chapter 5 practice

When a company sells multiple products, an increase in total sales always results in an increase in total profits. True false question.

false- A shift from high-margin items to low-margin items may cause total sales to increase at the same time as causing total profits to decrease.

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

higher

Solving for the sales level needed to attain a target profit of $ is the same process as solving for the sales level needed to break-even

$0

To convert the margin of safety in dollars to the margin of safety in terms of the number of units sold, divide the margin of safety in dollars by the Blank______.

sales price per unit

A company's selling price is $90 per unit, variable cost per unit is $28 and total fixed expenses are $320,000. The number of unit sales needed to earn a target profit of $200,800 is Blank______.

8400 units ($320,000 + $200,800) ÷ ($90 - $28) = 8,400 units.

If sales increase by 15% and the degree of operating leverage is 6, net operating income should increase by

90

The degree of operating leverage Blank______.

decreases as sales and profits rise is not a constant is greatest at sales levels near the break-even point

True or false: The sales mix must be taken into consideration when calculating the break-even point for more than one product due to different selling prices, costs, and contribution margins among the products.

true -Because selling prices, costs, and contribution margins of the products differ, the sales mix is assumed to be constant when doing break-even calculations.

A company has an opportunity to make a bulk sale that would not impact regular sales or total fixed expenses. The variable cost per unit is $11 and the company desires a total profit of $4,500. The quoted selling price per unit for 500 units should be $

$20

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 Blank______.

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

Blissful Blankets' target profit is $520,000. Each blanket has a contribution margin of $21. Fixed costs are $320,000. The number of blankets that must be sold to achieve the target profit is Blank______.

($520,000 + $320,000) ÷ $21 = 40,000

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 Blank______.

($564,000 + $800,000) ÷ 0.62 = $2,200,000

f sales increase by 5% and the degree of operating leverage is 4, net operating income should increase by Blank______.

20% 5%*4=20 percentage change in NOI= DOOL* percent change in sales

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 Blank______.

7625 =305k/40=7625

When a company produces and sells multiple products Blank______. Multiple select question. the sales mix has no effect on the company's profit a change in the sales mix will most likely change the break-even point each product most likely has a unique contribution margin each product most likely has different costs

a change in the sales mix will most likely change the break-even point each product most likely has a unique contribution margin each product most likely has different costs

Operating leverage is the smallest at sales levels near the break-even point and increases as sales and profits rise.

false

Goldin Corporation currently pays its salesperson a flat salary of $5,000 per month and is considering paying $20 per unit instead. Sales are currently 200 units per month. Goldin believes the compensation change will increase unit sales by 25%. The current contribution margin is $80 per unit. If the change is implemented, net operating income will Blank______. Multiple choice question.

increase by $4,000

A company with a high ratio of fixed costs:

is more likely to experience a loss when sales are down than a company with mostly variable costs. is more likely to experience greater profits when sales are up than a company with mostly variable costs.

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

21,645 ($470,000 + $222,640) ÷ $32 = 21,645 fans.

A company needs to sell 90,000 units to reach the target profit of $180,000. If each unit sells for $7.50, the total sales dollars needed to reach the target profit is $

675,000

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 Blank______.

909,677 $564,000 ÷ 0.62 = $909,677

Adams, Inc. has sales of $100,000 with a contribution margin of $60,000 and net income of $20,000. Baron, Inc. has sales of $110,000 with a contribution margin of $44,000 and net income of $22,000. Which of the following statements are correct?

Adams has a higher degree of operating leverage than Baron. 3 vs 2 adamas will experince experince a greater decrease if sales fall Operating level of $44,000 ÷ 22,000 = 2 for Baron indicates that the company's net operating income grows twice as fast as sales. Baron's net income grows twice as fast as its sales.

Shonda's Shoes sell for $95 per pair. If Shonda must sell a total of 284 pairs of shoes to break-even, and a total of 450 pairs to achieve her target profit, sales dollars needed to earn the target profit equals Blank______.

Reason: $95 × 450 = $42,750

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

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