Chapter 11: Managerial Accounting

A company has provided the following data: If the sales volume decreases by 25%, the variable cost per unit increases by 15%, and all other factors remain the same, net income will? A. decrease by $31,875. B. decrease by $15,000. C. increase by $20,625. D. decrease by $3,125.

a

At a break-even point of 800 units sold, White Company's variable expenses are $8,000 and its fixed expenses are $4,000. What will the Company's net income be at a volume of 801 units? A. $5. B. $10. C. $15. D. $20.

a

A company has provided the following data: If the dollar contribution margin per unit is increased by 10%, total fixed cost is decreased by 20%, and all other factors remain the same, net income will? A. increase by $61,000. B. increase by $20,000. C. increase by $3,500. D. increase by $11,000.

d

A company increased the selling price for its product from $1.00 to $1.10 a unit when total fixed expenses increased from $400,000 to $480,000 and variable expense per unit remained unchanged. How would these changes affect the break-even point? A. the break-even point in units would increase. B. the break-even point in units would decrease. C. the break-even point in units would remain unchanged. D. the effect cannot be determined from the information given.

d

A total of 30,000 units were sold last year. The contribution margin per unit was $2, and fixed expenses totalled $20,000 for the year. This year fixed expenses are expected to increase to $26,000, but the contribution margin per unit will remain unchanged at $2. How many units must be sold this year to earn the same net income as was earned last year? A. 13,000. B. 23,000. C. 30,000. D. 33,000.

d

Marston enterprises sells three chemicals: petrol, septine, and tridol. Petrol's unit contribution margin is higher than septine's which is higher than tridol's. Which one of the following events is most likely to increase the company's overall break-even point? A. the installation of new computer-controlled equipment and subsequent lay-off of assembly-line workers. B. a decrease in tridol's selling price. C. an increase in the overall market demand for septine. D.a change in the relative market demand for the products, with the increase favouring petrol relative to septine and tridol.

d

The ratio of fixed expenses to the unit contribution margin is the?: A. break-even point in unit sales. B. profit margin. C. contribution margin ratio. D. margin of safety.

a

Goodman Company has sales of 3,000 units at $80 per unit. Variable costs are 35% of the sales price. If total fixed costs are $66,000, the degree of operating leverage is? A. 0.79. B. 0.93. C. 1.73. D. 2.67.

c

Gerber Company is planning to sell 200,000 units for $2.00 a unit and will just break even at this level of sales. The contribution margin ratio is 25%. What are the company's fixed expenses? A. $100,000. B. $160,000. C. $200,000. D. $300,000.

a

Last year, Perry Company reported profits of $4,200. Its variable expenses totalled $66,000 or $6 per unit. The unit contribution margin was $3.00. The break-even point in units for Perry Company is? A. 9,600. B. 11,000. C. 12,400. D. 22,000.

a

Lindsay Company reported the following results from sales of 5,000 units for the month of June: Assume that Lindsay increases the selling price of the product by 10% on July 1. How many units would have to be sold in July in order to generate a profit of $20,000? A. 4,000. B. 4,300. C. 4,500. D. 5,000.

a

Marling Corporation has budgeted the following data: What is the break-even in sales dollars? A. $400,000. B. $420,000. C. $540,000. D. $660,000.

a

Scott Company's variable expenses are 72% of sales. The company's break-even point in sales is $2,450,000. If sales are $60,000 below the break-even point, the company would report a? A. $16,800 loss. B. $43,200 loss. C. $60,000 loss. D. cannot be determined from the data given.

a

The break-even point in unit sales increases when variable expenses? A. increase and the selling price remains unchanged. B. decrease and the selling price remains unchanged. C. decrease and the selling price increases. D. remain unchanged and the selling price increases.

a

A product sells for $20 per unit and has a contribution margin ratio of 40%. Fixed expenses total $240,000 annually. How many units of the product must be sold to yield a profit of $60,000? A. 30,000. B. 37,500. C. 40,000. D. 65,000.

b

A product sells for $20 per unit, and has a contribution margin ratio of 40%. Fixed expenses total $120,000 annually. How many units must be sold to yield a profit of $30,000? A. 12,500. B. 18,750. C. 20,000. D. 25,000.

b

At a break-even point of 400 units sold, variable expenses were $4,000 and fixed expenses were $2,000. What will the 401st unit sold contribute to profit? A. $0. B. $5. C. $10. D. $15.

b

Brasher Company manufactures and sells a single product that has a positive contribution margin. If the selling price and variable expenses both decrease by 5% and fixed expenses do not change, then what would be the effect on the contribution margin per unit and the contribution margin ratio? A. Choice A. B. Choice B. C. Choice C. D. Choice D.

b

Break-even analysis assumes which of the following to be true? A. total costs are unchanged. B. unit variable expenses are unchanged. C. variable expenses are nonlinear. D. unit fixed expenses are unchanged.

b

If company A has a higher degree of operating leverage than company B, then? A. company A has higher variable expenses. B. company A's profits are more sensitive to percentage changes in sales. C. company A is more profitable. D. company A is less risky.

b

Koby Co. has sales of $200,000 with variable expenses of $150,000, fixed expenses of $60,000, and a net loss of $10,000. How much would Koby have to sell in order to achieve a net income of 10% of sales? A. $375,000. B. $400,000. C. $431,000. D. $451,000.

b

Loren Company's single product has a selling price of $15 per unit. Last year the company reported total variable expenses of $180,000, fixed expenses of $90,000, and a net income of $30,000. A study by the sales manager discloses that a 15% increase in the selling price would reduce unit sales by 10%. If her proposal is adopted, net income would increase by? A. $7,500. B. $28,500. C. $37,500. D. $45,000.

b

Once the break-even point is reached, which of the following statements is true? A. the total contribution margin changes from negative to positive. B. net income will increase by the unit contribution margin for each additional item sold. C. variable expenses will remain constant in total. D. the contribution margin ratio begins to decrease.

b

The contribution margin ratio always increases when the? A. variable expenses as a percentage of sales increase. B. variable expenses as a percentage of sales decrease. C. break-even point increases. D. break-even point decreases.

b

The following information pertains to Rica Company: How much is Rica's break-even point in number of units? A. 9,848. B. 10,000. C. 18,571. D. 26,000.

b

The following is last month's contribution format income statement: What is the company's break-even sales in units? A. 0 units. B. 6,000 units. C. 8,000 units. D. 12,000 units.

b

The following monthly data are available for the Eager Company and its only product: The margin of safety for the company for March was? A. $135,000. B. $225,000. C. $315,000. D. $495,000.

b

The following monthly data are available for the Phelps Company: The break-even sales for the month for the company are? A. $91,667. B. $137,500. C. $148,000. D. $203,000.

b

Dodero Company produces a single product that sells for $100 per unit. Fixed expenses total $12,000 per month, and variable expenses are $60 per unit. The company's sales average 500 units per month. Which of the following statements is correct? A. the company's break-even point is $12,000 per month. B. the fixed expenses remain constant at $24 per unit for any activity level within the relevant range. C. the company's contribution margin ratio is 40%. D. responses a, b, and c are all correct.

c

Green Company's variable expenses are 75% of sales. At a sales level of $400,000, the company's degree of operating leverage is 8. At this sales level, fixed expenses equal? A. $50,000. B. $75,000. C. $87,500. D. $100,000.

c

If sales increase from $80,000 per year to $120,000 per year, and if the operating leverage is 5, then net income should increase by? A. 100%. B. 167%. C. 250%. D. 334%.

c

In the income statement of a manufacturing business with both variable and fixed overhead costs of production, if there are no beginning or ending inventories, comparing Absorption Costing to Variable Costing, which of the following statements is true? A.under Absorption Costing, cost of goods sold will be higher and net income will be higher than under Variable Costing. B.under Variable Costing, cost of goods sold will be lower and net income will be higher than under Absorption Costing. C. under Absorption Costing, cost of goods sold will be higher than under Variable Costing. D. there will be no differences in cost of goods sold and net income between the two methods.

c

Kern Company prepared the following tentative budget for next year: The sales manager argues that the unit selling price could be increased by 20%, with an expected volume decrease of only 10%. If Kern incorporates these changes in its budget, what should be the budgeted net income? A. $66,000. B. $90,000. C. $120,000. D. $145,000.

c

Last year, Black Company reported sales of $640,000, a contribution margin of $160,000, and a net loss of $40,000. Based on this information, the break-even point was? A. $480,000. B. $640,000. C. $800,000. D. $960,000.

c

Last year, Twins Company reported $750,000 in sales (25,000 units) and a net income of $25,000. At the break-even point, the company's total contribution margin equals $500,000. Based on this information, which of the following is true? A. contribution margin ratio is 40%. B. break-even point is 24,000 units. C. variable expense per unit is $9. D. variable expenses are 60% of sales.

c

Ostler Company's net income last year was $10,000 and its contribution margin was $50,000. Using the operating leverage concept, if the company's sales increase next year by 8%, net income can be expected to increase by? A. 16%. B. 20%. C. 40%. D. 160%.

c

Roberts Company sells a single product at a selling price of $55 per unit. Variable costs are $30.25 per unit and fixed costs are $113,850. Roberts Company's break-even point is? A. $207,000. B. 2,070 units. C. $253,000. D. 3,764 units.

c

The amount by which a company's sales can decline before losses are incurred is called the? A. contribution margin ratio. B. degree of operating leverage. C. margin of safety. D. contribution margin ratio leverage.

c

The following data pertain to Wistron Company's two products: If fixed expenses for the company as a whole are $60,000 and the product mix is constant, the overall break-even point for the company would be? A. $100,000. B. $132,000. C. $150,000. D. $153,846.

c

The following information relates to Clyde Corporation, which produced and sold 50,000 units last month. There were no beginning or ending inventories. Production and sales next month are expected to be 40,000 units. The company's unit contribution margin next month should be? A. $3.10. B. $7.98. C. $13.30. D. $16.63.

c

The following is last month's contribution format income statement: What is the company's degree of operating leverage? A. 0.125. B. 0.333. C. 3.0. D. 8.0

c

The following is last month's contribution format income statement: What is the company's margin of safety in dollars? A. $100,000. B. $250,000. C. $600,000. D. $1,500,000.

c

The following is last month's contribution format income statement: What is the company's margin of safety percentage to the nearest whole percent? A. 17%. B. 20%. C. 40%. D. 42%.

c

The margin of safety is equal to? A. Sales - Net income. B. Sales - (Variable expenses/Contribution margin). C. Sales - (Fixed expenses/Contribution margin ratio). D. Sales - (Variable expenses + Fixed expenses).

c

The total contribution margin decreases if sales volume remains the same and which of the following occurs? A. fixed expenses increase. B. fixed expenses decrease. C. variable expense per unit increases. D. variable expense per unit decreases.

c

Wallace, Inc., prepared the following budgeted data based on a sales forecast of $6,000,000: What would be the amount of sales dollars at the break-even point? A. $2,250,000. B. $3,500,000. C. $4,000,000. D. $5,300,000.

c

Wilson Company prepared the following preliminary budget assuming no advertising expenditures: Based on a market study, the company estimated that it could increase the unit selling price by 15% and increase the unit sales volume by 10% if $100,000 were spent on advertising. Assuming that these changes are incorporated in its budget, what should be the budgeted net income? A. $175,000. B. $190,000. C. $205,000. D. $365,000.

c

Young Company has a margin of safety percentage of 20%. The break-even point is $400,000 and the variable costs are 40% of sales. Given this information, the net income is? A. $0. B. $48,000. C. $60,000. D. $80,000.

c

if the fixed expenses of a product increase while variable expenses and the selling price remain constant, what will happen to the total contribution margin and the break-even point? A. Choice A. B. Choice B. C. Choice C. D. Choice D.

c

Austin Manufacturing had the following operating data for the year just ended. Management plans to improve the quality of its only product by: (1) replacing a component that costs $3.50 with a higher-grade component that costs $5.50; and (2) renting a packing machine for $18,000 a year. If the desired target profit is $288,000, how many units must the company sell? A. 19,300. B. 20,842. C. 21,316. D. 22,500.

d

Carver Company produces a product that sells for $30. Variable manufacturing costs are $15 per unit. Fixed manufacturing costs are $5 per unit based on the current level of activity, and fixed selling and administrative costs are $4 per unit. A selling commission of 10% of the selling price is paid on each unit sold. The contribution margin per unit is? A. $3. B. $8. C. $12. D. $15.

d

Curtis Company anticipates selling 10,000 units next year. The company wants to earn a net income equal to 10% of sales. If variable expenses are $12 per unit and fixed expenses total $78,000 per year, what selling price must be established to achieve the desired level of net income? A. $18.00 per unit. B. $19.80 per unit. C. $21.78 per unit. D. $22.00 per unit.

d

North Company sells a single product. The product has a selling price of $30 per unit and variable expenses of 70% of sales. If the company's fixed expenses total $60,000 per year, then it will have a break-even of? A. $42,000. B. $60,000. C. $85,714. D. $200,000.

d

The break-even in units sold will decrease if there is an increase in which of the following? A. unit sales volume. B. total fixed expenses. C. unit variable expenses. D. selling price.

d

The break-even point in sales for Rice Company is $360,000 and the company's contribution margin ratio is 30%. If Rice Company desires an income of $84,000, sales would have to total? A. $280,000. B. $480,000. C. $560,000. D. $640,000.

d

The degree of operating leverage can be calculated as? A. contribution margin divided by sales. B. gross margin divided by net income. C. net income divided by sales. D. contribution margin divided by net income.

d

The difference between total sales in dollars and total variable expenses is called: A. net operating income. B. net profit. C. the gross margin. D. the contribution margin.

d

The following data pertain to last month's operations: The break-even point in dollars is? A. $160,000. B. $200,000. C. $240,000. D. $300,000.

d

The following data pertain to last month's operations: The break-even point in dollars is? A. $6,000. B. $7,500. C. $11,250. D. $18,000.

d

The margin of safety in the Flaherty Company is $24,000. If the company's sales are $120,000 and its variable expenses are $80,000, its fixed expenses must be? A. $8,000. B. $16,000. C. $24,000. D. $32,000.

d

The margin of safety percentage is computed as? A. Break-even sales/Total sales. B. Total sales - Break-even sales. C. (Total sales - Break-even sales)/Break-even sales. D. (Total sales - Break-even sales)/Total sales.

d

Using Variable Costing, which of the following is not included in product costs? A. direct materials. B. direct labour. C. variable manufacturing overhead. D. fixed manufacturing overhead.

d