Chapter 7 Dynamic Module

The Lampost Production Company has $6,000 of fixed expenses. The manager reported that the company's operating income wass $0, and the contribution margin was 40%. What are the company's sales in dollars using the shortcut approach to the contribution margin ratio?

$15,000

The Heart Foundation is a charity that produces and sells two products, red hearts and purple hearts, to promote health in the community. The manager estimates clients will purchase 2,400 red hearts and 1,100 purple hearts by the end of the next period. The unit contribution margins for red hearts and purple hearts are $2.75 and $3.40. What is the weighted-average unit contribution margin?

$2.95

The manager at Vertical Wire Productions reported total sales revenue of $800,000. The variable expenses were $600,000, and there were $125,000 of total fixed expenses. Use the contribution margin shortcut formula to predict the breakeven point in dollars.

$500,000

Which of the following is NOT true regarding the sales mix?

Companies that sell more than one product should NOT consider their sales mix when performing CVP analysis

Which of the following refers to the excess of sales revenue over variable expenses?

Contribution margin

Step 4 of the CVP graph represents the ________.

breakeven point

The horizontal x-axis on the CVP graph represents ________.

volume of units

Marla's Publishing Service has $4,800 of fixed expenses. The manager reported the company's operating income as $0, and the contribution margin was 45%. What are the company's sales in dollars, rounding to the nearest dollar, using the shortcut approach to the contribution margin ratio?

$10,667

Sam's Appliance Outlet has variable expenses of 40% of sales. The manager reported monthly fixed expenses of $270,000. The monthly target operating income is $75,000. What is the monthly margin of safety in dollars if the manager at Sam's Appliance Outlet achieves the operating income goal?

$125,000

Sam's Appliance Outlet has variable expenses of 40% of sales. The manager reported monthly fixed expenses of $240,000. The monthly target operating income is $80,000. What is the monthly margin of safety in dollars if the manager at Sam's Appliance Outlet achieves the operating income goal?

$133,333

Grandma's Yarn Factory produces and designs two specialty yarn products, green yarn and scarlet yarn. The manager estimates that clients will purchase 3,000 green yarn spools and 1,100 scarlet yarn spools by the end of the next period. The unit contribution margins for green yarn and scarlet yarn are $2.80 and $3.50. What is the weighted-average unit contribution margin?

$2.99

Rachel's Candelabra Shoppe sells candles to clients for $6.00 each. The variable cost to produce each candle is $2.25 per candle. The fixed costs are $2,800 per month. What is the firm's contribution margin ratio?

$3.75/62.5%

Violet Industries held an annual meeting and reported a new annual budget of $50,000 in total fixed expenses. The new selling price per unit is $58, and the new variable expense per unit is $30. If the manager can reduce fixed expenses by another $10,000, what is the effect on breakeven sales?

$357 decrease in breakeven units

The manager at TV Land Productions reported total sales revenue of $900,000. The variable expenses were $300,000, and there were $325,000 of total fixed expenses. Calculate the contribution margin ratio and use the contribution margin shortcut formula to predict the breakeven point in dollars.

$4,875

Terry's Frame & Art Shoppe produces and sells picture frames to clients at $8.00 per picture frame. The variable cost to produce each picture frame is $3.25 per picture frame. The fixed costs are $3,000 per month. What is the firm's contribution margin ratio?

$4.75

Terry's Frame & Art Shoppe produces and sells picture frames to clients at $8.00 per picture frame. The variable cost to produce each picture frame is $3.25. The fixed costs are $3,000 per month. What is the firm's contribution margin per picture frame?

$4.75

How can a manger forecast operating income?

(sales revenue x contribution margin ratio) - fixed costs

Brandy's Balloon Service currently sells 1,000 balloon bundles per month. The competition in the balloon industry continues to soar within a thirty-mile vicinity of the service location. Variable expenses were $2.00 per balloon and fixed expenses were $5,000. If Brandy changes the price of balloon bundles to $10, how many balloon bundles should she sell to achieve her target operating income of $6,000?

1,375 balloon bundles

Daphne's Floral Service has a monthly target operating income of $30,000. Variable expenses are 15% of sales. The manager reported fixed expenses of $20,000. What is Daphne Floral's operating leverage factor at the target level of operating income?

1.67

Lisa's Custom Print Services produces and sells custom seashore prints. The manager reported $5,400 in fixed expenses, operating income of $0 at the breakeven point, and a contribution ratio of 50%. What is the firm's breakeven point in units using the shortcut approach?

108 units

Daphne's Planter Company produces and sells planters. The manager reported $10,500 in fixed expenses, operating income of $0 at the breakeven point, and a contribution ratio of 60%. What is the company's breakeven point in units using the shortcut approach?

175 units

Tara's Sewing Service sells yarn. Tara expects to sell 400 units of yarn this month. The manager forecasted the sale of 200 units of yarn to break even. What is the margin of safety in units?

200 units

Landstown College changed the budget for the next fiscal year. The new budget includes the following: Total fixed expenses $52,000 Selling price per unit $58 Variable expenses per unit $32 What is the impact on the breakeven sales in units if the new manager reduces fixed expenses by $10,000?

385 decrease in breakeven units

The Beach Sea Shop has variable expenses of 35% of sales. The manager reported monthly fixed expenses of $250,000. The monthly target operating income is $65,000. What is Beach Sea Shop's operating leverage factor at the target level of operating income?

4.85

Brandy's Balloon Service currently sells 1,000 balloon bundles per month. The competition in the balloon industry continues to soar within a thirty-mile vicinity of the service location. Brandy was considering reducing the sales price of balloon bundles to $10 per bundle. If the variable expenses remain at $2.00 per balloon bundle and fixed expenses remain at $5,000, how many balloon bundles will Brandy need to sell to break even?

625 balloon bundles

The Landscape Company produces and sells large and medium landscaping tiles. The large landscaping tiles sell for $90 per unit with variable costs of $30 per unit. The medium landscaping tiles sell for $60 per unit with variable costs of $30 per unit. The total fixed costs for the company is $42,000. The Landscape Company usually sells three large tiles for every two medium tiles. What is the breakeven point in units?

875 units

MaryJane's Bakery manufactures and sells a variety of baked goods. The selling price per dozen of chocolate glazed donuts is $8.00. The variable costs to produce the chocolate glazed donuts are $3.75, and total fixed costs are $3,800. How many dozen chocolate glazed donuts must the manager sell to break even?

895 dozen

How might a change in fixed costs affect the contribution margin?

A change in fixed costs does not affect the contribution margin.

Which of the following statements is TRUE about sensitivity analysis?

A manager uses sensitivity analysis to determine the impact of changes to the sales price and volume

Which of the following is NOT true about the breakeven point?

It is the sales level at which operating income is never zero.

Which of the following is NOT correct about changes in variable and fixed costs?

Lower variable costs decrease the contribution margin and lower the breakeven point.

The ________ refers to a company's amount of relative fixed and variable costs.

operating leverage

Which of the following is NOT an approach to compute the breakeven point?

Zero income approach

The ________ is computed as the total contribution margin divided by total sales.

contribution margin ratio

The vertical y-axis on the CVP graph represents ________.

dollars

CVP analysis ________.

expresses the relationships amongst costs, volume, and organizational profits

The weighted-average contribution margin ________.

is computed as the total contribution margin divided by total sales

The margin of safety ________.

is the excess of actual or expected sales over breakeven sales

The contribution margin ________.

is the excess of sales revenue over variable expenses

The ________ is the excess of actual or expected sales over breakeven sales.

margin of safety

The ________ is the combination of products that make up total sales.

sales mix