Question 1

Exhibit 6-5
Estrada Incorporated produces two different products with the following monthly data.
 
-Refer to Exhibit 6-5.What would be the operating profit if the Charcoal Barbecue sales price decreases 20 percent?

Accepted Answer

A) $132,000 
B) $50,400 
C) $18,000 
D) $48,000 
E) None of the answer choices is correct.

Question 2

Which of the following statements is true regarding operating leverage?

Accepted Answer

A) Companies with high operating leverage will earn lower profits than companies with low operating leverage. 
B) Companies with high operating leverage will earn higher profits than companies with low operating leverage. 
C) Companies with high operating leverage generally experience fewer profit fluctuations as sales fluctuate than do companies with low operating leverage. 
D) Companies with high operating leverage generally experience larger operating profit fluctuations as sales fluctuate than do companies with low operating leverage 
E) None of the answer choices is correct.

Question 3

Exhibit 6-7
Bodega Chocolate,Inc.is a new company that produces a single product.The company has no beginning inventory.During the year the company produced 10,000 units out of which 9,000 were sold.Below are Bodega's costs:
 
-Refer to Exhibit 6-7.What is the unit product cost using absorption costing?

Accepted Answer

A) $4.00 
B) $6.07 
C) $8.57 
D) $9.42 
E) None of the answer choices is correct.

Question 4

Exhibit 6-2
Victor Company makes a single product.The company has monthly fixed costs totaling $200,000 and variable costs of $20 per unit.Each unit of product is sold for $35.Brevard expects to sell 25,000 units each month.
-Refer to Exhibit 6-2.What would be the operating profit if the unit variable cost decreases 20 percent?

Accepted Answer

A) $75,000 
B) $275,000 
C) $100,000 
D) $120,000 
E) None of the answer choices is correct.

Question 5

Exhibit 6-7
Bodega Chocolate,Inc.is a new company that produces a single product.The company has no beginning inventory.During the year the company produced 10,000 units out of which 9,000 were sold.Below are Bodega's costs:
 
-Refer to Exhibit 6-7.What is the unit product cost using variable costing?

Accepted Answer

A) $4.00 
B) $6.07 
C) $8.57 
D) $6.50 
E) None of the answer choices is correct.

Question 6

High operating leverage means:

Accepted Answer

A) the company has relatively high variable costs. 
B) the company has relatively low fixed costs. 
C) the company has relatively high fixed costs. 
D) the company has a relatively low amount of debt. 
E) None of the answer choices is correct.

Question 7

Exhibit 6-4
Sanchez Company produces two different remote control products with the following monthly data for the most recent month:
 
-Refer to Exhibit 6-4.Assume the sales mix remains the same at all levels of sales.
How many units of each product must be sold to break even?

Accepted Answer

A) Plane 22,400 units;Boat 5,600 units 
B) Plane 11,200 units;Boat 2,800 units 
C) Plane 20,000 units;Boat 5,000 units 
D) Plane 56,000 units;Boat 14,000 units 
E) None of the answer choices is correct.

Question 8

If the number of units produced is more than the number of units sold,which of the following statements is true when comparing overhead costs under absorption versus variable costing?

Accepted Answer

A) Variable costing will produce higher fixed overhead costs on the income statement. 
B) Absorption costing will produce higher fixed overhead costs on the income statement. 
C) Overhead costs on the income statement are the same under both methods. 
D) Absorption costing will have higher variable overhead costs on the income statement. 
E) None of the answer choices is correct.

Question 9

The weighted average contribution margin ratio is calculated by taking total contribution margin divided by total sales.

Accepted Answer

A) True 
 B)False

Question 10

Exhibit 6-5
Estrada Incorporated produces two different products with the following monthly data.
 
-Refer to Exhibit 6-5.What would be the operating profit if the Charcoal Barbecue sales price increases 20 percent?

Accepted Answer

A) $185,600 
B) $144,000 
C) $132,000 
D) $42,000 
E) None of the answer choices is correct.

Question 11

If the number of units produced is more than the number of units sold,which of the following statements is true when comparing operating profit under absorption versus variable costing?

Accepted Answer

A) Variable costing will produce a higher operating profit. 
B) Absorption costing will produce a higher operating profit. 
C) Operating profit is the same under both methods. 
D) Sales revenue will be less when absorption costing is used. 
E) None of the answer choices is correct.

Question 12

Exhibit 6-4
Sanchez Company produces two different remote control products with the following monthly data for the most recent month:
 
-Refer to Exhibit 6-4.Assume the sales mix remains the same at all levels of sales.
What is the weighted average contribution margin ratio (rounded)?

Accepted Answer

A) 25.0% 
B) 21.5% 
C) 30.0% 
D) 24.0% 
E) None of the answer choices is correct.

Question 13

Exhibit 6-5
Estrada Incorporated produces two different products with the following monthly data.
 
-Refer to Exhibit 6-5.Management believes that pushing sales of the Gas Barbecue would maximize company profits because of the high contribution margin per unit.However,only 20,000 labor hours are available each year and the Gas Barbecue requires 5 labor hours per unit while the Charcoal Barbecue requires 2 labor hours per unit.
If the company sells everything it produces,what is the contribution margin per unit of the constrained resource for the Gas Barbecue?

Accepted Answer

A) $98 
B) $120 
C) $48 
D) $45 
E) None of the answer choices is correct.

Question 14

The break-even point is the number of units or sales dollars that must be sold to achieve zero profit.

Accepted Answer

A) True 
 B)False

Question 15

Exhibit 6-1
Larimer Company has monthly fixed costs totaling $90,000 and variable costs of $5 per unit.Each unit of product is sold for $20.
-Refer to Exhibit 6-1.Assume that Larimer Company expects to sell 11,000 units of product this coming month.What is the margin of safety in units?

Accepted Answer

A) 5,000 
B) 6,500 
C) 7,400 
D) 7,000 
E) None of the answer choices is correct.

Question 16

A decrease in variable costs will reduce the margin of safety.

Accepted Answer

A) True 
 B)False

Question 17

Paddleboard Incorporated builds three products: River,Lake,and Ocean.Information for these three products is shown below:
  
Total annual fixed costs are $765,000.Assume the sales mix remains the same at all levels of sales.
Assume each scenario below is independent of the other.Unless stated otherwise,assume the variables are the same as in the base case.
(1)Prepare a contribution margin income statement for the base case.
(2)How will total profit change if the Lake sales price increases by 15 percent? (Compare your result with requirement 1 above. )
(3)Go back to the base case.How will total profit change if the River sales volume decreases by 2,000 units and the sales volume of other products remains the same? (Compare your result with requirement 1 above. )
(4)Go back to the base case.How will total profit change if fixed costs decrease by 10 percent? (Compare your result with requirement 1 above. )

Accepted Answer

The answer of Paddleboard Incorporated builds three products: River,Lake,and Ocean.Information...

Question 18

Exhibit 6-4
Sanchez Company produces two different remote control products with the following monthly data for the most recent month:
 
-Refer to Exhibit 6-4.If the sales mix shifts to 50 percent planes and 50 percent boats,what happens to the break-even point in units?

Accepted Answer

A) It increases. 
B) It decreases. 
C) It is not affected. 
D) There is not enough information to answer this question.

Question 19

A company makes four products.If it sells everything it produces and is only constrained by finding enough skilled labor,then its goal should be to maximize the contribution margin per labor-hour.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following companies would most likely have a high operating leverage?

Accepted Answer

A) A landscaping company. 
B) An accounting company. 
C) A plumbing company. 
D) A company manufacturing microprocessors. 
E) None of these have high operating leverage.

Exam 6: How Is Cost-Volume-Profit Analysis Used for Decision Making

Exhibit 6-5 Estrada Incorporated produces two different products with the following monthly data. -Refer to Exhibit 6-5.What would be the operating profit if the Charcoal Barbecue sales price decreases 20 percent?

Which of the following statements is true regarding operating leverage?

Exhibit 6-7 Bodega Chocolate,Inc.is a new company that produces a single product.The company has no beginning inventory.During the year the company produced 10,000 units out of which 9,000 were sold.Below are Bodega's costs: -Refer to Exhibit 6-7.What is the unit product cost using variable costing?

High operating leverage means:

Exhibit 6-4 Sanchez Company produces two different remote control products with the following monthly data for the most recent month: -Refer to Exhibit 6-4.Assume the sales mix remains the same at all levels of sales. How many units of each product must be sold to break even?

If the number of units produced is more than the number of units sold,which of the following statements is true when comparing overhead costs under absorption versus variable costing?

The weighted average contribution margin ratio is calculated by taking total contribution margin divided by total sales.

Exhibit 6-5 Estrada Incorporated produces two different products with the following monthly data. -Refer to Exhibit 6-5.What would be the operating profit if the Charcoal Barbecue sales price increases 20 percent?

If the number of units produced is more than the number of units sold,which of the following statements is true when comparing operating profit under absorption versus variable costing?

Exhibit 6-4 Sanchez Company produces two different remote control products with the following monthly data for the most recent month: -Refer to Exhibit 6-4.Assume the sales mix remains the same at all levels of sales. What is the weighted average contribution margin ratio (rounded) ?

The break-even point is the number of units or sales dollars that must be sold to achieve zero profit.

Exhibit 6-1 Larimer Company has monthly fixed costs totaling $90,000 and variable costs of $5 per unit.Each unit of product is sold for $20. -Refer to Exhibit 6-1.Assume that Larimer Company expects to sell 11,000 units of product this coming month.What is the margin of safety in units?

A decrease in variable costs will reduce the margin of safety.

Exhibit 6-4 Sanchez Company produces two different remote control products with the following monthly data for the most recent month: -Refer to Exhibit 6-4.If the sales mix shifts to 50 percent planes and 50 percent boats,what happens to the break-even point in units?

A company makes four products.If it sells everything it produces and is only constrained by finding enough skilled labor,then its goal should be to maximize the contribution margin per labor-hour.

Which of the following companies would most likely have a high operating leverage?