MBA700 - Homework 4

Total costs for ABC Distributing are $250,000 when the activity level is 10,000 units. If variable costs are $5 per unit, what are their fixed costs? a. $200,000 b. $240,000 c. $260,000 d. Their fixed costs cannot be determined from the information presented.

a. $200,000 Total Variable costs = # of Units * variable cost per unit Total Variable costs = 10,000 * $5 Total Variable costs = $50,000 Fixed costs = Total costs - Variable costs Fixed costs = $250,000 - $50,000 Fixed costs = $200,000

The amount of a unit's sales price that helps to cover fixed expenses is its ________. a. stepped cost b. contribution margin c. profit d. variable cost

b. contribution margin

The high-low method and least-squares regression are used by managers to ________. a. maximize output b. minimize corporate tax liability c. estimate costs d. decide whether to make or buy a component part

c. estimate costs

A scatter graph is used to test the assumption that the relationship between cost and activity level is ________. a. curvilinear b. cyclical c. linear d. unpredictable

c. linear

Wallace Industries has total contribution margin of $58,560 and net income of $24,400 for the month of April. Wallace expects sales volume to increase by 5% in May. What are the degree of operating leverage and the expected percent change in income for Wallace Industries? a. 0.42 and 2.2% b. 0.42 and 5% c. 2.5 and 13% d. 2.4 and 12%

d. 2.4 and 12% Degree operating leverage = Contribution margin/Net income Degree operating leverage = $58,560 / $24,400 Degree operating leverage = 2.4 % change in income = % change in sales*Degree operating lev % change in income = 5% * 2.4 % change in income = 12%

When sales price decreases and all other variables are held constant, the break-even point in Units will_______. a. produce a higher contribution margin b. remain unchanged c. decrease d. increase

d. increase

Which of the following methods of cost estimation relies on only two data points? a. SWOT analysis. b. account analysis c. the high-low method d. least-squares regression

c. the high-low method

Waskowski Company sells three products (A, B, and C) with a sales mix of 3:2:1. Unit sales price are shown. Product A $7 Product B $4 Product C $6 What is the sales price per composite unit? a. $35.00 b. $17.00 c. $25.00 d. $20.00

a. $35.00 Price of comp unit = (product * mix ratio) + (product * mix ratio) Price per composite unit = ($7 * 3) + ($4 * 2) + ($6 * 1) Price per composite unit = $35.00

When sales price increases and all other variables are held constant, the break-even point in Dollars will________. a. decrease b. increase c. produce a lower contribution margin d. remain unchanged

a. decrease

A company's contribution margin per unit is $25. If the company increases its activity level from 200 units to 350 units, how much will its total contribution margin increase? a. $1,250 b. $5,000 c. $8,750 d. $3,750

d. $3,750 Contribution margin = price per unit * Activity Contribution margin = $25 * (Increase in Activity) Contribution margin = $25 * (350 - 200) Contribution margin = $25 * 150 Contribution margin = $3,750

A company sells its products for $80 per unit and has per-unit variable costs of $30. What is the contribution margin per unit? a. $80 b. $110 c. $30 d. $50

d. $50 Contribution margin per unit = sale price - variable costs Contribution margin per unit = $80 - $30 Contribution margin per unit = $50

A company has pre-tax or operating income of $120,000. If the tax rate is 40%, what is the company's after-tax income? a. $240,000 b. $300,000 c. $48,000 d. $72,000

d. $72,000 After-tax income = operating income * (1 - tax rate) After-tax income = $120,000 * (1 - 40%) After-tax income = $120,000 * 60% After-tax income = $72,000

Beaucheau Farms sells three products (E, F, and G) with a sale mix ratio of 3:1:2. Unit sales price are shown. Product E $11 Product F $8 Product G $9 What is the sales price per composite unit? a. $59.00 b. $28.00 c. $41.00 d. $20.00

a. $59.00 Price of comp unit = (product * mix ratio) + (product * mix ratio) Price per composite unit = ($11 * 3) + ($8 * 1) + ($9 * 2) Price per composite unit = $59.00

Break-even for a multiple products firm ________. a. can only if there is a stable sales relation among different products b. can be calculated by multiplying fixed costs by the contribution margin ratio of a composite unit c. can be calculated by dividing total fixed costs by the contribution margin of a composite unit d. can be calculated by multiplying fixed costs by the contribution margin ratio of the most common product in the sales mix

a. can only if there is a stable sales relation among different products

If the sales mix in a multi-product environment shifts to a higher volume in low contribution margin products, the break-even point will ________. a. increase because the per composite unit contribution margin will decrease b. remain unchanged because all products are included in the calculation of break-even c. decrease because the per composite unit contribution margin will increase d. increase because the low contribution margin products have little effect on break-even

a. increase because the per composite unit contribution margin will decrease

Variable costs are expenses that ________. a. remain constant on a per-unit basis but change in total based on activity level b. remain constant in total regardless of activity level within a relevant range c. decrease on a per-unit basis as activity level increases d. remain constant on a per-unit basis and remain constant in total regardless of activity level

a. remain constant on a per-unit basis but change in total based on activity level

If a firm has a contribution margin of $78,090 and a net income of $13,700 for the current month, what is their degree of operating leverage? a. 2.4 b. 5.7 c. 0.21 d. 1.21

b. 5.7 Degree operating leverage = contribution margin/net income Degree of operating leverage = $78,090/$13,700 Degree of operating leverage = 5.7

Company A wants to earn $5,000 profit in the month of January. If their fixed costs are $10,000 and their product has a per-unit contribution margin of $250, how many units must they sell to reach their target income? a. 120 b. 60 c. 20 d. 40

b. 60 Target income = (number of units * per-unit contribution margin) - fixed costs $5,000 = (number of units * $250) - $10,000 $15,000 = $250 * number of units number of units = $15,000/$250 number of units = 60

A company's product sells for $150 and has variable costs of $60 associated with the product. What is its contribution margin ratio? a. 90% b. 60% c. 40% d. 10%

b. 60% Contribution ratio = (sale price - variable costs)/sales price Contribution margin ratio = ($150 - $60)/$150 Contribution margin ratio = 0.6 or 60%

Which of the following statements is true regarding average fixed costs? a. Average fixed costs per unit cannot be determined. b. Average fixed costs per unit fall as the level of activity rises. c. Average fixed costs per unit remain fixed regardless of level of activity. d. Average fixed costs per unit rise as the level of activity rises.

b. Average fixed costs per unit fall as the level of activity rises.

When variable costs increase and all other variables remain unchanged, the break-even point will _______. a. decrease b. increase c. produce a lower contribution margin d. remain unchanged

b. increase

Fixed costs are expenses that ________. a. remain constant on a per-unit basis b. remain constant in total regardless of activity level within a relevant range c. increase on a per-unit basis as activity increases d. the total will vary in response to changes in activity level

b. remain constant in total regardless of activity level within a relevant range

When fixed costs increase and all other variables remain unchanged, the contribution margin will ________. a. decrease b. remain unchanged c. increase variable costs per unit d. increase

b. remain unchanged

In the cost equation Y = a + bx, Y represents which of the following? a. fixed costs b. total costs c. units of production d. variable costs

b. total costs

A company sells two products, Model 101 and Model 202. For every one unit of Model 101, they sell two units of Model 202. Sales and cost information for the two products is shown. Sales Price Variable Cost Model 101 $25 $11 Model 202 $28 $7 What is the contribution margin for a composite unit based on the sales mix? a. $14.00 b. $21.00 c. $56.00 d. $35.00

c. $56.00 Price of comp unit = (product * mix ratio) + (product * mix ratio) Price per composite unit = (($25-$11) * 1) + (($28 - $7) * 2) Price per composite unit = ($14 * 1) + ($21 * 2) Price per composite unit = $56.00

A company has wants to earn an income of $60,000 after-taxes. If the tax rate is 32%, what must be the company's pre-tax income in order to have $60,000 after-taxes? a. $19,200 b. $143,000 c. $88,235 d. $79,200

c. $88,235 After-tax income = Pre-tax income * (1 - Tax rate) $60,000 = Pre-tax income * (1 - 32%) Pre-tax income = $60,000/68% Pre-tax income = $88,235

Macom Manufacturing has total contribution margin of $61,250 and net income of $24,500 for the month of June. Marcus expects sales volume to increase by 10% in July. What are the degree of operating leverage and the expected percent change in income for Macom Manufacturing? a. 0.4 and 10% b. 5.0 and 50% c. 2.5 and 25% d. 2.5 and 10%

c. 2.5 and 25% Degree operating leverage = Contribution margin/Net income Degree operating leverage = $61,250 / $24,500 Degree operating leverage = 2.5 % change in income = % change in sales*Degree operating lev % change in income = 10% * 2.5 % change in income = 25%

If a firm has a contribution margin of $59,690 and a net income of $12,700 for the current month, what is their degree of operating leverage? a. 1.18 b. 2.4 c. 4.7 d. 0.18

c. 4.7 Degree operating leverage = contribution margin/net income Degree of operating leverage = $59,690/$12,700 Degree of operating leverage = 4.7

When fixed costs decrease and all other variables remain unchanged, the break-even point in units will ________. a. remain unchanged b. increase c. decrease d. produce a lower contribution margin

c. decrease

A company's product sells for $150 and has variable costs of $60 associated with the product. What is its contribution margin per unit? a. $40 b. $150 c. $60 d. $90

d. $90 Contribution margin = sale price - variable costs Contribution margin = $150 - $60 Contribution margin = $90

If a company has fixed costs of $6,000 per month and their product that sells for $200 has a contribution margin ratio of 30%, how many units must they sell in order to break even? a. 2,000 b. 200 c. 180 d. 100

d. 100 Contribution margin = price per unit * Margin ratio Contribution margin = $200 * 30% Contribution margin = $60 Number of units to sell = fixed costs/contribution margin Number of units to sell = $6,000/$60 Number of units to sell = 100