Ch 6

Which one of the following describes the break-even point?

It is the point where total sales equals total variable costs plus total fixed costs.

Croc Catcher calculates its contribution margin to be less than zero. Which statement is true?

Its selling price is less than its variable costs.

When a company sells multiple products, the breakeven point in sales dollars is computed by:

dividing the total fixed costs by the weighted average contribution margin ratio.

The margin of safety ratio is:

higher for a company with lower operating leverage.

Reducing reliance on human workers and instead investing heavily in computers and online technology will

reduce variable costs and increase fixed costs.

In order to maximize profits when limited resources are available a company should concentrate on the producing products with:

the highest contribution margin per unit of limited resource.

If a company has limited resources:

the sales mix is determined by computing contribution margin per unit of limited resource.

In the month of April, Carly's Carwash provided 3,000 car washes at an average price of $25. Fixed costs are $9,300 and variable costs are 85% of sales. Compute the contribution margin and the contribution margin ratio.

$11,250 and 15% Sales are ($25 × 3,000) or $75,000. Contribution margin is [$75,000 × (1 - .85)] or $11,250. Contribution margin ratio is $11,250/$75,000 or 15%

In 2012, Hagar Corp. sold 3,000 units at $500 each. Variable expenses were $350 per unit, and fixed expenses were $455,000. The same variable expenses per unit and fixed expenses are expected for 2013. If Hagar cuts selling price by 4%, what is Hagar's break-even point in units for 2013?

$3,500 In 2011: Selling price pu $500*(1-4%) = $480 Less : Var cost $350 ----------------------------------------- Cont pu $130 So BEP (2011) = FIxed cost/COnt pu = 455,000/130 = 3,500 nos

Deighan Company had the following income statement: Sales revenue (800 units) $80,000 Cost of goods sold -fixed 20,000 Cost of goods sold -variable 18,500 Operating expenses - fixed 12,000 Operating expenses - variable 13,500 Net income $16,000

$48,000 Sales - VC = CM; $80,000 - $18,500 - $13,500 = $48,000

If Morton Company expects to sell VCR's at $100 a unit with variable costs of $60 per unit and DVD's at $200 per unit with variable costs of $120 per unit, what is the weighted average contribution margin if the sales mix is 4 DVD's for 1 VCR?

$72 [($200 - $120) x (4/5)] + [ ($100 - $60) x (1/5)] or $64 + $8 = $72

Gabriel Corporation has fixed costs of $180,000 and variable costs of $8.50 per unit.It has a target income $268,000. How many units must it sell at $12 per unit to achieve its target net income?

128,000 ($180,000 + $268,000)/ ($12 - $8.50)

Roosevelt Corporation has a weighted-average unit contribution margin of $40 for its two products, Standard and Supreme. Expected sales for Roosevelt are 40,000 Standard and 60,000 Supreme. Fixed expenses are $1,800,000. How many Standards would Roosevelt sell at the break-even point?

18,000 (FC ÷ CM) 1,800,000 ÷ 40 = 45,000 units to BE Units of Standard: .40 X 45,000 = 18,000

Capitol Manufacturing sells 3,000 units of Product A annually, and 7,000 units of Product B annually. The sales mix for Product A is

30% (3,000 + 7,000) = 10,000 7,000 / 10,000 = .30

If Company A has a higher proportion of fixed costs relative to variable costs than Company B:

All.... (a) Company A has a higher break-even point than Company B. (b) Company A is more sensitive to changes in sales than Company B. (c) Company A has greater risk compared to Company B.

Marten Corp. has a limited number of machine hours available to produce its three products A11, B22, and C33. Determine the order that these products should be produced given the following data: A11 B22 C33 Unit sale price 14 36 10 Unit VC 6 32 3 MH/unit 5 4 2

C33, A11, B22 The unit contribution margins are A11 ($14 - $6) or $8; B22 ($36 - $32) or $4; and C33 ($10 - $3) or $7. The contribution margins per machine are A11 ($8 ÷ 5 MH) or $1.60; B22 ($4 ÷ 4 MH) or $1.00; and C33 ($7 ÷ 2 MH) or $3.50. Therefore, the proper order of production is C33, A11, B22

Curtis Corporation's contribution margin is $20 per unit for Product A and $24 for Product B. Product A requires 2 machine hours and Product B requires 4 machine hours. How much is the contribution margin per unit of limited resource for each product?

Product A $10.00 (20 / 2) Product B $6.00 (24 / 4)

Which one of the following is the format of a CVP income statement?

Sales - Variable costs - Fixed costs = Net income.

Linburgh Inc manufactures model airplanes and repair kits. The planes account for 80% of the sales mix, and the kits the remainder. The variable cost ratio for the planes is 85% and 70% for the kits. Fixed costs are $99,000. Compute the breakeven point in sales dollars.

The weighted-average contribution margin ratio is [(.80 ×! .15) + (^.20 × *.30)] or .18. (!100-85; *100-70; ^100-80) The breakeven point in sales dollars is ($99,000 ÷ .18) or $550,000

In general, a company should sell more units of products with

a higher contribution margin.

Sales mix is:

a measure of the relative percentage in which a company's products are sold.