MBA 700 Gao - HW 4

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

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

Pretax income = $120,000 Tax Rate = 40% Tax deductible: 120,000 * 40% = 48,000 Income after tax: 120,000 - 48,000 = $72,000 $72,000

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.$72,000 b.$300,000 c.$240,000 d.$48,000

Required pre-tax income = After tax income/(1-tax rate) Required pre-tax income = 60,000/(1-32%) Required pre-tax income = $88,325 $88,235

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.$88,235 b.$19,200 c.$79,200 d.$143,000

Contribution = sales price - variable costs Contribution = $80 - $30 = $50 $50

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.$110 b.$80 c.$30 d.$50

Number of units to be sold = (fixed costs +target income) / contribution margin per unit Number of units to be sold = ($10,000 + $5,000) / $250 =60 60

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.20 b.60 c.40 d.120

Break-even point (in units) = Fixed expenses / Contribution margin per unit Break-even point (in units) = $6,000 / $60 = 100 units. 100 Extra: Contribution Margin Per Unit = Selling price per unit * contribution margin ratio Contribution Margin Per Unit = $200 * 30% = $60.

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.100 c.200 d.180

contribution margin

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

estimate costs

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

decrease

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

increase

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

the high-low method

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

For Each unit of Model 101, 2 units of Model 202 is sold. So sales mix =1:2 Therefore composite unit =1 + 2 = 3 Contribution margin = Selling Price -Variable cost So For Model 101, Contribution margin =$25-$11 =$14 For Model 202, Contribution margin =$28-$7 =$21 So total contribution margin for composite units = $14 + 2*($21) =$56 $56.00

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.$35.00 b.$14.00 c.$21.00 d.$56.00

Increase in Number of goods sold (350 - 200) = 150 units Contribution Margin per unit = $25 Increase in Contribution Margin = Contribution Margin per unit x Increase in Number of goods sold = 25 x 150 = 3,750 $3,750

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.$8,750 b.$5,000 c.$1,250 d.$3,750

Contribution margin per unit = selling price = variable cost per unit Contribution margin per unit = 150 - 60 = 90 $90

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.$90 c.$60 d.$150

Operating leverage = contribution margin/net income Operating leverage = $78,090/$13,700 = 5.7 5.7

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.0.21 b.2.4 c.1.21 d.5.7

decrease

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

Contribution margin ratio = (sale price - variable cost)/Sale Price Contribution margin ratio = (150 - 60)/150 = .6 .6 x100 = 60% 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.60% b.40% c.90% d.10%

linear

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

Product E: 3 x 11 = $33 Product F: 8 x 1 = $8 Product G: 9 x 2 = $18 E ($33) + F ($8) + G ($18) = $59.00 $59.00

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.$41.00 c.$28.00 d.$20.00

Can only be calculated when the proportion of products sold is the same for all products

Break-even for a multiple products firm ________. a.can be calculated by multiplying fixed costs by the contribution margin ratio of the most common product in the sales mix b.can be calculated by multiplying fixed costs by the contribution margin ratio of a composite unit c.can only be calculated when the proportion of products sold is the same for all products d.can be calculated by dividing total fixed costs by the contribution margin of a composite unit

Operating leverage = contribution margin/net income Operating leverage = $59,690/$12,700 = 4.7 4.7

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.2.4 b.0.18 c.4.7 d.1.18

increase because the per composite unit contribution margin will decrease

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.remain unchanged because all products are included in the calculation of break-even b.decrease because the per composite unit contribution margin will increase c.increase because the low contribution margin products have little effect on break-even d.increase because the per composite unit contribution margin will decrease

total costs

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

Degree of Operating Leverage = Contribution/Net Income Degree of Operating Leverage = $61,250/$24,500 = 2.5 % Percentage change in income = degree of operating leverage * sales increase Percentage change in income = 2.5 * 10 = 25 % 2.5 and 25%

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.2.5 and 10% c.5.0 and 50% d.2.5 and 25%

Total variable costs = units x variable costs Total variable costs = 10,000 units x $5 per unit Total variable costs = $50,000 Total Fixed costs = Total Costs - Total Variable Costs Total Fixed costs = $250,000 - $50,000 = $200,000 $200,000

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.$260,000 c.$240,000 d.Their fixed costs cannot be determined from the information presented.

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

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

Degree of Operating Leverage = Contribution/Net Income Degree of Operating Leverage = $58,560/$24,400 = 2.4 % Percentage change in income = degree of operating leverage * sales increase Percentage change in income = 2.4 * 5 = 12 % 2.4 and 12%

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.2.5 and 13% c.0.42 and 5% d.2.4 and 12%

Product A: 3 x 7 = $21 Product B: 4 x 2 = $8 Product C: 6 x 1 = $6 A ($21) + B ($8) + C ($6) = $35.00 $35.00 $35.00

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.$20.00 b.$17.00 c.$35.00 d.$25.00

remain unchanged

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

increase

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

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

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