Accth Ch 5 HW

Summarized data for Ralph Corporation:Selling price$ 200per unitVariable expenses$ 150per unitFixed expenses$ 1,000,000per yearUnit sales25,000per year What is Ralph Corporation's margin of safety in dollars? What is Ralph Corporation's margin of safety in percentage?

$1 million 20%

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 units Unit CM = Selling price of $80 - Variable expense of $30 = $50.Unit sales to break-even = Fixed expenses of $5,000 ÷ $50 = 100 units.

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? 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?

3.00 60%

The following information is extracted from the records of Johnson Corporation:Target profit$ 120,000Unit contribution margin$ 40Fixed expenses$ 40,000Contribution margin ratio (CM ratio)0.40Selling price$ 100 Knowledge Check 01 What are the unit sales required to attain a target profit of $120,000?

4,000 units

Lin Corporation has a single product whose selling price is $134 per unit and whose variable expense is $67 per unit. The company's monthly fixed expense is $32,300. Required: 1. Calculate the unit sales needed to attain a target profit of $7,900. 2. Calculate the dollar sales needed to attain a target profit of $8,600.

Unit Sales to Attain Target Profit: 7,900 = (134 - 67)Q - 32,300 67Q= 40,200 Q = 600 units Dollar Sales to Attain Target Profit:

What is represented on the X axis of a cost-volume-profit (CVP) graph? What is usually plotted as a horizontal line on the CVP graph?

Unit volume Fixed expenses

Grace Food CompanyContribution Income Statementfor the Month of October Corn FlakesFrosted FlakesTotalAmountPercentAmountPercentAmountPercentSales$ 2,000,000100%$ 500,000100%$ 2,500,000100%Variable expenses800,00040%250,00050%1,050,00042%Contribution margin$ 1,200,00060%$ 250,00050%1,450,00058%Fixed expenses 870,000 Net operating income $ 580,000 Knowledge Check 01 What is the amount of the break-even sales for Grace Food Company?

$1.5 million

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? 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?

$12,000 $200

Taylor Company has current sales of 1,000 units, at a selling price of $190 per unit, variable costs per unit of $76, and fixed expenses of $96,000. The company believes sales will increase by 300 units, if the company introduces sales commissions as an incentive for the sales staff. The change will decrease the selling price to $175 per unit, increase variable cost per unit to $100, and decrease fixed expenses by $20,000. What is the net operating income after the changes?

$21,500

Future Corporation has a single product; the product selling price is $100 and variable costs are $60. The company's fixed expenses are $10,000. What is the company's break-even point in sales dollars?

$25,000

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?

$300 200+ (4000/40) = 300

The following information is extracted from the records of Johnson Corporation:Target profit$ 120,000Unit contribution margin$ 40Fixed expenses$ 40,000Contribution margin ratio (CM ratio)0.40Selling price$ 100 Knowledge Check 01 What are the sales dollars required to attain a target profit of $120,000?

$400,000

Income Statement of Base Corporation Sales Volume PresentSales$ 100,000Variable expenses50,000Contribution margin50,000Fixed expenses20,000Net Operating income$ 30,000 Knowledge Check 01 If sales increase by $50,000, what will be the net operating income for the company?

$55,000

Mauro Products distributes a single product, a woven basket whose selling price is $10 per unit and whose variable expense is $8 per unit. The company's monthly fixed expense is $4,400. 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) Break-even point in unit sales: 4,400 / (10 - 2) = 550 baskets 2) Break-even point in dollar sales: 550 x 10 = $5,500 3) Break-even point in unit sales: 4,400 + 600 = 5,000 5,000 / (10 - 2) = 625 baskets Dollar sales: 625 x 10 = $6,250 FIX

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? 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?

60% 40%

Data for Hermann Corporation are shown below: Per Unit Percent of Sales Selling price$ 55 100% Variable expenses $33 60% Contribution margin $ 22 40% Fixed expenses are $71,000 per month and the company is selling 4,100 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 $4 per unit and increase unit sales by 25%. 2-b. Should the higher-quality components be used?

Base: 4,100 x (22-4) = 73,800 New: 4,100 x 1.25 = 5,125 5,125 x 18 = 92,250 92,250 - 73,800 = 18,450 yes

With regards 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?

Increase of $14,200

Data for Hermann Corporation are shown below: Per UnitPercent of SalesSelling price$ 55100%Variable expenses3360Contribution margin$ 2240% Fixed expenses are $71,000 per month and the company is selling 4,100 units per month. Required: 1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $9,500, the monthly sales volume increases by 100 units, and the total monthly sales increase by $5,500? 1-b. Should the advertising budget be increased?

Net Operating Income: $-7,300 1) 5,500 x 40% = 2,200 2) 2,200 - 9,500 = -7,300 No

ClaimjumperMakeoverTotalSales$ 104,000$ 52,000$ 156,000Variable expenses38,4408,36046,800Contribution margin$ 65,560$ 43,640109,200Fixed expenses 81,270Net operating income $ 27,930 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.

Overall Contribution margin (CM) = CM total / sales total 109,200 / 156,000 = 70% Overall Break-even point in dollar sales= Overall CM x Fixed expense total 70% x 81,270 = 56,889

The profit graph is based on the following linear equation:

Profit = Unit CM × Q - Fixed Expenses.

Excel depicts the least-squares regression results using the equation form _______.

Y = bx + a

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

decrease

Which of the following methods do managers use to estimate the fixed and variable components of mixed costs by analyzing past records of cost and activity data?

least-squares regression

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

operating leverage

When using least-squares regression, R2 represents ________.

the measure of goodness of fit

Once the break-even point has been reached, net operating income will increase by the amount of the _____ for each additional unit sold. Break-even point is the level of sales at which ______.

unit contribution margin total revenue equals total costs