach and the contribution margin approach to compute the company's monthly breakeven point in units. First, select the formula to compute the company's monthly breakeven point in units using the equation approach.
Net sales revenue - Variable costs - Fixed costs = Target profit Rearrange the formula you determined above and compute the breakeven point in units. The number of units needed to break even is 500. Now select the labels and enter the amounts to find the breakeven point in units using the contribution margin approach. (Enter a "0" for any zero amounts. Abbreviation used: CM = contribution margin.) (Fixed costs + Target profit) / CM per unit = Required sales in units ($3,000 + $0) / $6 = 500
Gabby Company sells a product for $ 65 per unit. Variable costs are $ 20 per unit, and fixed costs are $ 2,000 per month. The company expects to sell 540 units in September. Prepare an income statement for September using the contribution margin format.
Sales Revenue $35,100 Variable Costs (10,800) Contribution Margin 24,300 Fixed Costs (2,000) Operating Income $22,300
The Outdoor Company buys hiking socks for $ 14 per pair and sells them for $ 20. Management budgets monthly fixed costs of $ 3,000 for sales volumes between 0 and 12,000 pairs of socks. Requirement 3. Compute the monthly sales level (in units) required to earn a target operating income of $ 30,000. Use either the equation approach or the contribution margin approach.
The number of units required to earn a target operating income of $30,000 is 5,500
A contribution margin income statement groups costs by behavior and calculates contribution margin.
True
As Smart Touch Learning produces more tablets, the company's total variable costs increase, but its variable cost per unit remains constant.
True
If a company's margin of safety is 30% that means its expected sales can drop 30% before the company incurs an operating loss.
True
If the sales price per unit decreases, then the contribution margin per unit decreases and a company's breakeven point increases.
True
The sales level where operating income is zero is called the breakeven point.
True
John Street Barber Shop pays $ 35 per month for water for the first 13,000 gallons and $ 1.50 per thousand gallons above 13,000 gallons. Calculate the total water cost when the barber shop uses 11,000 gallons, 16,000 gallons, and 18,000 gallons.
Usage Total // Water Cost 11,000 gallons // $35.00 16,000 gallons // $39.50 18,000 gallons // $42.50
