BA 213 Chapter 7

Sam's Appliance Outlet has variable expenses of 40% of sales. The manager reported monthly fixed expenses of $270,000. The monthly target operating income is $75,000. What is the monthly margin of safety in dollars if the manager at Sam's Appliance Outlet achieves the operating income goal? a. $12,500 b. $512,000 c. $521,000 d. $125,000

d. $125,000

The Heart Foundation is a charity that produces and sells two products, red hearts and purple hearts, to promote health in the community. The manager estimates clients will purchase 2,400 red hearts and 1,100 purple hearts by the end of the next period. The unit contribution margins for red hearts and purple hearts are $2.75 and $3.40. What is the weighted-average unit contribution margin? a. $9.52 b. $5.29 c. $2.59 d. $2.95

d. $2.95

Brandy's Balloon Service currently sells 1,000 balloon bundles per month. The competition in the balloon industry continues to soar within a thirty-mile vicinity of the service location. Variable expenses were $2.00 per balloon and fixed expenses were $5,000. If Brandy changes the price of balloon bundles to $10, how many balloon bundles should she sell to achieve her target operating income of $6,000? a. 750 balloon bundles b. 625 balloon bundles c. 1,100 balloon bundles d. 1,375 balloon bundles

d. 1,375 balloon bundles

Rachel's Candelabra Shoppe sells candles to clients for $6.00 each. The variable cost to produce each candle is $2.25 per candle. The fixed costs are $2,800 per month. What is the firm's contribution margin ratio? a. 42.5% b. 72.5% c. 52.2% d. 62.5%

d. 62.5%

The Landscape Company produces and sells large and medium landscaping tiles. The large landscaping tiles sell for $90 per unit with variable costs of $30 per unit. The medium landscaping tiles sell for $60 per unit with variable costs of $30 per unit. The total fixed costs for the company is $42,000. The Landscape Company usually sells three large tiles for every two medium tiles. What is the breakeven point in units? a. 578 units b. 785 units c. 857 units d. 875 units

d. 875 units

MaryJane's Bakery manufactures and sells a variety of baked goods. The selling price per dozen of chocolate glazed donuts is $8.00. The variable costs to produce the chocolate glazed donuts are $3.75, and total fixed costs are $3,800. How many dozen chocolate glazed donuts must the manager sell to break even? a. 896 dozen b. 893 dozen c. 890 dozen d. 895 dozen

d. 895 dozen

The vertical y-axis on the CVP graph represents ________. a. volume of nits b. breakeven sales point c. sales revenue d. dollars

d. dollars

(Sales revenue × contribution margin ratio) - fixed costs represents which of the following? a. contribution margin b. contribution margin ratio c. unit contribution margin d. operating income

d. operating income

How might a change in fixed costs affect the contribution margin? a. a change in fixed costs does not affect the contribution margin b. a change in fixed cost can increase the contribution margin c. changes in fixed costs can decrease the contribution margin d. a change in fixed costs may vary depending upon the contribution margin

a. a change in fixed costs does not affect the contribution margin

Tara's Sewing Service sells designer afgans for $85 each. Unit variable expenses total $50. The breakeven sales in units are 2,500 and budgeted sales in units are 4,300. What is the margin of safety in dollars? a. $513,000 b. $153,000 c. $135,000 d. $315,000

b. $153,000

Terry's Frame & Art Shoppe produces and sells picture frames to clients at $8.00 per picture frame. The variable cost to produce each picture frame is $3.25. The fixed costs are $3,000 per month. What is the firm's contribution margin per picture frame? a. $30.00 b. $4.75 c. $11.25 d. $2.46

b. $4.75

The Beach Sea Shop has variable expenses of 35% of sales. The manager reported monthly fixed expenses of $250,000. The monthly target operating income is $65,000. What is Beach Sea Shop's operating leverage factor at the target level of operating income? a. 5.84 b. 4.85 c. 5.48 d. 4.58

b. 4.85

Which of the following refers to the excess of sales revenue over variable expenses? a. unit contribution margin ratio b. contribution margin c. CVP analysis d. unit contribution margin

b. contribution margin

The ________ refers to a company's amount of relative fixed and variable costs. a. indifference point b. operating leverage c. operating leverage factor d. margin of safety

b. operating leverage

The Lampost Production Company has $6,000 of fixed expenses. The manager reported that the company's operating income wass $0, and the contribution margin was 40%. What are the company's sales in dollars using the shortcut approach to the contribution margin ratio? a. $1,500 b. $5,100 c. $15,000 d. $500

c. $15,000

Lisa's Custom Print Services produces and sells custom seashore prints. The manager reported $5,400 in fixed expenses, operating income of $0 at the breakeven point, and a contribution margin per unit of $50. What is the firm's breakeven point in units using the shortcut approach? a. 10,800 units b. 800 units c. 108 units d. 1,800 units

c. 108 units

Violet Industries held an annual meeting and reported a new annual budget of $50,000 in total fixed expenses. The new selling price per unit is $58, and the new variable expense per unit is $30. If the manager can reduce fixed expenses by another $10,000, what is the effect on breakeven sales? a. 753 decrease in breakeven units b. 537 increase in breakeven units c. 357 decrease in breakeven units d. 357 increase in breakeven units

c. 357 decrease in breakeven units

Which of the following statements is TRUE about sensitivity analysis? a. a manager does NOT use CVP analysis to conduct sensitivity analysis b. a manager can use sensitivity analysis to assess the behavioral traits of employees through direct observation c. a manager uses sensitivity analysis to determine the impact of changes to the sales price and volume d. sensitivity analysis never helps a manager to determine scenarios about what results might occur if actual prices change

c. a manager uses sensitivity analysis to determine the impact of changes to the sales price and volume

Which of the following is NOT true regarding the sales mix? a. a manager can estimate the weighted-average contribution margin ratio based on the expected sales mix b. the sales mix can affect the CVP relationship c. companies that sell more than one product should NOT consider their sales mix when performing CVP analysis d. the sales mix is the combination of products that make up total sales

c. companies that sell more than one product should NOT consider their sales mix when performing CVP analysis

The ________ is computed as the total contribution margin divided by total sales. a. sales mix b. breakeven point c. contribution margin ratio d. target income

c. contribution margin ratio

CVP analysis ________. a. refers to the excess of the selling price per unit over the variable cost per unit b. is the ratio of contribution margin to sales revenue c. expresses the relationship amongst costs, volume, and organizational profits d. calculates the excess of the sales revenue over variable expenses

c. expresses the relationship amongst costs, volume, and organizational profits

Which of the following is NOT true about the breakeven point? a. sales below the breakeven point result in a loss b. sales above the breakeven point provide a profit c. it is the sales level at which operating income is never zero d. total revenues equal total expenses at the breakeven point

c. it is the sales level at which operating income is never zero

The ________ is the excess of actual or expected sales over breakeven sales. a. indifference point b. operating leverage c. margin of safety d. operating leverage factor

c. margin of safety