Managerial Accounting RQ 5(#1)

If fixed expenses increase by $10,000 per year, then the sales needed to break even will generally increase by more than $10,000. True False

True

Fixed costs are expressed ________ because that is the amount of cost that is truly fixed. A) on a per unit basis B) in total C) on a per unit basis within the relevant range D) as a percentage of sales

B) in total

A company has a contribution margin ratio of 45%. This month, sales revenue was $200,000, and profit was $40,000. How much are the company's fixed costs? a. $18,000 b. $45,000 c. $50,000 d. $90,000

c. $50,000

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? a. Increase of $20,000 b. Decrease of $20,000 c. Increase of $14,200 d. Decrease of $12,000

c. Increase of $14,200

Break-even point is the level of sales at which ______. a. total profits equals total costs b. total profits exceed total costs c. total revenue equals total costs d. total sales equal total projections

c. total revenue equals total costs

Contribution margin equals ________. a. sales minus fixed cost b. fixed cost minus variable cost c. sales minus variable cost minus fixed cost d. sales minus variable cost

d. sales minus variable cost

The formula for target sales is: A) (Total fixed costs + Target profit)/Contribution margin ratio B) (Total variable costs + Total fixed costs)/Contribution margin ratio C) (Total fixed costs + Target profit)/Unit contribution margin D) (Total variable costs + Total fixed costs)/Unit contribution margin

A) (Total fixed costs + Target profit)/Contribution margin ratio

A company is debating whether to change its cost structure so that variable costs increase from $4 per unit to $5 per unit but fixed costs decrease from $400,000 to $300,000. If it were to implement the change at its current production level of 100,000, profit would not change. What would happen to the company's profit if the change were implemented and production increased? A) It will stay the same. B) It will increase. C) It will decrease. D) It could increase or decrease.

C) It will decrease.

Which of the following statements is correct about the break-even point? A) The break-even point is the point where a company achieves its target profit. B) The break-even point is the point where all variable costs are covered (but fixed costs are not). C) The break-even point is the point where all fixed costs are covered (but variable costs are not). D) The break-even point quantifies the number of units that must be sold to cover total costs with zero profit.

D) The break-even point quantifies the number of units that must be sold to cover total costs with zero profit.

A decrease in the number of units sold will decrease the break-even point True False

False

For a given level of sales, a low contribution margin ratio will produce more net operating income than a high contribution margin ratio. True False

False

To estimate what the profit will be at various levels of sales volume, multiply the number of units to be sold above or below the break-even point by the unit contribution margin. True False

True

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? a. $12,000 b. $10,000 c. $20,000 d. $8,000

a. $12,000

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? a. $21,500 b. $30,000 c. $24,500 d. $22,000

a. $21,500

The contribution margin ratio is: A) the contribution margin stated as a percentage of sales. B) the contribution margin stated as a percentage of profit. C) the contribution margin stated as a percentage of total costs. D) the contribution margin stated as a percentage of fixed costs.

A) the contribution margin stated as a percentage of sales.

All else being equal, what happens to the unit contribution margin and the contribution margin ratio if the sales price per unit increases? A) Both unit contribution margin and contribution margin ratio decrease. B) Both unit contribution margin and contribution margin ratio increase. C) Unit contribution margin increases while contribution margin ratio decreases. D) Unit contribution margin decreases while contribution margin ratio increases.

B) Both unit contribution margin and contribution margin ratio increase.

Total contribution margin is equal to: A) total sales less fixed costs. B) fixed costs plus net operating income. C) variable costs plus net operating income. D) total sales less net operating income.

B) fixed costs plus net operating income.

All else being equal, if sales revenue doubles, variable costs will: A) decrease in total. B) increase in total. C) decrease on a per unit basis. D) increase on a per unit basis.

B) increase in total.

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? a. $25,000 b. $2,500 c. $250 d. $16,667

a. $25,000

The following information is extracted from the records of Johnson Corporation: Target profit $ 120,000 Unit contribution margin $ 40 Fixed expenses $ 40,000 Contribution margin ratio (CM ratio) 0.40 Selling price $ 100 What are the sales dollars required to attain a target profit of $120,000? a. $400,000 b. $300,000 c. $10,000 d. $60,000

a. $400,000

Last month a company had a $60,000 profit on sales of $300,000. Fixed costs are $120,000 a month. How much do sales have to increase for the company to earn a $100,000 profit? a. $66,667 b. $83,333 c. $220,000 d. $400,000

a. $66,667

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? a. 40% b. 60% c. 100% d. 20%

a. 40%

Income Statement of Base Corporation Sales Volume Present Sales $ 100,000 Variable expenses 50,000 Contribution margin 50,000 Fixed expenses 20,000 Net Operating income $ 30,000 If sales increase by $50,000, what will be the net operating income for the company? a. $25,000 b. $55,000 c. $15,000 d. $50,000

b. $55,000

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? a. 40% b. 60% c. 100% d. 20%

b. 60%

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? a. $500 b. $300 c. $200 d. $20,200

c. $200

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.) a. $100 b. $200 c. $300 d. $400

c. $300

A company has a contribution margin ratio of 45%. This month, profit was $40,000 and fixed costs were $50,000. How much was Laredo's sales revenue? a. $40,500 b. $90,000 c. $111,111 d. $200,000

d. $200,000

The linearity assumption is: A) the assumption that the relationship between fixed costs and variable costs can be approximated by a straight line. B) the assumption that the relationship between fixed costs and variable costs can be approximated by a curved line. C) realistic in all costing situations. D) the assumption that total cost depends on activity level.

A) the assumption that the relationship between fixed costs and variable costs can be approximated by a straight line.

In two companies making the same product and with the same total sales and total expenses, the contribution margin ratio will be lower in the company with a higher proportion of fixed expenses in its cost structure. True False

False

The smaller the contribution margin ratio, the smaller the amount of sales required to cover a given amount of fixed expenses. True False

False

Once the break-even point has been reached, net operating income will increase by the amount of the _____ for each additional unit sold. a. unit contribution margin b. unit selling price c. variable expense per unit d. fixed expense per unit

a. unit contribution margin

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? a. 63 units b. 167 units c. 50 units d. 100 units

d. 100 units

The following information is extracted from the records of Johnson Corporation: Target profit $ 120,000 Unit contribution margin $ 40 Fixed expenses $ 40,000 Contribution margin ratio (CM ratio) 0.40 Selling price $ 100 What are the unit sales required to attain a target profit of $120,000? a. 400,000 units b. 400 units c. 1,600 units d. 4,000 units

d. 4,000 units