Question 1

Exhibit 6-6
Sauer Company sells folding chairs for $40.00 per unit.Variable cost is $15.00 per unit.Each chair requires 4 direct labor hours and 2 machine hours to produce.
-Refer to Exhibit 6-6.Which of the following is the correct contribution margin per direct labor hour?

Accepted Answer

A) $12.50 
B) $6.25 
C) $0.08 
D) $0.10 
E) None of the answer choices is correct.

Question 2

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 3

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 4

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.

Question 5

Exhibit 6-5
Estrada Incorporated produces two different products with the following monthly data.
 $\begin{array}{llcc}
&\text { Charcoal } & \text { Gas } & \text { Total } \
&\text { Barbecues } & \text { Barbecues } &\
\text { Selling price per unit } & \$ 150 & \$ 600 & \
\text { Variable cost per unit } & \$ 60 & \$ 360 & \
\text { Expected unit sales } & 1,400 & 600 & 2,000 \
\text { Sales mix } & 70 \% & 30 \% & 100 \% \
\text { Fixed costs } & & & \$ 180,000
\end{array}$

-Refer to Exhibit 6-5.What would be the operating profit if total fixed costs increase 10 percent?

Accepted Answer

A) $72,000 
B) $99,000 
C) $108,000 
D) $81,000 
E) None of the answer choices is correct.

Question 6

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 is the monthly operating profit?

Accepted Answer

A) $275,000 
B) $375,000 
C) $175,000 
D) $675,000 
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:
 $\begin{array}{lccc}
& \text { Plane } & \text { Boat } & \text { Total } \
\text { Selling price per unit } & \$ 300 & \$ 100 & \
\text { Variable cost per unit } & \$ 240 & \$ 60 & \
\text { Expected unit sales } & 28,000 & 7,000 & 35,000 \
\text { Sales mix } & 80 \% & 20 \% & 100 \% \
\text { Fixed costs } & & & \$ 1,400,000
\end{array}$

-Refer to Exhibit 6-4.If the sales mix shifts to 50 percent planes and 50 percent boats,what happens to the weighted average contribution margin per unit?

Accepted Answer

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

Question 8

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 9

Exhibit 6-5
Estrada Incorporated produces two different products with the following monthly data.
 $\begin{array}{llcc}
&\text { Charcoal } & \text { Gas } & \text { Total } \
&\text { Barbecues } & \text { Barbecues } &\
\text { Selling price per unit } & \$ 150 & \$ 600 & \
\text { Variable cost per unit } & \$ 60 & \$ 360 & \
\text { Expected unit sales } & 1,400 & 600 & 2,000 \
\text { Sales mix } & 70 \% & 30 \% & 100 \% \
\text { Fixed costs } & & & \$ 180,000
\end{array}$

-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 10

Sensitivity analysis is also called "what-if analysis."

Accepted Answer

A) True 
 B)False

Question 11

Exhibit 6-4
Sanchez Company produces two different remote control products with the following monthly data for the most recent month:
 $\begin{array}{lccc}
& \text { Plane } & \text { Boat } & \text { Total } \
\text { Selling price per unit } & \$ 300 & \$ 100 & \
\text { Variable cost per unit } & \$ 240 & \$ 60 & \
\text { Expected unit sales } & 28,000 & 7,000 & 35,000 \
\text { Sales mix } & 80 \% & 20 \% & 100 \% \
\text { Fixed costs } & & & \$ 1,400,000
\end{array}$

-Refer to Exhibit 6-4.Assume the sales mix remains the same at all levels of sales.
How many units in total must be sold to earn a monthly profit of $504,000?

Accepted Answer

A) 43,273 
B) 19,040 
C) 38,080 
D) 34,000 
E) None of the answer choices is correct.

Question 12

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.How many units must be sold to earn a monthly profit of $135,000?

Accepted Answer

A) 6,750 
B) 9,000 
C) 15,000 
D) 6,000 
E) None of the answer choices is correct.

Question 13

Exhibit 6-5
Estrada Incorporated produces two different products with the following monthly data.
 $\begin{array}{llcc}
&\text { Charcoal } & \text { Gas } & \text { Total } \
&\text { Barbecues } & \text { Barbecues } &\
\text { Selling price per unit } & \$ 150 & \$ 600 & \
\text { Variable cost per unit } & \$ 60 & \$ 360 & \
\text { Expected unit sales } & 1,400 & 600 & 2,000 \
\text { Sales mix } & 70 \% & 30 \% & 100 \% \
\text { Fixed costs } & & & \$ 180,000
\end{array}$

-Refer to Exhibit 6-5.What is the operating profit?

Accepted Answer

A) $90,000 
B) $570,000 
C) $270,000 
D) $255,000 
E) None of the answer choices is correct.

Question 14

Huston Company has annual fixed costs totaling $3,000,000 and variable costs of $450 per unit.Each unit of product is sold for $850.Assume a tax rate of 30 percent.How many units must be sold to earn an annual profit of $210,000 after taxes?

Accepted Answer

A) 8,250 
B) 4,586 
C) 9,250 
D) 8,025 
E) None of the answer choices is correct.

Question 15

Which of the following companies would be most likely to use the break-even point expressed in units?

Accepted Answer

A) An accounting firm 
B) A law firm 
C) An electrician 
D) An automobile dealer 
E) None of the answer choices is correct.

Question 16

When a company that produces multiple products faces a constraint in areas such as labor hours or machine hours,managers often prefer to maximize the contribution margin per unit of constraint.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

All of the following are assumptions required to perform break-even and target profit calculations except:

Accepted Answer

A) Costs can be separated into fixed and variable components. 
B) Contribution margin ratio remains constant for each product,segment,or department. 
C) Break-even points can only be calculated for single product companies. 
D) Sales mix remains constant with changes in sales volume. 
E) None of the answer choices is correct.

Question 19

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.What is the break-even point in units?

Accepted Answer

A) 3,600 
B) 6,000 
C) 4,500 
D) 18,000 
E) None of the answer choices is correct.

Question 20

Firms with high operating leverage tend to make more from increasing sales than similar firms with low operating leverage.

Accepted Answer

A) True 
 B)False

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

Exhibit 6-6 Sauer Company sells folding chairs for $40.00 per unit.Variable cost is $15.00 per unit.Each chair requires 4 direct labor hours and 2 machine hours to produce. -Refer to Exhibit 6-6.Which of the following is the correct contribution margin per direct labor hour?

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.

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?

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

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 is the monthly operating profit?

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

Sensitivity analysis is also called "what-if analysis."

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.How many units must be sold to earn a monthly profit of $135,000?

Huston Company has annual fixed costs totaling $3,000,000 and variable costs of $450 per unit.Each unit of product is sold for $850.Assume a tax rate of 30 percent.How many units must be sold to earn an annual profit of $210,000 after taxes?

Which of the following companies would be most likely to use the break-even point expressed in units?

When a company that produces multiple products faces a constraint in areas such as labor hours or machine hours,managers often prefer to maximize the contribution margin per unit of constraint.

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

All of the following are assumptions required to perform break-even and target profit calculations except:

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.What is the break-even point in units?

Firms with high operating leverage tend to make more from increasing sales than similar firms with low operating leverage.