ACG2071 - Chapter 6: Cost-volume-profit Analysis

Mcmurtry Corporation sells a product for $110 per unit. The product's current sales are 12,200 units and its break-even sales are 10,614 units. The margin of safety as a percentage of sales is closest to: A. 13% B. 15% C. 87% D. 85%

A. 13% (12,200-10,614)/12,200=13%

A 15% increase in sales resulted in a 40% increase in net income for Company A and a 60% increase in net income for Company B. Based on this, which company has the greater operating leverage? A. Company B B. Company A

A. Company B

The variable expense ratio is the ratio of variable expense to ______. A. fixed expense B. sales C. net operating income D. the contribution margin

B. sales

Seating Galore sells high-end desk chairs. The variable expense per chair is $85.05 and the chairs sell for $189.00 each. The variable expense ratio for Seating Galore's chairs is _____%. (Enter your answer as a whole number.)

45%

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 $ 10,000 Variable expenses 5,500 Contribution margin 4,500 Fixed expenses 2,250 Net operating income. $ 2,250 11. What is the margin of safety in dollars? What is the margin of safety percentage?

Margin of safety in dollars = $5,000 Margin of safety percentage = 50% Margin of safety (in dollars) = Sales - Break-even sales (at 500 units) = $10,000 -$5,000 = $5,000 Margin of safety percentage = Margin of safety (in dollars) ÷ Sales = $5,000 ÷ $10,000 = 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 $ 10,000 Variable expenses 5,500 Contribution margin 4,500 Fixed expenses 2,250 Net operating income. $ 2,250 5. If sales decline to 900 units, what would be the net operating income?

Net operating income = $1,800

The amount by which sales can drop before losses are incurred is the ______ of _______. (Enter only one word per blank).

margin; safety

The relative proportions in which a company's products are sold is referred to as _______ _______. (Enter only one word per blank.)

sales mix

Which of the following statements is correct? A. The higher the margin of safety, the lower the risk of incurring a loss. B. The risk of loss is not impacted by the margin of safety. C. The higher the margin of safety, the higher the risk of incurring a loss.

A. The higher the margin of safety, the lower the risk of incurring a loss.

If the total contribution margin is less than the total fixed expenses, a ______ occurs. A. net loss B. break-even point C. net profit

A. net loss

The term used for the relative proportion in which a company's products are sold is ______. A. sales mix B. break-even C. sales price D. operating leverage

A. sales mix

Profit = (selling price per unit × quantity sold) - (______ expense per unit × quantity sold) - _______ expenses. (Enter only one word per blank.)

variable; fixed

Profit = (selling price per unit × quantity sold) - (_______ expense per unit × quantity sold) - _______ expenses. (Enter only one word per blank.)

variable; fixed

The term "cost structure" refers to the relative proportion of _______ and _______ costs in an organization. (Enter only one word per blank.)

variable; fixed

A company sold 20,000 units of its product for $20 each. Variable cost per unit is $11. Fixed expenses total $150,000. The company's contribution margin is ______. A. $130,000 B. $180,000 C. $150,000 D. $30,000

B. $180,000 Reason: Contribution margin = 20,000 × ($20 - $11) = $180,000.

Vivian's Violins has sales of $326,000, contribution margin of $184,000 and fixed costs total $85,000. Vivian's Violins net operating income is ______. A. $241,000 B. $99,000 C. $57,000

B. $99,000 Reason: Net operating income = $184,000 - $85,000 = $99,000

The degree of operating leverage = ______. A. total sales ÷ net operating income B. gross margin ÷ net operating income C. contribution margin ÷ net operating income D. contribution margin ÷ total sales

C. contribution margin ÷ net operating income

Operating leverage is a measure of how sensitive ______ is to a given percentage change in sales dollars. A. total gross margin B. total variable expense C. net operating income D. selling price per unit

C. net operating income

A product has a selling price of $10 per unit, variable expenses of $6 per unit and total fixed costs of $35,000. If 10,000 units are sold, net operating income will be $_______. (Enter your answer as a whole number.)

$5,000

To estimate the effect on profits for a planned increase in sales, multiply the increase in units sold by the unit ______ _______. (Enter only one word per blank.)

contribution margin

Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: AmountPercent of SalesSales$ 135,000100%Variable expenses54,00040%Contribution margin81,00060%Fixed expenses17,000 Net operating income$ 64,000 Required: 1. What is the company's degree of operating leverage? 2. Using the degree of operating leverage, estimate the impact on net operating income of a 16% increase in unit sales. 3. Construct a new contribution format income statement for the company assuming a 16% increase in unit sales.

1. Degree of operating leverage = 1.27 2. Net operating income increases by 20.32% 3. Sales; Variable expenses; Contribution margin; Fixed expenses; Net operating income; 156,600; 62,640; 17,000; 100; 40.

Data for Hermann Corporation are shown below: Per UnitPercent of SalesSelling price$ 65100%Variable expenses3960Contribution margin$ 2640% Fixed expenses are $73,000 per month and the company is selling 4,300 units per month. 2-a. Refer to the original data. How much will net operating income increase (decrease) per month if the company uses higher-quality components that increase the variable expense by $5 per unit and increase unit sales by 25%. 2-b. Should the higher-quality components be used?

2A: Net operating income increases by $1,075. 2B: Yes, the higher-quality components should be used.

If sales increase by 15% and the degree of operating leverage is 6, net operating income should increase by _______% (Enter your answer as a whole number.)

90% Reason: 6 x 15% = 90%

Softie, Inc. produces facial tissues. The company's contribution margin ratio is 77%. Fixed expenses are $240,400. To achieve a target profit of $930,000, Softies' sales must be ______. A. $1,170,400 B. $1,520,000 C. $1,242,408 D. $5,088,695

B. $1,520,000 Reason: ($240,400 + $930,000) ÷ 0.77= $1,520,000

A company reported $100,000 in sales and $80,000 in variable costs at the breakeven point of 200 units. If the company sells 201 units, net profit will be ______. A. $200 B. $100 C. $400 D. $500

B. $100 Reason: For each unit sold above break-even, profit increases by the contribution margin per unit ($100,000 - $80,000) ÷ 200 or $100.

Company A's product sells for $90 and has a variable cost of $35 per unit. Fixed costs total $550,000. If Company A sells 16,000 units, the contribution margin per unit is ______. A. $10,000 B. $880,000 C. $55 D. $20.63

C. $55 Reason: Unit contribution margin= $90 -$35 = $55.

Wimpy Incorporated produces and sells a single product. The selling price of the product is $225.00 per unit and its variable cost is $90.00 per unit. The fixed expense is $354,060 per month. The break-even in monthly dollar sales is closest to: (Round your intermediate calculations to 2 decimal places.) A. $885,150 B. $531,090 C. $590,100 D. $354,060

C. $590,100 ($225-$90)/$225=60% $354,060/60%=$590,100

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 $ 10,000 Variable expenses 5,500 Contribution margin 4,500 Fixed expenses 2,250 Net operating income. $ 2,250 1. What is the contribution margin per unit? (Round your answer to 2 decimal places.)

Contribution margin per unit = $4.50 Contribution margin per unit = Total contribution margin ÷ Total units sold = $4,500 ÷ 1,000 units = $4.50/unit

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 $ 10,000 Variable expenses 5,500 Contribution margin 4,500 Fixed expenses 2,250 Net operating income. $ 2,250 2. What is the contribution margin ratio?

Contribution margin ratio = 45% Contribution margin ratio = Total contribution margin ÷ Total sales = $4,500 ÷ $10,000 = 40%

A company has total sales of $1,430,000. Fixed expenses are $657,000 and the contribution margin ratio is 67%. Company profit (loss) is ______. A. $773,000 B. ($185,100) C. $958,100 D. $301,100

D. $301,100 Reason: (67% × $1,430,000) - $657,000 = $301,100

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 $ 10,000 Variable expenses 5,500 Contribution margin 4,500 Fixed expenses 2,250 Net operating income. $ 2,250 13. Using the degree of operating leverage, what is the estimated percent increase in net operating income that would result from a 5% increase in unit sales? (Round your intermediate calculations and final answer to 2 decimal places.)

Increase in net operating income = 10.00% Increase in net operating income = Degree of operating leverage x Percentage increase in sales = 2.00 x 5% = 10.00%

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 $ 10,000 Variable expenses 5,500 Contribution margin 4,500 Fixed expenses 2,250 Net operating income. $ 2,250 6. If the selling price increases by $2 per unit and the sales volume decreases by 100 units, what would be the net operating income?

Net operating income = $3,600

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 $ 10,000 Variable expenses 5,500 Contribution margin 4,500 Fixed expenses 2,250 Net operating income. $ 2,250 7. If the variable cost per unit increases by $1, spending on advertising increases by $1,000, and unit sales increase by 100 units, what would be the net operating income?

Net operating income = $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 $ 10,000 Variable expenses 5,500 Contribution margin 4,500 Fixed expenses 2,250 Net operating income. $ 2,250 10. How many units must be sold to achieve a target profit of $2,700?

Number of units = 1,100 Profit = Unit CM × Q − Fixed expenses $2,700 = ($10.00 − $5.50) × Q − $2,250 $2,700 = ($4.50) × Q − $2,250 $4.50Q = $4,950 Q = $4,950 ÷ $4.50 Q = 1,100 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 $ 10,000 Variable expenses 5,500 Contribution margin 4,500 Fixed expenses 2,250 Net operating income. $ 2,250 3. What is the variable expense ratio?

Variable expense ratio = 55% Variable expense ratio = Total variable expenses ÷ Total sales = $5,500 ÷ $10,000 = 55%

Once the break-even point has been reached, net operating income will increase by the amount of the unit ______ _______ for each additional unit sold. (Enter only one word per blank.)

contribution margin

To calculate the degree of operating leverage, divide _______ _______ by net operating income. (Enter only one word per blank.)

contribution margin

Contribution margin is first used to cover _________ expenses. Once the break-even point has been reached, contribution margin becomes __________. (Enter only one word per blank.)

fixed; profit, income, or profits

If operating leverage is high, a small percentage increase in sales produces a ________ (higher/lower) percentage increase in net operating income than if operating leverage is low. (Enter either higher or lower.)

higher

A measure of how sensitive net operating income is to a given percentage change in sales dollars is known as operating ______. (Enter only one word per blank.)

leverage

Lucido Products markets two computer games: Claimjumper and Makeover. A contribution format income statement for a recent month for the two games appears below: ClaimjumperMakeoverTotalSales$ 116,000$ 58,000$ 174,000Variable expenses35,8007,70043,500Contribution margin$ 80,200$ 50,300130,500Fixed expenses 85,275Net operating income $ 45,225 Required: 1. What is the overall contribution margin (CM) ratio for the company? 2. What is the company's overall break-even point in dollar sales? 3. Prepare a contribution format income statement at the company's break-even point that shows the appropriate levels of sales for the two products.

1. Overall CM ratio = 75% 2. Overall break-even point = $113,700 3. Sales; Variable expenses; Contribution margin; Fixed expenses; 75,800; 23,393; 52,407; 37,900; 5,032; 32,868; 113,700; 28,425; 85,275; 85,275; 0.

Place the following items in the correct order in which they appear on the contribution margin format income statement.

1. Sales 2. Variable expenses 3. Contribution margin 4. Fixed expenses 5. Net operating income

Data for Hermann Corporation are shown below: Per UnitPercent of SalesSelling price$ 65100%Variable expenses3960Contribution margin$ 2640% Fixed expenses are $73,000 per month and the company is selling 4,300 units per month. 1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $9,700, the monthly sales volume increases by 100 units, and the total monthly sales increase by $6,500? 1-b. Should the advertising budget be increased?

1A: Net operating income decreases by $7,100. 1B: No, the advertising budget should not be increased.

Contribution margin: A. equals sales minus fixed expenses. B. becomes profit after fixed expenses are covered. C. is first used to cover variable expenses. D. is not affected by changes in activity.

B. becomes profit after fixed expenses are covered.

Pete's Putters sells each putter for $125. The variable cost is $60 per putter and fixed costs total $400,000. Based on this information ______. A. lowering variable cost per unit to $45 would result in a contribution margin of $70 per unit B. Pete's Putters is unable to make a profit C. the sale of 12,000 putters results in net operating income of $380,000 D. the contribution margin per putter is $65.

C. the sale of 12,000 putters results in net operating income of $380,000 D. the contribution margin per putter is $65. Reason: 12,000 units × $65 contribution margin = $780,000 - $400,000 = $380,000.

(True/False): Cost structure refers to the relative portion of product and period costs in an organization.

False Reason: Cost structure refers to the relative portion of fixed and variable costs in an organization.

Whirly Corporation's contribution format income statement for the most recent month is shown below: TotalPer UnitSales (7,400 units)$ 244,200$ 33.00Variable expenses148,00020.00Contribution margin96,200$ 13.00Fixed expenses54,000 Net operating income$ 42,200 Required: (Consider each case independently): 1. What would be the revised net operating income per month if the sales volume increases by 50 units? 2. What would be the revised net operating income per month if the sales volume decreases by 50 units? 3. What would be the revised net operating income per month if the sales volume is 6,400 units?

1. Revised net operating income = $42,850 2. Revised net operating income = $41,550 3. Revised net operating income = $29,200

Derst Incorporated sells a particular textbook for $35. Variable expenses are $26 per book. At the current volume of 47,000 books sold per year the company is just breaking even. Given these data, the annual fixed expenses associated with the textbook total: A. $423,000 B. $1,645,000 C. $2,068,000 D. $1,222,000

A. $423,000 ($35-$26)/x=47,000 x=$423,000

Company A has fixed costs of $564,000 and a contribution margin of 62%. Sales dollars to break-even rounded to the nearest whole dollar equals ______. A. $909,677 B. $1,484,211 C. $564,000 D. $920,211

A. $909,677 Reason: $564,000 ÷ 0.62 = $909,677

Profit equals: A. (P × Q - V × Q) - fixed expenses. B. (P × Q - V × Q) + fixed expenses. C. (P - V - fixed expenses) × Q. D. (P × Q + V × Q) - fixed expenses

A. (P × Q - V × Q) - fixed expenses.

Users can easily judge the impact on profits of changes in selling price, cost or volume when using an income statement constructed under the ______ approach. A. contribution margin B. traditional C. balance sheet D. gross margin

A. contribution margin

Total contribution margin equals ______. A. fixed expenses plus net operating income B. total sales minus net operating income C. variable expenses plus net operating income D. total sales minus fixed expenses

A. fixed expenses plus net operating income

Flesch Corporation produces and sells two products. In the most recent month, Product C90B had sales of $31,040 and variable expenses of $9,312. Product Y45E had sales of $29,440 and variable expenses of $17,664. The fixed expenses of the entire company were $24,400. If the sales mix were to shift toward Product C90B with total dollar sales remaining constant, the overall break-even point for the entire company: A. would decrease. B. would increase. C. could increase or decrease. D. would not change.

A. would decrease.

Chrissy's Cupcakes has $832,000 in sales and $265,000 in fixed expenses. Given a contribution margin ratio of 72%, Chrissy's profit (loss) is ______. A. $567,000 B. $334,040 C. $(32,040) D. $599,040

B. $334,040 Reason: (72% × $832,000) - $265,000 = $334,040

A company has a target profit of $204,000. The company's fixed costs are $305,000. The contribution margin per unit is $40. The BREAK-EVEN point in unit sales is ______. A. 5,100 B. 7,625 C. 12,725

B. 7,625 Reason: Unit sales to break-even = Fixed expenses ÷ Contribution margin per unit = $305,000 ÷ $40 = 7,625

Sufra Corporation is planning to sell 100,000 units for $2.10 per unit and will break even at this level of sales. Fixed expenses will be $80,000. What are the company's variable expenses per unit? A. $0.80 B. $1.68 C. $1.30 D. $0.50

C. $1.30 $80,000/x=100,000 x=0.8 $2.10-$0.80=$1.30

Ceramic Creations sells pots for $25. The variable cost per pot is $12 and 15,000 pots must be sold to break-even. If Ceramic Creations sells 25,000 pots, net operating income will be: A. $325,000. B. $0. C. $130,000. D. $250,000.

C. $130,000. Reason: Net income = (25,000 - 15,000) × ($25 - $12) = $130,000.

Sabv Corporation's break-even-point in sales is $820,000, and its variable expenses are 80% of sales. If the company lost $32,000 last year, sales must have amounted to: A. $788,000 B. $756,000 C. $660,000 D. $624,000

C. $660,000 $820,000*80%=$656,000 $820,000-$656,000=$164,000 $164,000-$32,000=$132,000 ($132,000*100)/(100-80)=$660,000

JVL Enterprises has set a target profit of $126,000. The company sells a single product for $50 per unit. Variable costs are $15 per unit and fixed costs total $98,000. How many units does JVL have to sell to BREAK-EVEN? A. 3,600 B. 1,960 C. 2,800 D. 6,400

C. 2,800 Reason: $98,000 ÷ ($50 - $15) = 2,800 to break-even. 6,400 units is needed to earn the target profit.

Daisy's Dolls sold 30,000 dolls this year. Each doll sold for $40 and had a variable cost of $19. Fixed expenses were $250,000. Net operating income for the year is ______. A. $(249,979) B. $1,520,000 C. $630,000 D. $380,000

D. $380,000 Reason: Net operating income =30,000 × ($40 - $19) - $250,000 = $380,000

Goodman Corporation has sales volumes of 3,000 units at $80 per unit. Variable costs are 35% of the sales price. If total fixed costs are $66,000, the degree of operating leverage is: A. 0.79 B. 0.93 C. 2.67 D. 1.73

D. 1.73 3,000*$80=$240,000 240,000*35%=84,000 240,000-84,000=156,000 156,000-66,000=90,000 156,000/90,000=1.73

Paula's Perfumes has a target profit of $4,000 per month. Perfume sells for $15.00 per bottle and variable costs are $13.50 per bottle. Fixed costs are $3,200 per month. The number of bottles that must be sold each month to earn the target profit is ______. A. 534 B. 7,200 C. 267 D. 4,800

D. 4,800 Reason: ($4,000 + $3,200) ÷ ($15.00 - $13.50) = 4,800 bottles.

Bristo Corporation has sales of 1,600 units at $50 per unit. Variable expenses are 35% of the selling price. If total fixed expenses are $42,000, the degree of operating leverage is: A. 2.80 B. 8.00 C. 2.97 D. 5.20

D. 5.20 (1,600*$50)*35%=$28,000 (1,600*$50)-28,000=$52,000 $52,000-$42,000=$10,000 $52,000/$10,000=5.20

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 $ 10,000 Variable expenses 5,500 Contribution margin 4,500 Fixed expenses 2,250 Net operating income. $ 2,250 4. If sales increase to 1,001 units, what would be the increase in net operating income? (Round your answer to 2 decimal places.)

Increase in net operating income = $4.50 Increase in net operating income = Contribution margin per unit x Increase in unit sales = $4.50 x 1 = $4.50

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 $ 10,000 Variable expenses 5,500 Contribution margin 4,500 Fixed expenses 2,250 Net operating income. $ 2,250 9. What is the break-even point in dollar sales?

Break-even point = $5,000 Profit = CM ratio × Sales − Fixed expenses $0 = 0.45 × Sales − $2,250 0.45 × Sales = $2,250 Sales = $2,250 ÷ 0.45 Sales = $5,000 The dollar sales to break-even ($5,000) can also be computed by multiplying the selling price per unit ($10) by the unit sales to break-even (500 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 $ 10,000 Variable expenses 5,500 Contribution margin 4,500 Fixed expenses 2,250 Net operating income. $ 2,250 8. What is the break-even point in unit sales?

Break-even point = 500 units Profit = Unit CM × Q − Fixed expenses $0 = ($10.00 − $5.50) × Q − $2,250 $0 = ($4.50) × Q − $2,250 $4.50Q = $2,250 Q = $2,250 ÷ $4.50 Q = 500 units

Company A has fixed costs of $564,000 and has set a target profit of $800,000. If Company A has a contribution margin ratio of 62%, sales dollars needed to reach the target profit equals ______. A. $3,000,000 B. $1,364,000 C. $2,200,000 D. $913,880

C. $2,200,000 Reason: ($564,000 + $800,000) ÷ 0.62 = $2,200,000

Given sales of $100,000 a contribution margin of $40,000, and fixed expenses of $50,000, the result is a ______. A. $10,000 net operating income B. $50,000 net operating income C. $60,000 net operating income D. $10,000 net operating loss

D. $10,000 net operating loss Reason: Contribution margin of $40,000 - fixed expenses of $50,000 = a $10,000 loss.

Hopi Corporation expects the following operating results for next year: Sales: $ 400,000 Margin of safety: $ 100,000 Contribution margin ratio: 75% Degree of operating leverage: 4 What is Hopi expecting total fixed expenses to be next year? A. $75,000 B. $100,000 C. $200,000 D. $225,000

D. $225,000 $100,000= $400,000-x x=$300,000 $300,000*75%=y y=$225,000

A company sold 750 units with a contribution margin of $120 per unit. If the company has a break-even point of 450 units, the net operating income or (loss) is ______. A. ($10,000) B. ($64,000) C. $54,000 D. $36,000

D. $36,000 Reason: Net operating income = (750 - 450) × $120 = $36,000.

Lin Corporation has a single product whose selling price is $140 per unit and whose variable expense is $70 per unit. The company's monthly fixed expense is $31,900. Required: 1. Calculate the unit sales needed to attain a target profit of $6,250. (Do not round intermediate calculations.) 2. Calculate the dollar sales needed to attain a target profit of $9,400. (Round your intermediate calculations to the nearest whole number.)

1. Units sales to attain target profit = 545 units 2. Dollar sales to attain target profit = $82,600

Spice sells paprika for $9.00 per bottle. Variable cost is $2.43 per bottle and Spice's annual fixed costs are $825,000. The variable expense ratio for paprika is ______. A. 27% B. 100% C. 54% D. 73%

A. 27% Reason: Variable expense ratio = Variable cost per unit ÷ Selling price per unit = $2.43 ÷ $9.00 or 27%

Given sales of $1,452,000, variable expenses of $958,320 and fixed expenses of $354,000, the contribution margin ratio is ______. A. 34% B. 90% C. 66% D. 24%

A. 34% Reason: ($1,452,000 - $958,320) ÷ $1,452,000 = 34%

Which of the following are assumptions of cost-volume-profit analysis? A. Fixed costs per unit stay the same within the relevant range. B. Costs are linear and can be accurately divided into variable and fixed elements. C. Variable costs per unit increase over the relevant range of activity. D. In multi product companies, the sales mix is constant.

B. Costs are linear and can be accurately divided into variable and fixed elements. D. In multi product companies, the sales mix is constant.

Fantastic Frames sells units for $15 each. Variable costs total $6 per unit, and fixed costs total $90,000. If the number of units being sold increases by 2,000, net operating income will ______. A. decrease by $48,000 B. increase by $18,000 C. increase by $30,000 D. decrease by $72,000

B. increase by $18,000 Reason: Change in net operating income = 2,000 × ($15 - $6) = $18,000.

The contribution margin income statement allows users to easily judge the impact of a change in ______ on profit. A. organizational structure B. volume C. cost D. selling price

B. volume C. cost D. selling price

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 $ 10,000 Variable expenses 5,500 Contribution margin 4,500 Fixed expenses 2,250 Net operating income. $ 2,250 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 $2,250 and the total fixed expenses are $5,500. Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 5% increase in unit sales? (Round your intermediate calculations and final answer to 2 decimal places.)

Increase in net operating income = 17.20% Increase in net operating income = Degree of operating leverage x Percentage increase in sales = ($7,750 ÷ $2,250) x Percentage increase in sales

Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning the next month's budget appear below: Selling price per unit: $ 29 Variable expense per unit: $ 18 Fixed expense per month: $ 8,910 Unit sales per month: 960 Required: 1. What is the company's margin of safety? (Do not round intermediate calculations.) 2. What is the company's margin of safety as a percentage of its sales? (Round your percentage answer to 2 decimal places (i.e. .1234 should be entered as 12.34).)

1. Margin of safety (in dollars) = $4,350 2. Margin of safety percentage = 15.63%

Cakes by Jacki has $144,000 of fixed costs per year. The contribution margin ratio is 59%. The sales dollars to break-even rounded to the nearest dollar equals ______. A. $351,220 B. $228,960 C. $244,068 D. $203,040

C. $244,068 Reason: Sales = $144,000 ÷ 0.59 = $244,068

Budgeted sales are $982,000, break-even sales are $932,200, and fixed expenses are $429,000. The company's budgeted margin of safety in dollars is ______. A. $503,200 B. $(379,200) C. $49,800 D. $553,000

C. $49,800 Reason: $982,000 - $932,200 = $49,800.

If sales increase by 5% and the degree of operating leverage is 4, net operating income should increase by ______. A. 0.25% B. 9% C. 20% D. 1%

C. 20% Reason: 5% × 4 = 20%

Run Like the Wind sells ceiling fans. Target profit for the year is $470,000. If each fan's contribution margin is $32 and fixed costs total $222,640, the number of fans required to meet the company's goal is ______. A. 6,958 B. 14,688 C. 21,645 D. 7,730

C. 21,645 Reason: Sales volume = ($470,000 + $222,640) ÷ $32 = 21,645 fans.

Gifts Galore had sales revenue of $189,000. Total contribution margin was $100,170 and total fixed expenses were $27,500. The contribution margin ratio was ______. A. 47% B. 68% C. 53% D. 38%

C. 53% Reason: $100,170 ÷ $189,000 = 53%

Ferkil Corporation manufacturers a single product that has a selling price of $25.00 per unit. Fixed expenses total $33,000 per year, and the company must sell 5,500 units to break even. If the company has a target profit of $12,000, sales in units must be: A. 7,000 units B. 5,980 units C. 7,500 units D. 6,820 units

C. 7,500 units $33,000/x=5,500 x=6 ($33,000+$12,000)/$6=7,500 units

The variable expense ratio equals variable expenses divided by ______. A. contribution margin B. fixed expenses C. sales D. net income

C. sales

Margin of safety in dollars is ______. A. net income minus break-even sales B. net income minus fixed costs C. budgeted (or actual) sales minus break-even sales D. break-even sales minus budgeted (or actual) sales

C. budgeted (or actual) sales minus break-even sales

To simplify CVP calculations, it is assumed that ______ will remain constant. A. Total variable cost B. total contribution margin C. selling price D. unit fixed cost

C. selling price

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 $ 10,000 Variable expenses 5,500 Contribution margin 4,500 Fixed expenses 2,250 Net operating income. $ 2,250 12. What is the degree of operating leverage? (Round your answer to 2 decimal places.)

Degree of operating leverage = 2.00 Degree of operating leverage = Contribution margin ÷ Net operating income = $4,500 ÷ $2,250 = 2.00

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 $ 10,000 Variable expenses 5,500 Contribution margin 4,500 Fixed expenses 2,250 Net operating income. $ 2,250 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 $2,250 and the total fixed expenses are $5,500. Under this scenario and assuming that total sales remain the same, what is the degree of operating leverage? (Round your answer to 2 decimal places.)

Degree of operating leverage = 3.44 Degree of operating leverage = Contribution margin ($10,000 - $2,250) ÷ Net operating income = $7,750 ÷ $2,250 = 3.44