Ch5 managerial accounting

If a company increases its selling price by $2 per unit due to an increase in its variable labor cost of $2 per unit, the break-even point in units will: decrease. increase. not change. change but direction cannot be determined.

Not change

Break-even analysis assumes that: Total revenue is constant.Unit variable expense is constant. Unit fixed expense is constant.Selling prices must fall in order to generate more revenue.

Unit variable expense is constant.

A $2.00 increase in a product's variable expense per unit accompanied by a $2.00 increase in its selling price per unit will: decrease the degree of operating leverage. decrease the contribution margin. have no effect on the break-even volume. have no effect on the contribution margin ratio.

have no effect on the break-even volume.

If sales volume increases and all other factors remain constant, then the: contribution margin ratio will increase.break-even point will decrease.margin of safety will increase. net operating income will decrease.

margin of safety will increase.

If the degree of operating leverage is 4, then a one percent change in quantity sold should result in a four percent change in: unit contribution margin.revenue.variable expense.net operating income.

net operating income

Which of the following would not affect the break-even point? Multiple Choice number of units sold variable expense per unit total fixed expense selling price per unit

number of units sold

Rovinsky Corporation, a company that produces and sells a single product, has provided its contribution format income statement for November. Sales (5,700 units)$319,200Variable expenses 188,100Contribution margin 131,100Fixed expenses 106,500Net operating income$24,600 If the company sells 5,300 units, its net operating income should be closest to: $24,600 $2,200 $22,874 $15,400

$15,400 Selling price per unit = Sales ÷ Quantity sold = $319,200 ÷ 5,700 units = $56 per unit Variable expenses per unit = Variable expenses ÷ Quantity sold = $188,100 ÷ 5,700 units = $33 per unit Unit CM = Selling price per unit - Variable expenses per unit = $56 per unit - $33 per unit = $23 per unit Profit = (Unit CM × Q) - Fixed expenses = ($23 per unit × 5,300 units) - $106,500 = $121,900 - $106,500 = $15,400

Sorin Inc., a company that produces and sells a single product, has provided its contribution format income statement for January. Sales (4,200 units)$155,400Variable expenses 100,800Contribution margin 54,600Fixed expenses 42,400Net operating income$12,200 If the company sells 4,600 units, its total contribution margin should be closest to: $54,600 $59,800 $69,400 $13,362

$59,800 Selling price per unit = Sales ÷ Quantity sold = $155,400 ÷ 4,200 units = $37 per unit Variable expenses per unit = Variable expenses ÷ Quantity sold Variable expenses per unit = $100,800 ÷ 4,200 units = $24 per unit Unit CM = Selling price per unit - Variable expenses per unit = $37 per unit - $24 per unit = $13 per unit Total CM = Unit CM × Quantity sold = $13 per unit × 4,600 units = $59,800

To obtain the dollar sales volume necessary to attain a given target profit, which of the following formulas should be used? (Fixed expenses + Target net profit)/Total contribution margin(Fixed expenses + Target net profit)/Contribution margin ratio Fixed expenses/Contribution margin per unitTarget net profit/Contribution margin ratio

(Fixed expenses + Target net profit)/Contribution margin ratio

Mauro Products distributes a single product, a woven basket whose selling price is $15 per unit and whose variable expense is $12 per unit. The company's monthly fixed expense is $4,200. Required: 1. Calculate the company's break-even point in unit sales. 2. Calculate the company's break-even point in dollar sales. 3. If the company's fixed expenses increase by $600, what would become the new break-even point in unit sales? In dollar sales?

1. The break-even point in unit sales, Q, is computed as follows: Profit=Unit CM × Q − Fixed expenses$0=($15 − $12) × Q − $4,200$0=($3) × Q − $4,200$3Q=$4,200Q=$4,200 ÷ $3Q=1,400 baskets 2. The break-even point in dollar sales is computed as follows: Unit sales to break even (a) 1,400Selling price per unit (b)$15Dollar sales to break even (a) × (b)$21,000 3. The new break-even point in unit sales, Q, is computed as follows: Profit=Unit CM × Q − Fixed expenses$0=($15 − $12) × Q − $4,800$0=($3) × Q − $4,800$3Q=$4,800Q=$4,800 ÷ $3Q=1,600 baskets The break-even point in dollar sales is computed as follows: Unit sales to break even (a) 1,600Selling price per unit (b)$15Dollar sales to break even (a) × (b)$24,000

Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: Amount Percent ofSalesSales$80,000 100%Variable expenses 32,000 40%Contribution margin 48,000 60%Fixed expenses 38,000 Net operating income$10,000 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 5% increase in sales. 3. Construct a new contribution format income statement for the company assuming a 5% increase in sales.

1. The company's degree of operating leverage would be computed as follows: Contribution margin (a)$48,000Net operating income (b)$10,000Degree of operating leverage (a) ÷ (b) 4.8 2. A 5% increase in sales should result in a 24% increase in net operating income, computed as follows: Degree of operating leverage (a)4.8 Percent increase in sales (b)5%Estimated percent increase in net operating income (a) × (b)24% 3. The new income statement reflecting the change in sales is: Net operating income reflecting change in sales$12,400 Original net operating income (a) 10,000 Change in net operating income (b)$2,400 Percent change in net operating income (b) ÷ (a) 24%

Lin Corporation has a single product whose selling price is $120 per unit and whose variable expense is $80 per unit. The company's monthly fixed expense is $50,000. Required: 1. Calculate the unit sales needed to attain a target profit of $10,000. 2. Calculate the dollar sales needed to attain a target profit of $15,000

1. The required unit sales, Q, to attain the target profit is computed as follows: Profit=Unit CM × Q − Fixed expenses$10,000=($120 − $80) × Q − $50,000$10,000=($40) × Q − $50,000$40 × Q=$10,000 + $50,000Q=$60,000 ÷ $40Q=1,500 units 2. One approach to solving this requirement is to compute the unit sales required to attain the target profit and then multiply this quantity by the selling price per unit: Profit=Unit CM × Q − Fixed expenses$15,000=($120 − $80) × Q − $50,000$15,000=($40) × Q − $50,000$40 × Q=$15,000 + $50,000Q=$65,000 ÷ $40Q=1,625 units Unit sales to attain the target profit (a) 1,625Selling price per unit (b)$120Dollar sales to attain target profit (a) × (b)$195,000

Whirly Corporation's contribution format income statement for the most recent month is shown below: Total Per UnitSales (10,000 units)$350,000 $35.00 Variable expenses 200,000 20.00 Contribution margin 150,000 $15.00 Fixed expenses 135,000 Net operating income$15,000 Required: (Consider each case independently): 1. What would be the revised net operating income per month if the sales volume increases by 100 units? 2. What would be the revised net operating income per month if the sales volume decreases by 100 units? 3. What would be the revised net operating income per month if the sales volume is 9,000 units?

1. The revised net operating income would be: Total Per UnitSales (10,100 units)$353,500 $35.00 Variable expenses 202,000 20.00 Contribution margin 151,500 $15.00 Fixed expenses 135,000 Net operating income$16,500 2. The revised net operating income would be: Total Per UnitSales (9,900 units)$346,500 $35.00 Variable expenses 198,000 20.00 Contribution margin 148,500 $15.00 Fixed expenses 135,000 Net operating income$13,500 3. The revised net operating income would be: Total Per UnitSales (9,000 units)$315,000 $35.00 Variable expenses 180,000 20.00 Contribution margin 135,000 $15.00 Fixed expenses 135,000 Net operating income$0

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$30Variable expense per unit$20Fixed expense per month$7,500Unit sales per month 1,000 Required: 1. What is the company's margin of safety? 2. What is the company's margin of safety as a percentage of its sales?

1. To compute the margin of safety, we must first compute the break-even unit sales. Profit=Unit CM × Q − Fixed expenses$0=($30 − $20) × Q − $7,500$0=($10) × Q − $7,500$10Q=$7,500Q=$7,500 ÷ $10Q=750 units; or, at $30 per unit, $22,500 Sales (at the budgeted volume of 1,000 units)$30,000Less break-even sales (at 750 units) 22,500Margin of safety (in dollars)$7,500 2. The margin of safety as a percentage of sales is as follows: Margin of safety (in dollars) (a)$7,500 Sales (b)$30,000 Margin of safety percentage (a) ÷ (b) 25%

Last month when Holiday Creations, Inc., sold 50,000 units, total sales were $200,000, total variable expenses were $120,000, and fixed expenses were $65,000. Required: 1. What is the company's contribution margin (CM) ratio? 2. What is the estimated change in the company's net operating income if it can increase total sales by $1,000?

1. The company's contribution margin (CM) ratio is: Total sales$200,000 Total variable expenses 120,000 Total contribution margin (a)$80,000 Total contribution margin (a)$80,000 Total sales (b)$200,000 CM ratio (a) ÷ (b) 40% 2. The change in net operating income from an increase in total sales of $1,000 can be estimated by using the CM ratio as follows: Change in total sales (a)$1,000 CM ratio (b) 40%Estimated change in net operating income (a) × (b)$400

Which of the following statements is correct with regard to a CVP graph? Multiple ChoiceA CVP graph shows the maximum possible profit.A CVP graph shows the break-even point as the intersection of the total sales revenue line and the total expense line. A CVP graph assumes that total expense varies in direct proportion to unit sales.A CVP graph shows the operating leverage as the gap between total sales revenue and total expense at the actual level of sales.

A CVP graph shows the break-even point as the intersection of the total sales revenue line and the total expense line.

Mossfeet Shoe Corporation is a single product firm. The company is predicting that a price increase next year will not cause unit sales to decrease. What effect would this price increase have on the following items for next year? ContributionMargin RatioBreak-evenPoint A)IncreaseDecrease B)DecreaseDecrease C)IncreaseNo effect D)DecreaseNo effect

Choice A

Which of the following is an assumption underlying standard CVP analysis? In multiproduct companies, the sales mix is constant. In manufacturing companies, inventories always change.The price of a product or service is expected to change as volume changes.Fixed expenses will change as volume increases.

In multiproduct companies, the sales mix is constant.

Which of the following is true regarding the contribution margin ratio of a company that produces only a single product? As fixed expenses decrease, the contribution margin ratio increases.The contribution margin ratio multiplied by the selling price per unit equals the contribution margin per unit. The contribution margin ratio will decline as unit sales decline.The contribution margin ratio equals the selling price per unit less the variable expense ratio.

The contribution margin ratio multiplied by the selling price per unit equals the contribution margin per unit.

If the contribution margin is not sufficient to cover fixed expenses: total profit equals total expenses. contribution margin is negative. a loss occurs. variable expenses equal contribution margin.

a loss occurs.

Which of the following is correct? The break-even point occurs on the CVP graph where: total profit equals total expenses.total profit equals total fixed expenses. total contribution margin equals total fixed expenses. total variable expenses equal total contribution margin.

total contribution margin equals total fixed expenses.