CH 4 HW 303

AAA company produces two different types of desk, D-10 and D-35, with an annual fixed cost of $6,000. Price and unit variable cost for D-10 is $100 and $20, and price and unit variable cost for D-35 is $200 and $40 for D-35. How much is AAA's breakeven point in dollars if the expected sales mix in units is 75% for D-10 and 25% for D-35? A. $ 7,500 B. $ 8,500 C. $ 9,000 D. $ 8,000

A. $ 7,500

AAA company sells three items: A, B, and C. A B C Unit price $100 $80 $190 Unit variable cost $40 $40 $90 -The sales mix proportion in units is 5:3:2 for each product. -The fixed cost is $1,000. A. 17 B. 21 C. 15 D. 19

A. 17

AAA company sells two items: A and B. A B Total Units sold 100 200 300 Sales 500 400 900 Variable costs 200 100 300 Fixed costs --- --- 300 How many units of A and B should be sold to achieve BEP? A. A = 50 units, B = 100 units B. A = 100 units, B = 10 units C. A = 100 units, B = 50 units D. A = 10 units, B = 100 units

A. A = 50 units, B = 100 units

CVP analysis with multiple products assumes that sales will continue at the same mix of products, expressed in either sales units or sales dollars. This assumption is essential, because a change in the product mix will probably change: A. The weighted-average contribution margin. B. The average sales price per unit. C. The average variable cost per unit. D. The total fixed cost.

A. The weighted-average contribution margin.

From a strategic management perspective, the primary reason a firm performs CVP analysis is to find the level of sales that: A. Will just cover all fixed costs. B. Produces a desired (or targeted) level of profit for the firm. C. Will allow the firm to compete in a market place. D. Reduces the threat of bankruptcy.

B. Produces a desired (or targeted) level of profit for the firm.

Framing House, Inc. produces and sells picture frames. Variable costs are expected to be $17 per frame; fixed costs for the year are expected to total $130,000. The budgeted selling price is $25 per frame. The sales dollars required to make a before-tax profit of $20,000 for Framing House would be: A. $476,350 B. $468,750 C. $412,050 D. $406,150

B. $468,750

At the breakeven point, total fixed cost is: A. Equal to the contribution margin per unit (CM). B. Equal to the total contribution margin (CM). C. More than the total contribution margin (CM). D. Less than the total contribution margin (CM).

B. Equal to the total contribution margin (CM).

AAA Corporation sells a single product. If the selling price and the unit variable cost both increase by 10% and fixed costs do not change, then: A. Unit CM decreases, and BEP in units increases. B. Unit CM increases, and BEP in units decreases. C. Unit CM does not change, and BEP in units does not change. D. Unit CM increases, and BEP in units does not change.

B. Unit CM increases, and BEP in units decreases.

AAA company sells two items: A and B. A B Total Units sold 100 200 300 Sales 500 400 900 Variable costs 200 100 300 Fixed costs --- --- 300 What is the overall unit contribution margin of this company? A. 1.5 B. 6 C. 2 D. 3

C. 2

Staley Co. manufactures computer monitors. The following is a summary of its basic cost and revenue data: Per Unit Percent Sales price $480 100 Variable costs 312 65 Unit contribution margin $168 35 Assume that Staley Co. is currently selling 600 computer monitors per month and monthly fixed costs are $80,000. What is Staley Co.'s degree of operating leverage (DOL) at this sales volume (i.e., at 600 units)? A. 5.6 B. 5.1 C. 4.8 D. 5.0

C. 4.8

Kelvin Co. produces and sells socks. Variable costs are budgeted at $4 per pair, and fixed costs for the year are expected to total $90,000. The selling price is expected to be $6 per pair. The sales units required for Kelvin Co. to make an after-tax profit of $15,000, given an income tax rate of 40%, are: A. 56,500 units. B. 60,000 units. C. 57,500 units. D. 65,661units.

C. 57,500 units

Income taxes have the following effect on the breakeven point (BEP) calculation: A. They may increase or decrease the BEP, depending on the cost structure of the organization. B. They generally increase the BEP. C. They have no effect on the BEP. D. They generally decrease the BEP.

C. They have no effect on the BEP.

Breakeven analysis assumes that ___________over the relevant range. A. selling prices are not fixed B. fixed costs are nonlinear C. total costs are linear D. unit variable costs vary

C. total costs are linear

AAA company produces and sells only one product. The unit variable costs, fixed costs, and the breakeven point in units for AAA company is $15, $8,500, and 500, respectively. What is the price of the product? A. $ 17 B. $ 15 C. $ 10 D. $ 32

D. $ 32

Stylish Sitting is a retailer of office chairs located in San Francisco, California. Due to increased market competition, the CFO of Stylish Sitting has grown worried about the firm's upcoming income stream. The CFO asked you to use the company financial information provided below. [Sales price $75.00] [Per-unit variable costs ?] [Invoice cost $41.70] [Sales commissions $18.30] [Total per unit variable costs $60.00] [Total annual fixed costs: ?] [Advertising $56,000] [Rent $78,000] [Salaries $226,000] [Total annual fixed costs $360,000] The annual breakeven point, in dollar sales, is: A. $1,500,000 B. $1,300,000 C. $1,100,000 D. $1,800,000

D. $1,800,000

During the current year, OutlyTech Corp. expected to sell 24,000 telephone switches. Fixed costs for the year were expected to be $12,144,000, the unit sales price was budgeted at $3,200, and unit variable costs were budgeted at $1,440. OutlyTech's margin of safety (MOS) in units is :

D. 17,100

Calculating the margin of safety (MOS) measure will help a firm answer which of the following questions? A. How much will profits change if sales change? B. Will we break even? C. Are we using our debt wisely? D. How much revenue can we lose before we drop below the breakeven point?

D. How much revenue can we lose before we drop below the breakeven point?

The degree of operating leverage is relatively constant in amount as sales volume changes for most firms. True False

False

A capital-intensive company will have higher break-even point than a less capital-intensive company with the same sales. True False

True

All other things the same, a reduction in the variable costs per unit will decrease the break-even point. True False

True