chapter 5 hw questions

7. Lester Company has a single product. The selling price is $50 and the variable cost is $29.50 per unit. The company's fixed expense is $210,000 per month. What is the company's contribution margin ratio?

cm (sales - vc) / sales 50-29.5 = 20.5/50 = 0.41 so 41%

20. Herman Corp. has two products, A and B, with the following total sales and total variable costs: Product A Product B Sales $6,000 $ 22,000 Variable expenses $4,040 $ 20,040 What is the overall contribution margin ratio?

CM/VE - add both of them together and use the formula 14%

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

Dollar sales to break-even = Fixed expenses of $10,000 ÷ CM Ratio of 0.40 = $25,000.

8. Parker Company has provided the following data for the most recent year: net operating income, $44,500; fixed expense, $53,000; sales, $130,000; and CM ratio, 75%. What is the company's total contribution margin?

cm ratio - 75% 0.75 x 130,000 = 97,500 97,500

What is Ralph Corporation's margin of safety in percentage? selling price = $200 per unit var exp = $150 per unit fixed expenses = $1,000,000 per year unit sales = 25,000 units

Margin of Safety Percentage = Margin of Safety in dollars / Total budgeted (or actual) sales in dollars = ($5,000,000 - $4,000,000) / $5,000,000 = 20%.

What is the degree of operating leverage for Rite Corporation? sales = $300,000 var expenses = 150,000 cm= 150,000 fixed expenses = 50,000 noi = 100,000

degree of operating income = cm / noi 150,000/100,000=1.5

11. Lester Company has a single product. The selling price is $50 and the variable cost is $29.50 per unit. The company's fixed expense is $210,000 per month. How many units would the company have to sell to attain target profits of $48,300?

12,600 profit = cm/u - vc profit = cm (selling price - variable cost per unit) x Q - VC 48,300 = 20.5Q - 210,000 Q = 12,600

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales - $25,100 variable expenses - 13,700 contribution margin - 11,400 fixed expenses - 7,752 net operating income - 3,648 15. Assume that the amounts of the company's total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $7,752 and the total fixed expenses are $13,700. Given this scenario, and assuming that total sales remain the same, calculate the degree of operating leverage. Using the calculated degree of operating leverage, what is the estimated percent increase in net operating income of a 3% increase in sales?

14.28%

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales - $25,100 variable expenses - 13,700 contribution margin - 11,400 fixed expenses - 7,752 net operating income - 3,648 11-a. What is the margin of safety in dollars? 11-b. What is the margin of safety percentage?

a. $8,032 b. 32%

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 = CM/NOI 300,000/100,000=3

2. Lester Company has a single product. The selling price is $50 and the variable cost is $30.50 per unit. The company's fixed expense is $190,000 per month. What is the company's unit contribution margin? (Round your answer to 2 decimal places.)

19.50 cm/ u = sales - vc/u 50 - 30.50 = 19.50

5. Last month Carlos Company had a $60,000 profit on sales of $300,000. Fixed costs are $120,000 a month. What sales revenue is needed for Carlos to break even?

200,000 BE/$= FC/CM % profit = unit CM - FC 60,000 = Q - 120,000 Q = 180,000 is the CM CM ratio = 180,000/sales of 300,000 = 0.6 FC of 120,000 / CM % of 0.6 = 200,000

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales - $25,100 variable expenses - 13,700 contribution margin - 11,400 fixed expenses - 7,752 net operating income - 3,648 3. What is the variable expense ratio?

54.58%

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales - $25,100 variable expenses - 13,700 contribution margin - 11,400 fixed expenses - 7,752 net operating income - 3,648 1. What is the contribution margin per unit?

$11.40

Atlas Corporation sells 100 bicycles during a month at a price of $500 per unit. The variable expenses amount to $300 per bicycle. How much does profit increase if it sells one more bicycle?

$200 unit contribution margin is the amount that a company's profit will increase by when each additional unit is sold from the break even point Unit Contribution Margin = Sales price per unit - Variable costs per unit. 500-300=200

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales - $25,100 variable expenses - 13,700 contribution margin - 11,400 fixed expenses - 7,752 net operating income - 3,648 6. If the selling price increases by $1.80 per unit and the sales volume decreases by 100 units, what would be the net operating income?

$4,128

13. Lester Company has a single product. The selling price is $50 and the variable cost is $27.50 per unit. The company's fixed expense is $247,500 per month. What is the company's break-even in sales dollars?

$550,000 BE/$ = FC/ CM % (cm ratio) 50-27.50=22.5/50 = 0.45 247,500/0.45 = 550,000

1. Douglas Company sold 1,000 units of its product during the current month. The selling price is $46 and the variable cost is $28 per unit. The company's fixed expense totals $7,800 per month. The company's net operating income is:

10,200 1,000 units sales - 46/u x 1,000 = 46,000 vc - 28/u x 1,000 = 28,000 cm - subtract ^ 18,000 fc - 7,800 noi - 10,200

Base Corporation has sales of $100,000, variable costs of $40,000, and fixed costs of $30,000 currently. The company is expecting a $36,000 increase in sales. What is the change in contribution margin for the company?

21,600 change in contribution margin = (CM Ratio x changes in Sales) CM Margin = revenue - var. expenses 100,000 - 40,000 = 60,000 CM Ratio = CM/Sales --> 60,000/100,000 = 0.6 --> 60% Change in CM = CM Ratio x change in sales 0.6 x 36,000 = 21,600

14. Assume that Dollar-town Toys has fixed costs of $126,141. Each unit generates variable costs of $.43 and sells for $1.00. What is the break-even point in units?

221,300 units FC/CM/u

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales - $25,100 variable expenses - 13,700 contribution margin - 11,400 fixed expenses - 7,752 net operating income - 3,648 12. What is the degree of operating leverage?

3.13

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales - $25,100 variable expenses - 13,700 contribution margin - 11,400 fixed expenses - 7,752 net operating income - 3,648 2. What is the contribution margin ratio?

45.42%

17. Parker Company has provided the following data for the most recent year: net operating income, $27,000; fixed expense, $117,300; sales, $222,000; and CM ratio, 65%.What is the company's degree of operating leverage? (Round your answer to 2 decimal places.)

5.34 degree of operating leverage = CM /NOI Cm % = CM/sales so CM% x sales = CM 65% x 222,000 = 144,300 144,300/27,000 = 5.34

The current sales of Trent, Inc., are $400,000, with a contribution margin of $200,000. The company's degree of operating leverage is 2. If the company anticipates 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 × Percentage change in sales = 2 × 30% = 60%

Frank Corporation has a single product. Its selling price is $80 and the variable costs are $30. The company's fixed expenses are $5,000. What is the company's 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 $5,000 ÷$ 50 = 100 units.

Alpha Corporation is currently selling 500 skateboards per month. The unit selling price and variable expenses are $60 and $35 respectively. The fixed expenses amount to $5,000 per month. The company has an opportunity to make a bulk sale of 100 skateboards. This sale will not affect the company's regular sales or total fixed expenses. What unit price should be charged if the company is seeking a profit of $2,000 on the bulk sale?

Unit price= Variable cost per skateboard + Desired profit per skateboard = $35 + ($2,000/100) = $55.

4. Cost behavior is said to be linear whenever:

a straight line is a reasonable approximation for the relation between cost and activity.

What is usually plotted as a horizontal line on the CVP graph?

fixed expenses Fixed expenses remain constant over a relevant range of production. As such, fixed expenses are represented by a horizontal line that is parallel to the volume axis.

9. Redford, Inc. has provided the following data: Selling Price $230 per unit Sales 6,300 units Fixed expenses $330,000 Variable cost $115 per unit If the dollar contribution margin per unit is increased by 10%, total fixed expenses is decreased by 20%, and all other factors remain the same, net operating income will:

increase 138,450 cm = sales-variable cost selling price($230/u) x sales u(6,300 u), =sales $($1,449,000) $1,449,000 - ($115 x 6,300u = 724,500) = 724,500 cm/u increases by 10%= 72450 724,500 + 72,450 = 796,950 fixed exp decreased by 20%- you can already know it will be an increase in NOI most likely because you're decreasing your fixed costs- 330,000 x .2 = 66,000 330,000-66,000=264,000 796,950-264,000=532,950 original 724,500-330,000=394,500 532,950-394,500= 138,450 increase

16. Parker Company has provided the following data for the most recent year: net operating income, $28,000; fixed expense, $98,000; sales, $180,000; and CM ratio, 70%. The margin of safety in percentage form is: (Round your answer to 2 decimal places.)

margin of safety = Sales - BE/$ BE/$ = FC/CM% 180,000 - (98,000/0.7) = 40,000 40,000/sales of 180,000 to make it margin of safety in % form = 0.2222 so 22.22%

What are the unit sales required to attain a target profit of $120,000? target profit - $120,000 unit contribution margin- $40 fixed expenses -$40,000 contribution margin ratio-$0.40 selling price - $100

profit = unit cm x Q - fixed expenses 120,000 = 0.40 x Q - 40,000 solve for Q Q=4,000 units

What is represented on the X axis of a cost-volume-profit (CVP) graph?

sales volume

6. Where unit volume is represented on the horizontal ( X ) axis and dollars are on the vertical ( Y ) axis, the break-even point on the profit graph is:

the volume of sales at which profit is zero.

Atlas Corporation sells 100 bicycles during a month. The contribution margin per bicycle is $200. The monthly fixed expenses are $8,000. Compute the profit from the sale of 100 bicycles.

$12,000 profit = unit CM x Q - fixed expenses profit = 200 x 100 - 8,000 = 12,000

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales - $25,100 variable expenses - 13,700 contribution margin - 11,400 fixed expenses - 7,752 net operating income - 3,648 9. What is the break-even point in dollar sales?

$17,068

15. Parker Company has provided the following data for the most recent year: net operating income, $25,200; fixed expense, $85,200; sales, $184,000; and CM ratio, 60%. The company's margin of safety in dollars is:

42,000 margin of safety = sales - BE/$ BE/$=FC/CM% 184,000 - (85,200/.60) = 42,000

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales - $25,100 variable expenses - 13,700 contribution margin - 11,400 fixed expenses - 7,752 net operating income - 3,648 4. If sales increase to 1,001 units, what would be the increase in net operating income? (Round your answer to 2 decimal places.)

$11.40

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales - $25,100 variable expenses - 13,700 contribution margin - 11,400 fixed expenses - 7,752 net operating income - 3,648 5. If sales decline to 900 units, what would be the net operating income?

$2,508

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales - $25,100 variable expenses - 13,700 contribution margin - 11,400 fixed expenses - 7,752 net operating income - 3,648 7. If the variable cost per unit increases by $.80, spending on advertising increases by $1,300, and unit sales increase by 250 units, what would be the net operating income?

$4,198

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales - $25,100 variable expenses - 13,700 contribution margin - 11,400 fixed expenses - 7,752 net operating income - 3,648 10. How many units must be sold to achieve a target profit of $7,524?

1,340 units

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales - $25,100 variable expenses - 13,700 contribution margin - 11,400 fixed expenses - 7,752 net operating income - 3,648 8. What is the break-even point in unit sales?

680 units

Assume the company is considering a reduction in the selling price by $10 per unit and an increase in advertising budget by $5,000. This will increase sales volume by 50%. What is the net operating income after the changes?

New selling price = $110 - $10 = $100. New sales level = 1,000 units x 150% = 1,500 units. Net operating income = Sales of $150,000 (or 1,500 units × Selling price of $100 per unit) - Variable expenses of $90,000 (or 1,500 units × variable expense of $60 per unit) - Fixed expenses of $35,000 (or $30,000 + $5,000) = $25,000.

19. In multiple product companies, a shift in the sales mix from less profitable products to more profitable products will cause the company's break-even point to:

decrease

10. Marino Company is currently selling 10,000 units of its product per month at $10.50 per unit for total monthly sales of $105,000. The company's variable expenses are $4.25 per unit and its monthly fixed expenses total $10,500. An increase in the advertising budget of $4,500 is expected to increase its monthly sales by 1,000 units for total monthly sales of $115,500. This proposal will cause net operating income to:

increase by $1,750

Team Corporation has sales of $1 million, fixed expenses of $200,000, and variable expenses of $650,000 for the month of March. What is the contribution margin ratio of the company for the month of March?

35% CM Ratio = total CM/total Sales total CM= Sales Rev. - Var. Expenses 1,000,000 -650,000 = 350,000 350,000/1,000,000=0.35 x 100 (to make it a %) = 35%

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales - $25,100 variable expenses - 13,700 contribution margin - 11,400 fixed expenses - 7,752 net operating income - 3,648 14. Assume that the amounts of the company's total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $7,752 and the total fixed expenses are $13,700. Under this scenario and assuming that total sales remain the same, what is the degree of operating leverage?

4.76

18. If sales increase from $500,000 to $567,500, and if the degree of operating leverage is 7.00, net operating income should increase by: (Do not round your intermediate calculations and round your final answer to 2 decimal places.)

567,500/500,000 = 1.135 1.135-1=0.135 0.135 x 7 =0.945 so 94.50%

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales - $25,100 variable expenses - 13,700 contribution margin - 11,400 fixed expenses - 7,752 net operating income - 3,648 13. Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 3% increase in sales?

9.38%

12. Astair, Inc. reported sales of $9,519,000 for the month and incurred variable expenses totaling $6,300,000 and fixed expenses totaling $1,790,000. The company has no beginning or ending inventories. A total of 87,000 units were produced and sold last month. How many units would the company have to sell to achieve a desired profit of $1,725,000?

95,000 units profit = cm/u - FE sales - vc = 3,219,000 cm 3,129,000/87,000 units = $37/ u 1,725,000= 37/u - 1,790,000 u = 95,000

Which of the following explains contribution margin?

Sales minus variable cost

Cartier Corporation currently sells its products for $50 per unit. The company's variable costs are $20 per unit. Fixed expenses amount to a total of $5,000 per month. What is the company's variable cost ratio?

Variable expense ratio = Variable expenses/Sales = $20/$50 = 40%

What is Ralph Corporation's margin of safety in dollars? selling price - $200 per unit variable expenses - $150 per unit Fixed expenses - $1,000,000 per unit unit sales - 25,000 units per year

total budgeted or actual sales - break-even sales total budgeted or actual sales = selling price x unit sales 25,000 x 200=5,000,000 cm ratio x sales - fixed expenses 5,000,000 - 4,000,000=1,000,000

Break-even point is the level of sales at which ______.

total revenue equals total costs

The target profit is zero in break-even analysis.

true

Once the break-even point has been reached, net operating income will increase by the amount of the _____ for each additional unit sold.

unit contribution margin

3. The relevant range is the range of activity:

within which the assumptions made about cost behavior are reasonably valid.