acct ch 20

Sally manages a small kiosk that sells two products with a sales mix in terms of units sold of 25% and 75% and with respective unit contribution margins of $240 and $80. The weighted-average unit contribution margin for the kiosk is A $160. B $200. C $120. D $60.

$120

Jasmine Company has two products, Basic and Superior. The Basic product's unit contribution margin is $4 and its contribution margin per machine hour is $20. The Superior product's unit contribution margin is $6 and its contribution margin per machine hour is $15. How many machine hours does it take to make one unit of the Basic product? A 8.0 hours B 0.2 hours C 0.4 hours D 5.0 hours

$4/unit ÷ $20/hour = 0.2 hours/unit.

Donald's company sells three products. Suits, jackets, and pants make up 20%, 50%, and 30% of the sales revenue, respectively. The fixed costs for the company total $150,000. If the weighted-average contribution margin ratio and the weighted-average unit contribution margin for the company are 25% and $20, what is the company-wide break-even point in dollars? A $680,000 B $300,000 C $600,000 D $450,000

$600000

Augusta Industries has just signed an agreement to outsource production of one of its most popular products. It will still be manufactured to Augusta's standards and will still carry the Augusta insignia. Which of the following is likely to result from this decision? 1. A decrease in operating leverage. 2. A decrease in both variable and fixed costs. A 1 only. B Both 1 and 2. C 2 only. D Neither 1 nor 2.

1 only

This is the current income statement for Celebrity Corn. Next year, Celebrity wishes to increase the unit selling price to $110. Sales commissions will change to 2.5% of sales. Cost of goods sold per unit, fixed costs, and sales volume will remain the same. How will these changes affect contribution margin and net income?

Celebrity currently has a unit contribution margin of $35 ($100 - $62 - $3). With the new changes, Celebrity will have a unit contribution margin of $45.25 ($110 - $62 - $2.75). This represents an increase of $10.25 in the unit contribution margin. Sales volume remains the same at 150 units ($15,000 / $100), so the effect on contribution margin is $1,537.50 (150 x $10.25). Since fixed costs remain the same, the contribution margin increase equals the net income increase, $1,537.50

Alaskan Abrasives produces two products: Super Goo and Cement Magic. Super Goo sells for $16 per ounce and Cement Magic sells for $15 per ounce. Super Goo's unit variable costs are $7.80/ounce and Cement Magic's unit variable costs are $6.90/ounce. Super Goo takes twice as much machine time per ounce to manufacture than does Cement Magic. If Alaskan has limited machine hours, which product should be manufactured first, and why? A Super Goo should be manufactured first because its unit contribution margin is $8.20 while Cement Magic's unit contribution margin is only $8.10. B Super Goo should be manufactured first because it has the higher unit selling price. C Cement Magic should be manufactured first because it has the higher contribution margin per machine hour. D They should be manufactured in equal amounts because their unit contribution margins are nearly equal.

Cement Magic should be manufactured first because it has the higher contribution margin per machine hour. Super Goo's contribution margin per machine hour = ($16 - $7.80)/2 = $4.10. Cement Magic's contribution margin per machine hour = ($15 -$6.90)/1 = 8.10.

Which is the formula for computing the contribution margin per unit of constrained resource? A Contribution margin per unit of constrained resource = unit contribution margin ÷ constrained resource per unit. B Contribution margin per unit of constrained resource = contribution margin ÷ constrained resource per unit. C Contribution margin per unit of constrained resource = contribution margin x constrained resource per unit. D Contribution margin per unit of constrained resource = unit contribution margin x constrained resource per unit.

Contribution margin per unit of constrained resource = unit contribution margin ÷ constrained resource per unit.

Euclid, Inc. has the following CVP income statement. What is Euclid's degree of operating leverage? sales $2,800,000 variable costs 1,960,000 CM 840,000 Fixed costs 560,000 Net Income 280,000

Degree of Operating Leverage = Contribution Margin/Net Income. $1,200,000/$400,000 = 3.0

For a company with more than one product, company-wide contribution margin can be calculated by which of the following techniques? A Multiply the company-wide unit sales by the weighted-average unit contribution margin. B Divide the company-wide unit sales by the weighted-average unit contribution margin. C Multiply the weighted-average unit contribution margin by the sales mix as a percentage of units sold. D Divide the weighted-average unit contribution margin by the sales mix as a percentage of units sold.

Multiply the company-wide unit sales by the weighted-average unit contribution margin.

Sandy, Inc. has the following information. What are Sandy's degree of operating leverage and contribution margin ratio? Sales 800,000 fixed cost 80,000 variable cost 560,000 A 1.5 degree of operating leverage; 0.67 contribution margin ratio. B 0.67 degree of operating leverage; 0.30 contribution margin ratio. C 0.30 degree of operating leverage; 0.67 contribution margin ratio. D 1.5 degree of operating leverage; 0.30 contribution margin ratio.

The degree of operating leverage is contribution margin divided by net income: Contribution margin is sales ($800,000) minus variable costs ($560,000) = $240,000. Net income is sales minus total costs: $800,000 - $80,000 - $560,000 = $160,000. Degree of operating leverage = $240,000/$160,000 = 1.5. 1.5 degree of operating leverage; 0.30 contribution margin ratio.

Geyser Manufacturing replaced its hourly quality inspectors with a computerized inspection system. What will be the impact of this choice on the company's degree of operating leverage? A This will have no impact on the degree of operating leverage. B The degree of operating leverage will increase. C The degree of operating leverage will decrease. D The degree of operating leverage will not change.

The degree of operating leverage will increase.

Ransdell Industries would like to maintain the same level of net income this year as it had last year, but it is facing a $15,000 increase in its fixed costs. If Ransdell's contribution ratio is consistently 0.35, how much additional sales revenue is required to offset the fixed cost increase? A $28,301 B $42,857 C $15,000 D $33,333

To determine the necessary sales revenue increase, divide the additional contribution margin needed by the contribution margin ratio ($15,000/0.35 = $42,857.143, rounded to $42,857).

Bella's Beauties sells vacuums and shampooers. The vacuums have a unit selling price of $60 and unit variable costs of $20. The shampooers have a unit selling price of $100 and unit variable costs of $60. The fixed costs for the store are $80,000. The shampooers make up 1,200 of the units sold, while the vacuums make up 2,800 of the units sold. How many vacuums and shampooers must Bella sell in order to break even? A 2,000 vacuums; 2,000 shampooers B 600 vacuums; 1,400 shampooers C 2,800 vacuums; 1,200 shampooers D 1,400 vacuums; 600 shampooers

To find the break-even point in units, you must first determine the unit contribution margin for each product. Unit contribution margin = unit selling price less unit variable costs. For the shampooers this would be $100 - $60 = $40. For the vacuums this would be $60 - $20 = $40. Next, determine the sales mix percentage (of units sold) in order to calculate the weighted-average unit contribution margin. The sales mix percentage (of units sold) is found by dividing the number of units sold for each product by the total units sold for all products. For the shampooers this is 1,200/4,000 = 30%. For the vacuums this is 2,800/4,000 = 70%. Next, determine the weighted-average unit contribution margin by multiplying the unit contribution margin by the sales mix percentage for each product and adding them together: ($40/shampooer x 0.3) + ($40/vacuum x 0.7) = $40. Finally, divide the fixed costs by the weighted-average unit contribution margin to arrive at the break-even point in units: $80,000 ÷ $40/unit = 2,000 units. Finally, determine the quantity of each product: 2,000 x 0.7 = 1,400 vacuums; 2,000 x 0.3 = 600 shampooers.

Caleigh's company has two main product lines. The first product line has sales of $80,000 and a contribution margin of $12,000, and the second line has sales of $120,000 and a contribution margin of $28,000. What is the weighted-average contribution margin ratio for the company? A 38% B 23% C 20% D 15%

To find the weighted-average contribution margin ratio for the company, you need to find the total contribution margin and the total sales. If you add the contribution margins for the two product lines you get $12,000 + $28,000 = $40,000. If you add the sales for both product lines you get $80,000 + $120,000 = $200,000. Then you can divide the total contribution margin by the total sales to arrive at the weighted-average contribution margin ratio for the company: $40,000 / $200,000 = 20%

Carl Corp. sells two products. The sales mix of the product lines in terms of sales dollars is Standard 30% and Sea Salt 70%. The contribution margin ratio of the Standard salt is 20% and the contribution margin ratio of the Sea salt is 80%. Carl's monthly fixed costs are $2,356,000. What is the dollar amount of Carl Corp.'s sales at the break-even point? A $1,140,000 B $760,000 C $3,800,000 D $2,660,000

Weighted-average contribution margin ratio is (0.30 x 0.20) + (0.70 x 0.80) = 0.62. Company-wide sales = $2,356,000 / 0.62 = $3,800,000

A firm that wishes to modify its degree of operating leverage can do so A by only converting its fixed costs to variable costs. B by converting its fixed costs to variable costs or by converting its variable costs to fixed costs. C by only converting its variable costs to fixed costs. D by shifting the sales mix of its products.

by converting its fixed costs to variable costs or by converting its variable costs to fixed costs.

RS Corporation has a current break-even point of 375,000 units. Which would be the best course of action to increase net income? A Decrease the unit variable cost B Increase fixed costs C Increase the price and the unit variable cost by the same amount D Decrease the unit contribution margin

decrease the unit variable cost

T/F In an environment where there is a constrained resource, the resource should be allocated first to the product with the highest unit contribution margin.

false

T/F When a company has limited resources, it should apply additional units of that resource to produce more units of the product that has the highest unit selling price.

false

Susan's Handbags typically sells 1,000 handbags each month with a unit selling price of $65. Susan's variable costs are $35 a unit, and the fixed costs are $25,000 per month. Susan wishes to raise the unit selling price to $75 while maintaining her current cost structure. If she implements the price change, only 850 units will be sold per month. If Susan changes the price and the quantity falls, the contribution margin will A increase by $4,000. B decrease by $5,000. C increase by $9,000. D remain unchanged.

increases by $4000 30000 to 34000

Firm A's degree of operating leverage is higher than Firm B's. If both firms experience a 10% drop in sales, Firm A's net income will decrease by a __________ percentage than Firm B's. smaller or larger

larger

What happens to the break-even point when operating leverage increases? A The breakeven point stays the same. B Operating leverage has no impact on breakeven point. C The breakeven point decreases. D The breakeven point increases.

the breakeven point increases

Which of the following is a specific approach used to manage and identify constraints in order to achieve a company's goals? A The goal theory. B The limited resource theory. C The theory of constraints. D The contribution margin theory.

the theory of constraints

T/F A company's cost structure has a direct effect on its operating leverage.

true