Ch 5 notes

Future corporation has a single product, the product selling price is $100 and variable costs are $60. The company is fixed expenses are $10,000. What is the companies break even point in sales dollars?

CM ratio= (sales-variable expenses)/sales= ($100-$60)/$100=$40/$100= 40% or .40. Dollar sales to break even = Fixed expenses/CM Ratio = $10000/.40=$25000

Which of the following methods do managers use to estimate the fixed and variable components of mixed costs by analyzing past records of cost and activity data?

least-squares regression

What is Ralph Corporation's margin of safety in dollars? What is Ralph Corporation's margin of safety in percentage?

1) Margin of safety in dollars= total budgeted (or actual) sales- break even sales Total budgeted sales= $200 per unit x 25000 units= $5,000,000 CM Ratio= (sales-variable expenses)/sales = ($200-$150)/200=$50/$200= 25% Break even sales= fixed expenses/CM ratio = $1,000,000 / 25% (.25) = $4,000,000 Margin of safety in dollars = $5,000,000 - $4,000,000 = $1,000,000 2) Margin of safety in dollars = Total budgeted (or actual sales) - break even sales Total budgeted sales = $200 per unit x 25000 units = $5,000,000 CM Ratio= (sales-variable expenses)/sales = ($200-$150)/$200= $50/$200= 25% Break even sales= fixed expenses/CM ratio= $1,000,000 / 25%= $4,000,000 Margin of safety %= Margin of safety in dollars/total budgeted sales in dollars= ($5,000,000-$4,000,000)/$5,000,000= 20%

A shift in the sales mix from high margin items to Little margin items can cause a total profit to..

Decrease.

Winter Corporation's current sales are $500,000. The contribution margin is $300,000 and the net operating income is $100,000. What is the company's degree of operating leverage?

Degree of operating leverage = contribution margin / net operating income $300,000/$100,000= 3.00

What are the sales dollars required to attain a target profit of $120000?

Dollar sales to attain the target profit= (target profit + fixed expenses)/CM Ratio ($120000 + $40000)/.40 = $400000

The measure of how sensitive net operating income is to a given percentage change in volume sales is

Operating leverage

The current sales of Trent, Inc. or $400,000 with a contribution margin of $200,000. The company's degree of operating leverage is 2. If the company anticipate a 30% increase in sales what is the percentage change in net operating income for Trent, Inc.?

Percentage change in net operating income= degree of operating leverage x percentage change in sales = 2 x 30% = 60%

Walton corporation is currently selling 104 units of its product. The company is deciding the price that it should charge for a bulk order of 40 units. The variable cost per unit is $200. This order will not involve any additional fixed costs and the companies current sales will not be affected. The company targets a profit of $4000 on the bulk order. What sign price per unit should a company quote for the book order?

Required profit per unit= target profit of $4000 / 40 units = 100 Selling price per unit = required profit per unit of $100 + variable cost per unit of $200 = $300

What is the amount of the break even sales for Grace food company?

Sales mix percentages: Corn Flakes = $2,000,000/$2,500,000= 0.80 Frosted Flakes= $500,000/$2,500,000= 0.20 Overall CM Ratio= (60% x 0.80) + (50% x 0.20) = 58% Break Even Point= total fixed expenses/Overall CM ratio= $870,000/.58 = 1.5 million

Frank corporation has a single product. It's selling price is $80 and the variable cost or $30. The company's fixed expenses are $5000. What is the companies break even point in unit sales?

Unit CM = Selling price of $80 - variable expense of $30 = $50 Unit sales to break even = Fixed expenses of $5000 / Unit CM of $50 = 100 units

What are the unit sales required to attain a target profit of $120,000?

Unit sales to attain the target profit = (target profit + fixed expenses)/unit CM ($120,000 + $40000)/$40= 4000 units

Using the high-low method, what is the variable cost?

Variable cost= change in cost/ change in activity Variable cost= ($4000-$1900)/(9000 DLH - 2000 DLH) = $0.30 per DLH

Excel depicts the least-squares regression results using the equation form _______.

Y = bX + a

When using least-squares regression, R2 represents ________.

a measure of goodness of fit