Exam 6: Variable Costing and Segment Reporting: Tools for Management

If two companies produce the same product and have the same total sales and same total expenses, operating leverage will be higher in the company with a higher proportion of fixed expenses in its cost structure.

Eickhoff Corporation's contribution format income statement for the most recent month follows: Required: a. Compute the degree of operating leverage to two decimal places. b. Using the degree of operating leverage, estimate the percentage change in net operating income that should result from a 1% increase in sales.

Moallankamp Corporation produces and sells a single product. Data concerning that product appear below: Fixed expenses are $1,131,000 per month. The company is currently selling 7,000 units per month. Required: The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $20 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $117,000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 400 units. What should be the overall effect on the company's monthly net operating income of this change? Show your work!

Sammis Inc., which produces and sells a single product, has provided its contribution format income statement for January. If the company sells 2,500 units, its net operating income should be closest to:

Smee Inc. produces and sells a single product. The selling price of the product is $130.00 per unit and its variable cost is $52.00 per unit. The fixed expense is $281,580 per month. The break-even in monthly dollar sales is closest to:

Grable Corporation produces and sells a single product. Data concerning that product appear below: Fixed expenses are $628,000 per month. The company is currently selling 5,000 units per month. Required: The marketing manager would like to cut the selling price by $18 and increase the advertising budget by $45,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 800 units. What should be the overall effect on the company's monthly net operating income of this change? Show your work!

Grisham Corporation produces and sells a single product. The company has provided its contribution format income statement for February. If the company sells 5,700 units, its net operating income should be closest to: