Managerial Accounting Chapter 5 Video Questions

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? $500 $300 $200 $20,200

$200 Unit Contribution Margin = Sales price per unit - Variable costs per unit.

A shift in the sales mix from high-margin items to low-margin items can cause total profit to ________. decrease increase remain the same

decrease

The measure of how sensitive net operating income is to a given percentage change in dollar sales is called _______. sensitivity leverage operating leverage risk leverage

operating leverage

The following explains contribution margin ________. sales minus fixed cost fixed cost minus variable cost sales minus variable cost minus fixed cost sales minus variable cost

sales minus variable cost

Break-even point is the level of sales at which ______ total profits equals total costs total profits exceed total costs total revenue equals total costs total sales equal total projections

total revenue equals total costs

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 unit selling price variable expense per unit fixed expense per unit

unit contribution margin

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

Sales volume

Income Statement Sales 100,000 Variable expenses 50,000 Contribution margin = 50,000 Fixed expenses 20,000 Net operating income= 30,000 If sales increase by $50,000, what will be the net operating income for the company?

Contribution margin = $50,000/$100,000 = .50 Profit = (CM Ratio × Sales) − Fixed Expenses = (50% × $150,000) − $20,000= $55,000.

Taylor Company has current sales of 1,000 units, which generates sales revenue of $190,000, variable costs of $76,000 and fixed expenses of $96,000. The company believes sales will increase by 300 units, if advertising increases by $20,000. What is the change in net operating income after the changes? Increase of $20,000 Decrease of $20,000 Increase of $14,200 Decrease of $12,000

Contribution margin per unit = ($190,000 − $76,000)/1,000 units = $114 per unit $114 x 300 units = $34,200 Less increase in fixed costs -$20,000 Change in net operating income = $14,200

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 contribution margin ratio? 40% 60% 100% 20%

Contribution margin ratio = Contribution margin/Sales = ($50 − $20)/$50 = 60%.

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? 3.00 0.60 2.00 1.67

Degree of operating leverage = Contribution margin/Net operating income = $300,000/$100,000 = 3.

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? $25,000 $2,500 $250 $16,667

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

What is usually plotted as a horizontal line on the CVP graph? Fixed expenses Variable costs Sales revenues Break-even volume

Fixed expenses

Summarized data for Ralph Corporation: Selling price $ 200 per unit Variable expenses $ 150 per unit Fixed expenses $ 1,000,000 per year Unit sales 25,000 per year What is Ralph Corporation's margin of safety in dollars? $4 million $5 million $1 million $2.2 million What is Ralph Corporation's margin of safety in percentage? 20% 100% 80% 50%

Margin of Safety in dollars = Total budgeted (or actual) sales − Break-even sales = $5,000,000 ($200 per unit × 25,000 units) − $4,000,000 ($1,000,000/($50/$200)) = $1,000,000. 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%.

Taylor Company has current sales of 1,000 units, at a selling price of $190 per unit, variable costs per unit of $76 and fixed expenses of $96,000. The company believes sales will increase by 300 units, if the company introduces sales commissions as an incentive for the sales staff. The change will decrease the selling price to $175 per unit, increase variable cost per unit to $100 and decrease fixed expenses by $20,000. What is the net operating income after the changes? Increase of $21,500 Decrease of $30,000 Increase of $24,500 Decrease of $22,000

New contribution margin per unit = $175 − $100 = $75 New contribution margin = $75 × 1,300 units = $97,500 New fixed cost = $96,000 − 20,000 = $76,000 New net operating income = $97,500 − 76,000 = $21,500 INCREASE of $21,500

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.? 24% 30% 60% 25%

Percentage change in net operating income = Degree of operating leverage × Percentage change in sales = 2 × 30% = 60%.

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 $10,000 $20,000 $8,000

Profit = Contribution margin of $20,000 (or 100 units × Unit contribution margin of $200 per unit) − Fixed expenses of $8,000 = $12,000.

The profit graph is based on the following linear equation: Profit = Unit CM x Q - Fixed Expenses. Sales = Unit CM - Unit Variable Cost. Profit = Unit CM x Q + Fixed Expenses. Profit = Selling Price x Q - Unit CM x Q.

Profit = Unit CM x Q - Fixed Expenses.

Target profit $ 120,000 Unit contribution margin $ 40 Fixed expenses $ 40,000 Contribution margin ratio (CM ratio) 0.40 Selling price $ 100 What are the sales dollars required to attain a target profit of $120,000? $400,000 $300,000 $10,000 $60,000

Sales dollars to attain the target profit = (Target profit + Fixed expenses)/Contribution margin ratio. Substituting the values, sales required = ($120,000 + $40,000)/0.40 = $400,000.

What does the green line in the CVP graph indicate? Total fixed costs Total expenses Total variable costs Total sales revenue

Total expenses

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? 63 units 167 units 50 units 100 units

Unit CM = Selling price of $80 − Variable expense of $30 = $50. Unit sales to break-even = Fixed expenses of $5,000 ÷ $50 = 100 units.

The following information is extracted from the records of Johnson Corporation: Target profit $ 120,000 Unit contribution margin $ 40 Fixed expenses $ 40,000 Contribution margin ratio (CM ratio) 0.40 Selling price $ 100 What are the unit sales required to attain a target profit of $120,000? 400,000 units 400 units 1,600 units 4,000 units

Unit sales to attain the target profit = (Target profit + Fixed expenses)/Unit Contribution margin. Substituting the values, unit sales = ($120,000 + $40,000)/$40 = 4,000 units.

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? 40% 60% 100% 20%

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