Managerial Accounting Ch 6

In the month of April, Carly's Carwash provided 3,000 car washes at an average price of $25. Fixed costs are $9,300 and variable costs are 85% of sales. Compute the contribution margin and the contribution margin ratio.

$11,250 and 15%

Donovan Company had sales of $50,000, fixed costs of $30,000 and a variable cost ratio of 25%. If sales increase by 6% next year, net income will increase by: $2,250. $3,000. $9,750. $450.

$2,250.

If the contribution per unit is $15 and it takes 3.0 machine hours to produce the unit, the contribution margin per unit of limited resource is:

$5

Linburgh Inc manufactures model airplanes and repair kits. The planes account for 80% of the sales mix, and the kits the remainder. The variable cost ratio for the planes is 85% and 70% for the kits. Fixed costs are $99,000. Compute the breakeven point in sales dollars.

$550,000

If a company makes two products, R1 and R2, what is the formula for the weighted-average unit contribution margin? Entry field with correct answer (Unit Contribution Margin of R1) + (Unit Contribution Margin of R2) (Unit Contribution Margin Ratio of R1) + (Unit Contribution Margin Ratio of R2) (Unit Contribution Margin of R1 x Sales Mix Percentage of R1) + (Unit Contribution Margin of R2 x Sales Mix Percentage of R2). The correct formula is not listed above.

(Unit Contribution Margin of R1 x Sales Mix Percentage of R1) + (Unit Contribution Margin of R2 x Sales Mix Percentage of R2).

If Company A has a higher proportion of fixed costs relative to variable costs than Company B: Company A has a higher break-even point than Company B. Company A is more sensitive to changes in sales than Company B. Company A has greater risk compared to Company B. All of the above are true.

All of the above

The degree of operating leverage: can be computed by dividing total contribution margin by net income. provides a measure of the company's earnings volatility. affects a company's break-even point. all of the above.

All of the above

______ is the amount of revenue that remains after deducting variable costs in a CVP income statement. Entry field with correct answer Contribution margin. Net income. Gross income. Fixed income.

Contribution margin.

Croc Catcher calculates its contribution margin to be less than zero. Which statement is true? Entry field with correct answer Its profits are greater than its total costs. The company should sell more units. Its selling price is less than its variable costs. Its fixed costs are less than the variable cost per unit.

Its selling price is less than its variable costs.

Valerio Company sells Mountain Bikes and Racing Bikes. The Mountain Bikes sell for $300 and have variable costs of $125. The Racing Bikes sell for $450 and have variable costs of $275. Valerio Company has limited machine hours for production. If Mountain Bikes take 2 machine hours and racing bikes take 2.5 machine hours which product should be emphasized if capacity (machine hours) is increased and sufficient demand exists for each product?

Mountain Bikes (Cm/Unit = 87.5 vs Racing 70)

The degree of operating leverage is computed by dividing fixed costs by contribution margin per unit. contribution margin by net income. variable costs by contribution margin ratio. variable costs by contribution margin per unit.

contribution margin by net income

The degree of operating leverage can be computed as: net income divided by the sales mix percentage. contribution margin ratio times the sales mix percentage. contribution margin divided by net income. net income divided by contribution margin ratio.

contribution margin divided by net income.

When a company sells multiple products, the breakeven point in sales dollars is computed by: dividing the total fixed costs by the weighted average contribution margin. multiplying the breakeven point in units times the average sales price. dividing the total fixed costs by the weighted average contribution margin ratio. dividing the total fixed costs by the average contribution margin.

dividing the total fixed costs by the weighted average contribution margin ratio.

A high degree of operating leverage: indicates that a company has a larger percentage of variable costs relative to its fixed costs. is computed by dividing fixed costs by contribution margin. exposes a company to less earnings volatility risk. exposes a company to greater earnings volatility risk.

exposes a company to greater earnings volatility risk.

A company with high operating leverage: is less sensitive to changes in sales. has a greater proportion of variable costs to fixed costs. has an equal proportion of fixed and variable costs. has a greater proportion of fixed costs to variable costs.

has a greater proportion of fixed costs to variable costs.

The margin of safety ratio is: lower for a company with lower operating leverage. is not affected by operating leverage. is increased by a greater proportion of variable to fixed costs. higher for a company with lower operating leverage.

higher for a company with lower operating leverage.

In order to maximize profits when limited resources are available a company should concentrate on the producing products with: the lowest unit variable costs. the highest contribution margin per unit of limited resource. the highest unit contribution margins. the lowest limited resource requirements.

the highest contribution margin per unit of limited resource.

If a company has limited resources: contribution margin per unit is used in determining product mix. the sales mix is determined by computing contribution margin per unit of limited resource. there is no effect on sales mix. it will sell more of the product with the highest contribution margin.

the sales mix is determined by computing contribution margin per unit of limited resource.

In the month of April, Carly's Carwash provided 3,000 car washes at an average price of $25. Fixed costs are $9,300 and variable costs are 85% of sales. Compute the margin of safety ratio.

17.33%

Given the following information, what is the contribution margin ratio? Sales $900,000 Variable expenses 400,000 Fixed Expenses 300,000 Net Income 200,000

56%

Which one of the following describes the break-even point? Entry field with correct answer It is the point where total sales equals total fixed costs. It is the point where the contribution margin equals zero. It is the point where total variable costs equal total fixed costs. It is the point where total sales equals total variable costs plus total fixed costs.

It is the point where total sales equals total variable costs plus total fixed costs.

Which one of the following is the format of a CVP income statement? Entry field with correct answer Sales - Fixed costs - Variable costs - Operating expenses = Net income. Sales - Cost of goods sold - Operating expenses =Net income. Sales - Variable costs - Fixed costs = Net income. Sales - Variable costs = Fixed costs + Net income.

Sales - Variable costs - Fixed costs = Net income.

In general, a company should sell more units of products with Entry field with correct answer a higher contribution margin. a lower contribution margin. a higher selling price. None of the above is correct

a higher contribution margin.

Sales mix is: Entry field with correct answer a measure of the relative percentage of a company's variable costs to its fixed costs. a measure of the relative percentage in which a company's products are sold. important to sales managers but not to accountants. easier to analyze on absorption costing income statements.

a measure of the relative percentage in which a company's products are sold.

Net income will be: Entry field with correct answer greater if more lower-contribution margin units are sold than higher-contribution margin units. greater if more higher-contribution margin units are sold than lower-contribution margin units. equal as long as total sales remain equal, regardless of which products are sold. unaffected by changes in the mix of products sold.

greater if more higher-contribution margin units are sold than lower-contribution margin units.