CLC - Managerial Accounting Exam 2 (ch.6)

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?

$100 ($80 - $30 = $50, $5,000/$50 = $100)

Atlas Corporation sells 100 bicycles during a month. The contribution margin per bicycle is $200. The monthly fixed expenses are $8,000. What is the profit from the sale of 100 bicycles?

$12,000 (Net profit = contribution - fixed expense)

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?

$200 (Profit per unit = selling price - variable expense)

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

Walton Corporation is currently selling 104 units of its product. The company is deciding the price that it should charge for a bulk order of 40 units. The variable cost per unit is $200. This order will not involve any additional fixed costs and the company's current sales will not be affected. The company targets a profit of $4,000 on the bulk order. What selling price per unit should the company quote for the bulk order? (Round your answer to the nearest whole dollar.)

$300 ($4,000 / 40 = $100 + $200 variable expense per unit)

If sales increase by $50,000, what will be the net operating income for the company?

$55,000 (Sales x contribution margin - fixed expenses)

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 ($300,000 contribution margin/ $100,000 net operating income)

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% ($20 variable cost per unit / $50 selling price = .40)

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?

60% ($50 selling price - $20 variable costs = $30 / $50 selling price = 0.60)

The current sales of Trent, Incorporated, 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, Incorporated?

60% (30% increase in sales x 2 operating leverage)

With regard to interpretation, what are the important areas that appear on a CVP graph?

Break-even point, loss area, and profit area

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?

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

The measure of how sensitive net operating income is to a given percentage change in volume sales is called _______.

Operating leverage

The profit graph is based on the following linear equation:

Profit = Unit CM x Q - Fixed Expenses

Contribution margin equals ________.

Sales - Variable Costs

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

To decrease

Break-even point is the level of sales at which ______.

Total revenue = total costs

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

Total units (unit volume) (Y-axis is sales, costs, or profit dollars)