chapter 5 practice

When a company sells multiple products, an increase in total sales always results in an increase in total profits. True false question.

false- A shift from high-margin items to low-margin items may cause total sales to increase at the same time as causing total profits to decrease.

If operating leverage is high, a small percentage increase in sales produces a higher (higher/lower) percentage increase in net operating income than if operating leverage is low.

higher

Solving for the sales level needed to attain a target profit of $ is the same process as solving for the sales level needed to break-even

$0

If sales increase by 15% and the degree of operating leverage is 6, net operating income should increase by

90

The degree of operating leverage Blank______.

decreases as sales and profits rise is not a constant is greatest at sales levels near the break-even point

Blissful Blankets' target profit is $520,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. The number of blankets that must be sold to achieve the target profit is Blank______.

($520,000 + $320,000) ÷ $21 = 40,000

f sales increase by 5% and the degree of operating leverage is 4, net operating income should increase by Blank______.

20% 5%*4=20 percentage change in NOI= DOOL* percent change in sales

A company has a target profit of $204,000. The company's fixed costs are $305,000. The contribution margin per unit is $40. The BREAK-EVEN point in unit sales is Blank______.

7625 =305k/40=7625

When a company produces and sells multiple products Blank______. Multiple select question. the sales mix has no effect on the company's profit a change in the sales mix will most likely change the break-even point each product most likely has a unique contribution margin each product most likely has different costs

a change in the sales mix will most likely change the break-even point each product most likely has a unique contribution margin each product most likely has different costs

A company with a high ratio of fixed costs:

is more likely to experience a loss when sales are down than a company with mostly variable costs. is more likely to experience greater profits when sales are up than a company with mostly variable costs.

Paula's Perfumes has a target profit of $4,000 per month. Perfume sells for $15.00 per bottle and variable costs are $13.50 per bottle. Fixed costs are $3,200 per month. The number of bottles that must be sold each month to earn the target profit is Blank______.

($4,000 + $3,200) ÷ ($15.00 - $13.50) = 4,800 bottles.

Company A has fixed costs of $564,000 and has set a target profit of $800,000. If Company A has a contribution margin ratio of 62%, sales dollars needed to reach the target profit equals Blank______.

($564,000 + $800,000) ÷ 0.62 = $2,200,000

A company's selling price is $90 per unit, variable cost per unit is $28 and total fixed expenses are $320,000. The number of unit sales needed to earn a target profit of $200,800 is Blank______.

8400 units ($320,000 + $200,800) ÷ ($90 - $28) = 8,400 units.

Softie, Inc. produces facial tissues. The company's contribution margin ratio is 77%. Fixed expenses are $240,400. To achieve a target profit of $930,000, Softies' sales must be

Reason: ($240,400 + $930,000) ÷ 0.77= $1,520,000

Goldin Corporation currently pays its salesperson a flat salary of $5,000 per month and is considering paying $20 per unit instead. Sales are currently 200 units per month. Goldin believes the compensation change will increase unit sales by 25%. The current contribution margin is $80 per unit. If the change is implemented, net operating income will Blank______. Multiple choice question.

increase by $4,000

Adams, Inc. has sales of $100,000 with a contribution margin of $60,000 and net income of $20,000. Baron, Inc. has sales of $110,000 with a contribution margin of $44,000 and net income of $22,000. Which of the following statements are correct?

Adams has a higher degree of operating leverage than Baron. 3 vs 2 adamas will experince experince a greater decrease if sales fall Operating level of $44,000 ÷ 22,000 = 2 for Baron indicates that the company's net operating income grows twice as fast as sales. Baron's net income grows twice as fast as its sales.

To convert the margin of safety in dollars to the margin of safety in terms of the number of units sold, divide the margin of safety in dollars by the Blank______.

sales price per unit

A company has an opportunity to make a bulk sale that would not impact regular sales or total fixed expenses. The variable cost per unit is $11 and the company desires a total profit of $4,500. The quoted selling price per unit for 500 units should be $

$20

Company A has fixed costs of $564,000 and a contribution margin of 62%. Sales dollars to break-even rounded to the nearest whole dollar equals Blank______.

909,677 $564,000 ÷ 0.62 = $909,677

Shonda's Shoes sell for $95 per pair. If Shonda must sell a total of 284 pairs of shoes to break-even, and a total of 450 pairs to achieve her target profit, sales dollars needed to earn the target profit equals Blank______.

Reason: $95 × 450 = $42,750

Operating leverage is the smallest at sales levels near the break-even point and increases as sales and profits rise.

false

True or false: The sales mix must be taken into consideration when calculating the break-even point for more than one product due to different selling prices, costs, and contribution margins among the products.

true -Because selling prices, costs, and contribution margins of the products differ, the sales mix is assumed to be constant when doing break-even calculations.

Run Like the Wind sells ceiling fans. Target profit for the year is $470,000. If each fan's contribution margin is $32 and fixed costs total $222,640, the number of fans required to meet the company's goal is

21,645 ($470,000 + $222,640) ÷ $32 = 21,645 fans.

A company needs to sell 90,000 units to reach the target profit of $180,000. If each unit sells for $7.50, the total sales dollars needed to reach the target profit is $

675,000