QUIZ - CHAPTER 6

Ramirez Corporation sells two types of computer hard drives. The sales mix is 30% (Q-Drive) and 70% (Q-Drive Plus). Q-Drive has variable costs per unit of $90 and a selling price of $150. Q-Drive Plus has variable costs per unit of $105 and a selling price of $195. The weighted-average unit contribution margin for Ramirez is

$81.

Miller Manufacturing's degree of operating leverage is 1.5. Warren Corporation's degree of operating leverage is 3. Warren's earnings would go up (or down) by ________ as much as Miller's with an equal increase (or decrease) in sales

2 times

In 2016, Carow sold 3,000 units at $500 each. Variable expenses were $250 per unit, and fixed expenses were $500,000. The same selling price is expected for 2017. Carow is tentatively planning to invest in equipment that would increase fixed costs by 20%, while decreasing variable costs per unit by 20%. What is Carow's break-even point in units for 2017?

2,000

In 2016, Hagar Corp. sold 3,000 units at $500 each. Variable expenses were $350 per unit, and fixed expenses were $780,000. The same variable expenses per unit and fixed expenses are expected for 2017. If Hagar cuts selling price by 4%, what is Hagar's break-even point in units for 2017?

6,000

Swanson Company has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Swanson incurs $6,660,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%. What will be the total contribution margin at the break-even point?

6,660,000

Cost structure

refers to the relative proportion of fixed versus variable costs that a company incurs.

In a sales mix situation, at any level of units sold, net income will be higher if

more higher contribution margin units are sold than lower contribution margin units.

A company with a higher contribution margin ratio is

more sensitive to changes in sales revenue.

Swanson Company has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Swanson incurs $6,660,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%. What will sales be for the Sporting Goods Division at the break-even point?

11,700,000

Swanson Company has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Swanson incurs $6,660,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%. The break-even point in dollars is

18,000,000

Greg's Breads can produce and sell only one of the following two products: Oven Contribution Hours Required Margin Per Unit Muffins 0.2 $3 Coffee Cakes 0.3 $4 The company has oven capacity of 1,500 hours. How much will contribution margin be if it produces only the most profitable product?

22,500

Ramirez Corporation sells two types of computer hard drives. The sales mix is 30% (Q-Drive) and 70% (Q-Drive Plus). Q-Drive has variable costs per unit of $90 and a selling price of $150. Q-Drive Plus has variable costs per unit of $105 and a selling price of $195. Ramirez's fixed costs are $891,000. How many units of Q-Drive would be sold at the break-even point?

3,300

In 2016, Teller Company sold 3,000 units at $600 each. Variable expenses were $420 per unit, and fixed expenses were $240,000. What was Teller's 2016 net income?

300,000

MacCloud Industries has two divisions—Standard and Premium. Each division has hundreds of different types of tennis racquets and tennis products. The following information is available: Standard Division Premium Division Total Sales $400,000 $600,000 $1,000,000 Variable costs 280,000 360,000 Contribution margin $120,000 $240,000 Total fixed costs $300,000 What is the weighted-average contribution margin ratio?

36%

Mercantile Corporation has sales of $2,000,000, variable costs of $800,000, and fixed costs of $900,000. Mercantile's degree of operating leverage is

4.00

Capitol Manufacturing sells 4,000 units of Product A annually, and 6,000 units of Product B annually. The sales mix for Product A is

40%.

MacCloud Industries has two divisions—Standard and Premium. Each division has hundreds of different types of tennis racquets and tennis products. The following information is available: Standard Division Premium Division Total Sales $400,000 $600,000 $1,000,000 Variable costs 280,000 360,000 Contribution margin $120,000 $240,000 Total fixed costs $300,000 What is the break-even point in dollars?

833,333

Hinge Manufacturing's cost of goods sold is $420,000 variable and $240,000 fixed. The company's selling and administrative expenses are $300,000 variable and $360,000 fixed. If the company's sales is $1,580,000, what is its contribution margin?

860,000

What is the key factor in determining sales mix if a company has limited resources?

Contribution margin per unit of limited resource

Brooks Corporation can sell all the units it can produce of either Plain or Fancy but not both. Plain has a unit contribution margin of $72 and takes two machine hours to make and Fancy has a unit contribution margin of $90 and takes three machine hours to make. There are 2,400 machine hours available to manufacture a product. What should Brooks do?

Make Plain which creates $6 more profit per machine hour than Fancy does.

The degree of operating leverage provides a measure of a company's earnings volatility.

True

Which of the following statements is not true? Companies that have higher fixed costs relative to variable costs have higher operating leverage. When a company's sales revenue is increasing, high operating leverage is good because it means that profits will increase rapidly. When a company's sales revenue is decreasing, high operating leverage is good because it means that profits will decrease at a slower pace than revenues decrease. Operating leverage refers to the extent to which a company's net income reacts to a given change in sales.

When a company's sales revenue is decreasing, high operating leverage is good because it means that profits will decrease at a slower pace than revenues decrease.