Deck 8: Cost-Volume-Profit Relationships

Question 1

Reference: 08-10
Oslo Co.'s industrial photo-finishing division incurred the following expenses last year: $$\begin{array} { | l | l | l | } \hline & \text { Variable } & \text { Fixed } \\\hline \text { Direct materials } & \$ 200,000 & \\\hline \text { Direct labour } & 150,000 & \\\hline \text { Factory overhead } & 70,000 & \$ 42,000 \\\hline \text { Selling and administrative } & 30,000 & 48,000 \\\hline \text { Total } & \underline { \$ 450,000 } & \underline { \$ 90,000 } \\\hline\end{array}$$ During the year, the division sold 300,000 photo-prints for $2.00 each.

-What was the division's total contribution margin?

A)$250,000.
B)$180,000.
C)$150,000.
D)$60,000.

Answer 1

$150,000.

Question 2

The contribution margin ratio always increases when the:

A)break-even point decreases.
B)variable expenses as a percentage of sales decrease.
C)break-even point increases.
D)variable expenses as a percentage of sales increase.

Answer 2

B

Question 3

Reference: 08-05
Dorian Company produces and sells a single product. The product sells for $60 per unit and has a contribution margin ratio of 40%. The company's monthly fixed expenses are $28,800.
The variable expense per unit is?

A)$36.00.
B)$24.00.
C)$28.80.
D)$31.20.

Answer 3

A

Question 4

Gerber Company is planning to sell 200,000 units for $2.00 a unit and will just brea? even at this level of sales. The contribution margin ratio is 25%. What are the company's fixed expenses?

A)$200,000.
B)$300,000.
C)$100,000.
D)$160,000.

Question 5

Reference: 08-15
Jimbob Co.'s records include the following information for the month of January: $$\begin{array} { | l | l | l | } \hline \text { Units manufactured } & & 5,000 \\\hline \text { Units sold } && 4,000 \\\hline \text { Selling price per unit } && \$ 50 \\\hline \text { Variable manufacturing costs per unit: } & & \\\hline \text { Direct materials } & & \$ 5 \\\hline \text { Direct labour } & &\$ 2 \\\hline \text { Manufacturing overhead } && \$ 1 \\\hline \begin{array} { l } \text { Variable selling and administrative expenses per } \\\text { unit sold }\end{array} && \$ 1 \\\hline \text { Total fixed costs: } & & \\\hline \text { Manufacturing overhead } && \$ 10,000 \\\hline \text { Selling and administrative expenses } && \$ 20,000 \\\hline\end{array}$$ There were no beginning inventories.

-Using absorption costing, what is the net income for January?

A)$158,000.
B)$134,000.
C)$185,000.
D)$136,000.

Question 6

Reference: 08-06
Arthur Company had the following data for the year just ended: $$\begin{array} { | l | l | } \hline \text { Sales } & 4,000 \text { units } \\\hline \text { Sales price } & \$ 60 \text { per unit } \\\hline \text { Variable cost } & \$ 18 \text { per unit } \\\hline \text { Fixed costs } & \$ 42,000 \\\hline\end{array}$$

-If the company's sales volume increases by 30% next year, all other factors remaining the same, its net income will increase by:

A)$37,800.
B)$72,000.
C)$50,400.
D)$92,400.

Question 7

The following is last month's contribution format income statement: $$\begin{array} { | l | c | } \hline \text { Sales } ( 20,000 \text { units } ) & \$ 1,800,000 \\\hline \text { Less variable expenses } & 1,200,000 \\\hline \text { Contribution margin } & 600,000 \\\hline \text { Less fixed expenses } & 400,000 \\\hline \text { Net income } & \$ 200,000 \\\hline\end{array}$$ What is the company's break-even in sales dollars?

A)$1,800,000.
B)$1,200,000.
C)$1,600,000.
D)$0.

Question 8

Young Company has a margin of safety percentage of 20%. The break-even in sales dollars point is $400,000 and the variable costs are 40% of sales. Given this information, the net income is:

A)$80,000.
B)$48,000.
C)$0.
D)$60,000.

Question 9

The following data pertain to last month's operations: $$\begin{array} { | l | l | } \hline \text { Selling price } & \$ 30 \text { per unit } \\\hline \text { Variable production cost } & \$ 15 \text { per unit } \\\hline \text { Fixed production cost } & \$ 80,000 \\\hline \text { Variable selling \& admin. expense } & \$ 3 \text { per unit } \\\hline \text { Fixed selling \& admin. expenses } & \$ 40,000 \\\hline\end{array}$$ The break-even point in dollars is:

A)$160,000.
B)$300,000.
C)$200,000.
D)$240,000.

Question 10

Scott Company's variable expenses are 72% of sales. sales is $2,450,000. If sales are $60,000 below the break-even point, the company would report a:

A)$43,200 loss.
B)$60,000 loss.
C)$16,800 loss.
D)cannot be determined from the data given.

Question 11

Reference: 08-02
The following is Allison Corporation's contribution format income statement for last month: $$\begin{array} { | l | c | } \hline \text { Sales } & \$ 800,000 \\\hline \text { Less variable expenses } & 300,000 \\\hline \text { Contribution margin } & 500,000 \\\hline \text { Less fixed expenses } & 400,000 \\\hline \text { Net income } & \underline { \$ 100,000 } \\\hline\end{array}$$ The company has no beginning or ending inventories. The company produced and sold 10,000 units last month.

-What is the company's margin of safety percentage?

A)20%.
B)10%.
C)25%.
D)40%.

Question 12

Reference: 08-07
Paxton Corp has provided the following data concerning its operations last month: $$\begin{array} { | l | l | } \hline \text { Sales } & \$ 400,000 \\\hline \text { Variable expenses } & 250,000 \\\hline \text { Fixed expenses } & 100,000 \\\hline\end{array}$$ Paxton Corp is a retailing organization.

-The contribution margin ratio is?

A)37.5%.
B)25.0%.
C)33.0%.
D)12.5%.

Question 13

A sales manager has projected that an increase in the monthly advertising budget to $10,000 will increase monthly sales from 10,000 units to 12,000 units. Each unit sells for
$50 with total variable costs per unit of $40. Monthly fixed expenses, including the current advertising costs of $5,000, total $20,000. Given the above data, what will be the expected impact on net income?

A)An increase of $5,000.
B)An increase of $10,000.
C)An increase of $20,000.
D)An increase of $15,000.

Question 14

At a break-even point of 400 units sold, variable expenses were $4,000 and fixed expenses were $2,000. What will the 401st unit sold contribute to profit?

A)$15.
B)$5.
C)$0.
D)$10.

Question 15

Reference: 08-05
Dorian Company produces and sells a single product. The product sells for $60 per unit and has a contribution margin ratio of 40%. The company's monthly fixed expenses are $28,800.
If the selling price is reduced by 5%, variable expenses reduced by $1.00, and fixe? expenses increased to a total of $38,400, how many units would need to be sold to earn a net income of $21,000?

A)2,950 units.
B)1,700 units.
C)1,000 units.
D)2,700 units.

Question 16

Wallace, Inc. prepared the following budgeted data based on a sales forecast of $6,000,000: $$\begin{array} { | l | l | l | } \hline & \text { Variable } & \text { Fixed } \\\hline \text { Direct materials } & \$ 1,600,000 & \\\hline \text { Direct labour } & 1,400,000 & \\\hline \text { Factory overhead } & 600,000 & \$ 900,000 \\\hline \text { Selling expenses } & 240,000 & 360,000 \\\hline \text { Administrative expenses } & 60,000 & 140,000 \\\hline \text { Total } & \$ 3,900,000 & \$ 1,400,000 \\\hline\end{array}$$ What would be the amount of sales dollars at the break-even point?

A)$4,000,000.
B)$5,300,000.
C)$3,500,000.
D)$2,250,000.

Question 17

Lindsay Company reported the following results from sales of 5,000 units for the month o? June: $$\begin{array} { | l | l | } \hline \text { Sales } & \$ 200,000 \\\hline \text { Variable expenses } & 120,000 \\\hline \text { Fixed expenses } & 60,000 \\\hline\end{array}$$ Assume that Lindsay increases the selling price of the product by 10% on July 1. How many units would have to be sold in July in order to generate a profit of $20,000?

A)5,000 units.
B)4,500 units.
C)4,300 units.
D)4,000 units.

Question 18

Reference: 08-11
Hurst Co. manufactures and sells a single product. Price and cost data regarding this product are as follows: $$\begin{array} { | l | l | } \hline \text { Selling price } & \$ 40 \text { per unit } \\\hline \text { Variable manufacturing costs } & \$ 20 \text { per unit } \\\hline \text { Variable selling \& admin. expenses } & \$ 6 \text { per unit } \\\hline \text { Fixed manufacturing overhead } & \$ 208,000 \text { per year } \\\hline \text { Fixed selling \& admin. expenses } & \$ 324,000 \text { per year } \\\hline\end{array}$$

-How many units need to be sold to earn an annual net income equal to 10% of sales

A)47,500 units.
B)44,000 units.
C)54,500 units.
D)53,200 units.

Question 19

Reference: 08-01
The following is Addison Corporation's contribution format income statement for last month: $$\begin{array} { | l | c | } \hline \text { Sales } & \$ 1,000,000 \\\hline \text { Less variable expenses } & 700,000 \\\hline \text { Contribution margin } & 300,000 \\\hline \text { Less fixed expenses } & 180,000 \\\hline \text { Net income } & \$ 120,000 \\\hline\end{array}$$ The company has no beginning or ending inventories. A total of 20,000 units were produced and sold last month.

-How many units would the company have to sell to attain target profits of $150,000

A)37,500 units.
B)22,000 units.
C)25,000 units.
D)26,667 units.

Question 20

Ostler Company's net income last year was $10,000 and its contribution margin wa? $50,000. Using the operating leverage concept, if the company's sales increase next year by 8%, net income can be expected to increase by:

A)20%.
B)40%.
C)16%.
D)160%.

Question 21

What is the company's break-even sales in dollars?

A)$0.
B)$640,000.
C)$700,000.
D)$400,000.

Question 22

Curtis Company anticipates selling 10,000 units next year. The company wants to earn a net income equal to 10% of sales. If variable expenses are $12 per unit and fixed expenses total $78,000 per year, what selling price must be established to achieve the desired level of net income?

A)$21.78 per unit.
B)$18.00 per unit.
C)$22.00 per unit.
D)$19.80 per unit.

Question 23

Reference: 08-09
Fletcher Company has three products with the following characteristics: $$\begin{array} { | l | l | l | l | } \hline & \text { Product A } & \text { Product B } & \text { Product } \text { C } \\\hline \text { Monthly sales in dollars } & \$ 60,000 & \$ 80,000 & \$ 100,000 \\\hline \text { Contribution margin ratio } & 20 \% & 40 \% & 16 \% \\\hline\end{array}$$

-If total units sold remain unchanged, but the sales mix shifts more heavily toward Product C, one would expect the overall contribution margin ratio to:

A)remain unchanged.
B)decrease.
C)increase.
D)none of these.

Question 24

Reference: 08-03
McGordon Corporation has provided the following data: $$\begin{array} { | l | l | } \hline \text { Sales } & \$ 800,000 \\\hline \text { Variable expenses } & 560,000 \\\hline \text { Fixed expenses } & 168,000 \\\hline\end{array}$$

-The break-even point in sales dollars is?

A)$240,000.
B)$560,000.
C)$408,000.
D)$728,000.

Question 25

Reference: 08-12
Junsin Corporation's budget for next year appears below. The budget assumes the company will sell 30,000 units. $$\begin{array} { | c | c | c | } \hline \text { Sales } & & \$ 600,000 \\\hline \text { Less expenses: } & & \\\hline \text { Variable } & \$ 390,000 & \\\hline \text { Fixed } & 140,000 & 530,000 \\\hline \text { Net income } & & \$ 70,000 \\\hline\end{array}$$

-The company's margin of safety as a percentage of sales (rounded to the nearest whole percent)is:

A)33%.
B)67%.
C)12%.
D)50%.

Question 26

Last year, Black Company reported sales of $640,000, a contribution margin of $160,000, and a net loss of $40,000. Based on this information, the break-even point in total sales dollars was:

A)$640,000.
B)$960,000.
C)$800,000.
D)$480,000.

Question 27

How many units would the company have to sell to attain target profits of $120,000

A)10,400 units.
B)12,000 units.
C)10,800 units.
D)11,200 units.

Question 28

Reference: 08-02
The following is Allison Corporation's contribution format income statement for last month: $$\begin{array} { | l | c | } \hline \text { Sales } & \$ 800,000 \\\hline \text { Less variable expenses } & 300,000 \\\hline \text { Contribution margin } & 500,000 \\\hline \text { Less fixed expenses } & 400,000 \\\hline \text { Net income } & \$ 100,000 \\\hline\end{array}$$ The company has no beginning or ending inventories. The company produced and sold 10,000 units last month.

-What is the company's contribution margin ratio?

A)500%.
B)20%.
C)62.5%.
D)160%.

Question 29

The break-even point in units sold will decrease if there is an increase in which of the following?

A)Total fixed expenses.
B)Unit sales volume.
C)Selling price.
D)Unit variable expenses.

Question 30

Reference: 08-15
Jimbob Co.'s records include the following information for the month of January: $$\begin{array} { | l | l | l | } \hline \text { Units manufactured } & & 5,000 \\\hline \text { Units sold } && 4,000 \\\hline \text { Selling price per unit } & &\$ 50 \\\hline \text { Variable manufacturing costs per unit: } & \\\hline \text { Direct materials } & & \$ 5 \\\hline \text { Direct labour } && \$ 2 \\\hline \text { Manufacturing overhead } & &\$ 1 \\\hline \begin{array} { l } \text { Variable selling and administrative expenses per } \\\text { unit sold }\end{array} && \$ 1 \\\hline \text { Total fixed costs: } & & \\\hline \text { Manufacturing overhead } && \$ 10,000 \\\hline \text { Selling and administrative expenses } && \$ 20,000 \\\hline\end{array}$$ There were no beginning inventories.

-Using absorption costing, what is the cost per unit manufactured in January

A)$11.00.
B)$10.00.
C)$9.00.
D)$12.00.

Question 31

Reference: 08-11
Hurst Co. manufactures and sells a single product. Price and cost data regarding this product are as follows: $$\begin{array} { | l | l | } \hline \text { Selling price } & \$ 40 \text { per unit } \\\hline \text { Variable manufacturing costs } & \$ 20 \text { per unit } \\\hline \text { Variable selling \& admin. expenses } & \$ 6 \text { per unit } \\\hline \text { Fixed manufacturing overhead } & \$ 208,000 \text { per year } \\\hline \text { Fixed selling \& admin. expenses } & \$ 324,000 \text { per year } \\\hline\end{array}$$

-In the current year, the company sold 43,000 units. Due to competition, management will be forced to lower the selling price by 10% next year. How many units must be sold next year to earn the same income as was earned in the current year?

A)58,800 units.
B)60,200 units.
C)53,200 units.
D)50,000 units.

Question 32

Reference: 08-06
Arthur Company had the following data for the year just ended: $$\begin{array} { | l | l | } \hline \text { Sales } & 4,000 \text { units } \\\hline \text { Sales price } & \$ 60 \text { per unit } \\\hline \text { Variable cost } & \$ 18 \text { per unit } \\\hline \text { Fixed costs } & \$ 42,000 \\\hline\end{array}$$

-If the company wants its margin of safety to equal $35,000 next year, all other factors remaining the same, how many units will it need to sell (round your final answer to the nearest whole number)

A)1,833.
B)833.
C)1,000.
D)1,583.

Question 33

Reference: 08-09
Fletcher Company has three products with the following characteristics: $$\begin{array} { | l | l | l | l | } \hline & \text { Product A } & \text { Product B } & \text { Product C } \\\hline \text { Monthly sales in dollars } & \$ 60,000 & \$ 80,000 & \$ 100,000 \\\hline \text { Contribution margin ratio } & 20 \% & 40 \% & 16 \% \\\hline\end{array}$$

-The overall contribution margin ratio for the company as a whole is (round your final answer to the nearest tenth of a percent):

A)75.0%.
B)25.3%.
C)28.5%.
D)25.0%.

Question 34

Reference: 08-06
Arthur Company had the following data for the year just ended: $$\begin{array} { | l | l | } \hline \text { Sales } & 4,000 \text { units } \\\hline \text { Sales price } & \$ 60 \text { per unit } \\\hline \text { Variable cost } & \$ 18 \text { per unit } \\\hline \text { Fixed costs } & \$ 42,000 \\\hline\end{array}$$

-If the company's fixed costs decrease by 20% next year, all other factors remaining the same, the break-even level will change from that of the current year by (rounded your final answer to the nearest whole unit):

A)200 unit decrease.
B)no change in the break-even point in units.
C)200 unit increase.
D)440 unit decrease.

Question 35

Reference: 08-04
The following data relate to a company that produces and sells a travel guide that is updated monthly: $$\begin{array} { | l | l | } \hline \text { Fixed costs: } & \\\hline \text { Copy editing } & \$ 6,000 \\\hline \text { Art work } & 2,000 \\\hline \text { Typesetting } & 72,000 \\\hline & \\\hline \text { Variable costs: } & \\\hline \text { Printing and binding } & \$ 3.20 \text { per copy } \\\hline \text { Bookstore discounts } & 4.00 \text { per copy } \\\hline \text { Salespersons' commissions } & 0.50 \text { per copy } \\\hline \text { Author's royalties } & 2.00 \text { per copy } \\\hline\end{array}$$ Each book sells for $20.00. The company sold 8,000 books in June and 10,000 books in July.

-The contribution margin ratio for the book is (round your final answer to the nearest tenth of a percent.)

A)51.5%.
B)71.5%.
C)54.0%.
D)51.9%.

Question 36

Roberts Company sells a single product at a selling price of $55 per unit. Variable costs are $30.25 per unit and fixed costs are $113,850. Roberts Company's break-even point is?

A)$253,000.
B)$207,000.
C)3,764 units.
D)2,070 units.

Question 37

A company has provided the following data: $$\begin{array} { | l | l | } \hline \text { Sales } & 3,000 \text { units } \\\hline \text { Sales price } & \$ 70 \text { per unit } \\\hline \text { Variable cost } & \$ 50 \text { per unit } \\\hline \text { Fixed cost } & \$ 25,000 \\\hline\end{array}$$ If the dollar contribution margin per unit is increased by 10%, total fixed cost is decreased by 20%, and all other factors remain the same, net income will:

A)increase by $3,500.
B)increase by $11,000.
C)increase by $20,000.
D)increase by $61,000.

Question 38

The following is last month's contribution format income statement: $$\begin{array} { | l | c | } \hline \text { Sales (12,000 units) } & \$ 1,200,000 \\\hline \text { Less variable expenses } & 700,000 \\\hline \text { Contribution margin } & 500,000 \\\hline \text { Less fixed expenses } & 300,000 \\\hline \text { Net income } & \$ 200,000 \\\hline\end{array}$$ What is the company's margin of safety percentage?

A)42%.
B)40%.
C)17%.
D)20%.

Question 39

A total of 30,000 units were sold last year. The contribution margin per unit was $2, and fixed expenses totalled $20,000 for the year. This year fixed expenses are expected to increase to $26,000, but the contribution margin per unit will remain unchanged at $2. How many units must be sold this year to earn the same net income as was earned last year?

A)13,000 units.
B)23,000 units.
C)33,000 units.
D)30,000 units.

Question 40

The break-even point in sales dollars for Rice Company is $360,000 and the company's contribution margin ratio is 30%. If Rice Company desires an income of $84,000, sales would have to total?

A)$640,000.
B)$480,000.
C)$280,000.
D)$560,000.

Question 41

What is the company's margin of safety in dollars?

A)$880,000.
B)$600,000.
C)$120,000.
D)$400,000.

Question 42

Reference: 08-04
The following data relate to a company that produces and sells a travel guide that is updated monthly: $$\begin{array} { | l | l | } \hline \text { Fixed costs: } & \\\hline \text { Copy editing } & \$ 6,000 \\\hline \text { Art work } & 2,000 \\\hline \text { Typesetting } & 72,000 \\\hline & \\\hline \text { Variable costs: } & \\\hline \text { Printing and binding } & \$ 3.20 \text { per copy } \\\hline \text { Bookstore discounts } & 4.00 \text { per copy } \\\hline \text { Salespersons' commissions } & 0.50 \text { per copy } \\\hline \text { Author's royalties } & 2.00 \text { per copy } \\\hline\end{array}$$ Each book sells for $20.00. The company sold 8,000 books in June and 10,000 books in July.

-The break-even point in units is?

A)7,767 books.
B)8,247 books.
C)7,407 books.
D)6,504 books.

Question 43

Wilson Company prepared the following preliminary budget assuming no advertising expenditures: $$\begin{array} { | l | l | } \hline \text { Selling price } & \$ 10 \text { per unit } \\\hline \text { Unit sales } & 100,000 \\\hline \text { Variable expenses } & \$ 600,000 \\\hline \text { Fixed expenses } & \$ 300,000 \\\hline\end{array}$$ Based on a market study, the company estimated that it could increase the unit selling price by 15% and increase the unit sales volume by 10% if $100,000 were spent on advertising. Assuming that these changes are incorporated in its budget, what should be the budgeted net income?

A)$190,000.
B)$205,000.
C)$175,000.
D)$365,000.

Question 44

Reference: 08-02
The following is Allison Corporation's contribution format income statement for last month: $$\begin{array} { | l | c | } \hline \text { Sales } & \$ 800,000 \\\hline \text { Less variable expenses } & 300,000 \\\hline \text { Contribution margin } & 500,000 \\\hline \text { Less fixed expenses } & 400,000 \\\hline \text { Net income } & \$ 100,000 \\\hline\end{array}$$ The company has no beginning or ending inventories. The company produced and sold 10,000 units last month.

-What is the company's degree of operating leverage?

A)0.2.
B)1.7.
C)8.0.
D)5.0.

Question 45

Reference: 08-07
Paxton Corp has provided the following data concerning its operations last month: $$\begin{array} { | l | l | } \hline \text { Sales } & \$ 400,000 \\\hline \text { Variable expenses } & 250,000 \\\hline \text { Fixed expenses } & 100,000 \\\hline\end{array}$$ Paxton Corp is a retailing organization.

-The break-even sales in dollars is (round your final answer to the nearest dollar):

A)$350,000.
B)$148,148.
C)$266,667.
D)$333,333.

Question 46

The following is last month's contribution format income statement: $$\begin{array} { | l | c | } \hline \text { Sales } ( 15,000 \text { units } ) & \$ 1,500,000 \\\hline \text { Less variable expenses } & 900,000 \\\hline \text { Contribution margin } & 600,000 \\\hline \text { Less fixed expenses } & 500,000 \\\hline \text { Net income } & \$ 100,000 \\\hline\end{array}$$ What is the company's margin of safety in dollars?

A)$1,500,000.
B)$250,000.
C)$100,000.
D)$600,000.

Question 47

The following information pertains to Rica Company: $$\begin{array} { | c | l | } \hline \text { Sales } ( 50,000 \text { units) } & \$ 1,000,000 \\\hline \text { Manufacturing costs: } & \\\hline \text { Variable } & 340,000 \\\hline \text { Fixed } & 70,000 \\\hline \text { Selling and admin expenses: } & \\\hline \text { Variable } & 10,000 \\\hline \text { Fixed } & 60,000 \\\hline\end{array}$$ How much is Rica's break-even point in number of units?

A)18,571 units.
B)9,848 units.
C)26,000 units.
D)10,000 units.

Question 48

Reference: 08-13
Hooper Corporation produces and sells two models of vacuum cleaners, Standard and Deluxe. The company records show the following monthly data relating to these two products: $$\begin{array} { | l | l | l | l | } \hline & \text { Standard } & & \text { Delwxe } \\\hline \text { Selling price per unit } & \$ 150 & & \$ 165 \\\hline \text { Variable production costs } & 120 & & 126 \\\hline \text { Variable selling expense per unit } & 16 & & 13 \\\hline \text { Expected monthly sales in units } & 600 && 1,200 \\\hline \text { Total monthly fixed cost } & & \$ 15,000 & \\\hline\end{array}$$

-If the expected monthly sales in units were divided equally between the two models (900 Standard and 900 Deluxe), the break-even level of sales would be:

A)higher than with the expected sales mix.
B)lower than with the expected sales mix.
C)the same as with the expected sales mix.
D)cannot be determined with the available data.

Question 49

The operating leverage is?

A)5.00.
B)3.00.
C)8.00.
D)0.33.

Question 50

$$\begin{array} { | l | l | l | } \hline & \text { Contribution margin } & \text { Break-even point } \\\hline \text { A. } & \text { Increase } & \text { Decrease } \\\hline \text { B. } & \text { Decrease } & \text { Increase } \\\hline \text { C. } & \text { Unchanged } & \text { Increase } \\\hline \text { D. } & \text { Unchanged } & \text { Unchanged } \\\hline\end{array}$$

A)Choice A.
B)Choice B.
C)Choice C.
D)Choice D.

Question 51

Reference: 08-01
The following is Addison Corporation's contribution format income statement for last month: $$\begin{array} { | l | c | } \hline \text { Sales } & \$ 1,000,000 \\\hline \text { Less variable expenses } & 700,000 \\\hline \text { Contribution margin } & 300,000 \\\hline \text { Less fixed expenses } & 180,000 \\\hline \text { Net income } & \$ 120,000 \\\hline\end{array}$$ The company has no beginning or ending inventories. A total of 20,000 units were produced and sold last month.

-What is the company's degree of operating leverage

A)0.12.
B)2.50.
C)3.30.
D)0.40.

Question 52

The following monthly data are available for the Eager Company and its only product: $$\begin{array} { | l | l | } \hline \text { Unit sales price } & \$ 75 \\\hline \text { Unit variable expenses } & \$ 30 \\\hline \text { Total fixed expenses } & \$ 180,000 \\\hline \text { Actual sales for the month of March } & 7,000 \text { units } \\\hline\end{array}$$ The margin of safety for the company for March was:

A)$225,000.
B)$315,000.
C)$495,000.
D)$135,000.

Question 53

Reference: 08-14
Wright Corporation's contribution format income statement for last month appears below. $$\begin{array} { | l | c | } \hline \text { Sales } & \$ 45,000 \\\hline \text { Less variable expenses } & 27,000 \\\hline \text { Contribution margin } & 18,000 \\\hline \text { Less fixed expenses } & 12,000 \\\hline \text { Net income } & \$ 6,000 \\\hline\end{array}$$ There were no beginning or ending inventories. The company produced and sold 3,000 units during the month.

-If sales decrease by 500 units by next month, by how much would fixed expenses have to be reduced to maintain the current net income?

A)$2,000.
B)$7,500.
C)$3,000.
D)$6,000.

Question 54

Reference: 08-06
Arthur Company had the following data for the year just ended: $$\begin{array} { | l | l | } \hline \text { Sales } & 4,000 \text { units } \\\hline \text { Sales price } & \$ 60 \text { per unit } \\\hline \text { Variable cost } & \$ 18 \text { per unit } \\\hline \text { Fixed costs } & \$ 42,000 \\\hline\end{array}$$

-If the company wants to increase its total contribution margin by 40% in the next year, all other factors remaining the same, it will need to increase its sales by:

A)$67,200.
B)$72,000.
C)$96,000.
D)$50,400.

Question 55

At a break-even point of 800 units sold, White Company's variable expenses are $8,000 and its fixed expenses are $4,000. What will the Company's net income be at a volume of 801 units?

A)$20.
B)$10.
C)$15.
D)$5.

Question 56

Break-even analysis assumes which of the following to be true

A)Total costs are unchanged.
B)Variable expenses are nonlinear.
C)Unit fixed expenses are unchanged.
D)Unit variable expenses are unchanged.

Question 57

In the income statement of a manufacturing business with both variable and fixed overhead costs of production, if there are no beginning or ending inventories, comparing Absorption Costing to Variable Costing, which of the following statements is true?

A)Under Absorption Costing, cost of goods sold will be higher than under Variable Costing.
B)There will be no differences in cost of goods sold and net income between the two methods.
C)Under Absorption Costing, cost of goods sold will be higher and net income will be higher than under Variable Costing.
D)Under Variable Costing, cost of goods sold will be lower and net income will be higher than under Absorption Costing.

Question 58

Reference: 08-05
Dorian Company produces and sells a single product. The product sells for $60 per unit and has a contribution margin ratio of 40%. The company's monthly fixed expenses are $28,800.
The break-even point in sales dollars is?

A)$72,000.
B)$0.
C)$28,800.
D)$48,000.

Question 59

While using Variable Costing format of income statement, which of the following is not included in product costs?

A)Variable manufacturing overhead.
B)Direct labour.
C)Fixed manufacturing overhead.
D)Direct materials.

Question 60

If sales increase from $80,000 per year to $120,000 per year, and if the operating leverage is 5, then net income should increase by?

A)167%.
B)250%.
C)334%.
D)100%.

Question 61

Reference: 08-04
The following data relate to a company that produces and sells a travel guide that is updated monthly: $$\begin{array} { | l | l | } \hline \text { Fixed costs: } & \\\hline \text { Copy editing } & \$ 6,000 \\\hline \text { Art work } & 2,000 \\\hline \text { Typesetting } & 72,000 \\\hline & \\\hline \text { Variable costs: } & \\\hline \text { Printing and binding } & \$ 3.20 \text { per copy } \\\hline \text { Bookstore discounts } & 4.00 \text { per copy } \\\hline \text { Salespersons' commissions } & 0.50 \text { per copy } \\\hline \text { Author's royalties } & 2.00 \text { per copy } \\\hline\end{array}$$ Each book sells for $20.00. The company sold 8,000 books in June and 10,000 books in July.

-The degree of operating leverage for July is closest to (round your final answer to two decimal places.)

A)3.48.
B)8.70.
C)4.22.
D)4.48.

Question 62

A company increased the selling price for its product from $1.00 to $1.10 a unit when total fixed expenses increased from $400,000 to $480,000 and variable expense per unit remained unchanged. How would these changes affect the break-even point?

A)The break-even point in units would decrease.
B)The break-even point in units would increase.
C)The break-even point in units would remain unchanged.
D)The effect cannot be determined from the information given.

Question 63

Loren Company's single product has a selling price of $15 per unit. Last year the company reported total variable expenses of $180,000, fixed expenses of $90,000, and a net income of $30,000. A study by the sales manager discloses that a 15% increase in the selling price would reduce unit sales by 10%. If her proposal is adopted, net income would increase by:

A)$45,000.
B)$7,500.
C)$28,500.
D)$37,500.

Question 64

Green Company's variable expenses are 75% of sales. At a sales level of $400,000, the company's degree of operating leverage is 8. At this sales level, fixed expenses equal?

A)$87,500.
B)$75,000.
C)$100,000.
D)$50,000.

Question 65

Kern Company prepared the following tentative budget for next year: $$\begin{array} { | l | l | } \hline \text { Sales } & \$ 500,000 \\\hline \text { Selling price } & \$ 5 \text { per unit } \\\hline \text { Variable expenses } & \$ 300,000 \\\hline \text { Fixed expenses } & \$ 150,000 \\\hline\end{array}$$ The sales manager argues that the unit selling price could be increased by 20%, with an expected volume decrease of only 10%. If Kern incorporates these changes in its budget, what should be the budgeted net income?

A)$66,000.
B)$120,000.
C)$90,000.
D)$145,000.

Question 66

The margin of safety is equal to:

A)Sales - Net income.
B)Sales - (Variable expenses + Fixed expenses).
C)Sales - (Variable expenses/Contribution margin).
D)Sales - (Fixed expenses/Contribution margin ratio).

Question 67

Koby Co. has sales of $200,000 with variable expenses of $150,000, fixed expenses of $60,000, and a net loss of $10,000. How much would Koby have to sell in order to achieve a net income of 10% of sales?

A)$431,000.
B)$451,000.
C)$375,000.
D)$400,000.

Question 68

Last year, Perry Company reported profits of $4,200. Its variable expenses totalled $66,000 or $6 per unit. The unit contribution margin was $3.00. The break-even point in units for Perry Company is:

A)22,000.
B)9,600.
C)11,000.
D)12,400.

Question 69

North Company sells a single product. The product has a selling price of $30 per unit and variable expenses of 70% of sales. If the company's fixed expenses total $60,000 per year, then it will have a break-even in sales dollars of:

A)$60,000.
B)$200,000.
C)$85,714.
D)$42,000.

Question 70

How many photo-prints did the division have to sell to break even

A)90,000 photo-prints.
B)60,000 photo-prints.
C)180,000 photo-prints.
D)120,000 photo-prints.

Question 71

The following data pertain to Wistron Company's two products: $$\begin{array} { | l | l | l | } \hline & \text { Product } X & \text { Product } Y \\\hline \text { Sales in dollars } & \$ 100,000 & \$ 80,000 \\\hline \text { Contribution margin ratio } & 48 \% & 30 \% \\\hline\end{array}$$ If fixed expenses for the company as a whole are $60,000 and the product mix is constant, the overall break-even point for the company would be:

A)$132,000.
B)$153,846.
C)$150,000.
D)$100,000.

Question 72

Reference: 08-11
Hurst Co. manufactures and sells a single product. Price and cost data regarding this product are as follows: $$\begin{array} { | l | l | } \hline \text { Selling price } & \$ 40 \text { per unit } \\\hline \text { Variable manufacturing costs } & \$ 20 \text { per unit } \\\hline \text { Variable selling \& admin. expenses } & \$ 6 \text { per unit } \\\hline \text { Fixed manufacturing overhead } & \$ 208,000 \text { per year } \\\hline \text { Fixed selling \& admin. expenses } & \$ 324,000 \text { per year } \\\hline\end{array}$$

-The break-even point in units per year is?

A)38,000.
B)26,600.
C)15,200.
D)40,000.

Question 73

Dodero Company produces a single product that sells for $100 per unit. Fixed expenses total $12,000 per month, and variable expenses are $60 per unit. The company's sales average 500 units per month. Which of the following statements is correct?

A)The company's contribution margin ratio is 40%.
B)The company's break-even point is $12,000 per month.
C)All of the answers are correct.
D)The fixed expenses remain constant at $24 per unit for any activity level within the relevant range.

Question 74

Goodman Company has sales of 3,000 units at $80 per unit.

A)0.93.
B)2.67.
C)1.73.
D)0.79.

Question 75

Reference: 08-02
The following is Allison Corporation's contribution format income statement for last month: $$\begin{array} { | l | c | } \hline \text { Sales } & \$ 800,000 \\\hline \text { Less variable expenses } & 300,000 \\\hline \text { Contribution margin } & 500,000 \\\hline \text { Less fixed expenses } & 400,000 \\\hline \text { Net income } & \$ 100,000 \\\hline\end{array}$$ The company has no beginning or ending inventories. The company produced and sold 10,000 units last month.

-If the number of units sold increases by 10%, how much will net income increase

A)$10,000.
B)$20,000.
C)$5,000.
D)$50,000.

Question 76

Reference: 08-04
The following data relate to a company that produces and sells a travel guide that is updated monthly: $$\begin{array} { | l | l | } \hline \text { Fixed costs: } & \\\hline \text { Copy editing } & \$ 6,000 \\\hline \text { Art work } & 2,000 \\\hline \text { Typesetting } & 72,000 \\\hline & \\\hline \text { Variable costs: } & \\\hline \text { Printing and binding } & \$ 3.20 \text { per copy } \\\hline \text { Bookstore discounts } & 4.00 \text { per copy } \\\hline \text { Salespersons' commissions } & 0.50 \text { per copy } \\\hline \text { Author's royalties } & 2.00 \text { per copy } \\\hline\end{array}$$ Each book sells for $20.00. The company sold 8,000 books in June and 10,000 books in July.

-The degree of operating leverage for July is:

A)the same as that for June.
B)lower than that for June.
C)not determinable.
D)higher than that for June.

Question 77

Reference: 08-04
The following data relate to a company that produces and sells a travel guide that is updated monthly: $$\begin{array} { | l | l | } \hline \text { Fixed costs: } & \\\hline \text { Copy editing } & \$ 6,000 \\\hline \text { Art work } & 2,000 \\\hline \text { Typesetting } & 72,000 \\\hline & \\\hline \text { Variable costs: } & \\\hline \text { Printing and binding } & \$ 3.20 \text { per copy } \\\hline \text { Bookstore discounts } & 4.00 \text { per copy } \\\hline \text { Salespersons' commissions } & 0.50 \text { per copy } \\\hline \text { Author's royalties } & 2.00 \text { per copy } \\\hline\end{array}$$ Each book sells for $20.00. The company sold 8,000 books in June and 10,000 books in July.

-The unit contribution margin per book is?

A)$8.30.
B)$10.30.
C)$14.30.
D)$10.80.

Question 78

A product sells for $20 per unit, and has a contribution margin ratio of 40%. Fixed expenses total $120,000 annually. How many units must be sold to yield a profit of $30,000?

A)12,500 units.
B)20,000 units.
C)18,750 units.
D)25,000 units.

Question 79

The difference between total sales in dollars and total variable expenses is called:

A)the net operating income.
B)the contribution margin.
C)the gross margin.
D)the net profit.

Question 80

The following monthly data are available for the Phelps Company: $$\begin{array} { | l | l | l | l | l | } \hline & \text { Product A } & \text { Product B } & \text { Product } C & \text { Total } \\\hline \text { Sales } & \$ 150,000 & \$ 130,000 & \$ 90,000 & \$ 370,000 \\\hline \text { Variable expenses } & 91,000 & 104,000 & 27,000 & 222,000 \\\hline \text { Contribution margin } & \$ 59,000 & \$ 26,000 & \$ 63,000 & 148,000 \\\hline \text { Fixed expenses } & & & & 55,000 \\\hline \text { Net income } & & & & \$ 93,000 \\\hline\end{array}$$ The break-even sales for the month for the company are:

A)$148,000.
B)$203,000.
C)$91,667.
D)$137,500.