Exam 8: Cost-Volume-Profit Relationships

Last year, Twins Company reported $750,000 in sales (25,000 units)and a net income of $25,000. At the break-even point, the company's total contribution margin equals $500,000. Based on this information, which of the following is true?

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?

If company A has a higher degree of operating leverage than company B, then:

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?

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

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?

In an absorption costing income statement, costs are grouped according to cost behaviour.

A company has provided the following data: Sales 3,000 units Sales price \ 70 per unit Variable cost \ 50 per unit Fixed cost \ 25,000 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:

Reference: 08-06 Arthur Company had the following data for the year just ended: Sales 4,000 units Sales price \ 60 per unit Variable cost \ 18 per unit Fixed costs \ 42,000 -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:

Reference: 08-09 Fletcher Company has three products with the following characteristics: Product A Product B Product C Monthly sales in dollars \ 60,000 \ 80,000 \ 100,000 Contribution margin ratio 20\% 40\% 16\% -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:

Reference: 08-02 The following is Allison Corporation's contribution format income statement for last month: Sales \ 800,000 Less variable expenses 300,000 Contribution margin 500,000 Less fixed expenses 400,000 Net income \ 100,000 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?

Reference: 08-14 Wright Corporation's contribution format income statement for last month appears below. Sales \ 45,000 Less variable expenses 27,000 Contribution margin 18,000 Less fixed expenses 12,000 Net income \ 6,000 There were no beginning or ending inventories. The company produced and sold 3,000 units during the month. -The company has an opportunity to secure a special order of 800 units if it is willing to drop the selling price on these units to $13. Costs of securing the special order would be $1,000. The special order would not affect the company's regular sales. If the special order is accepted, the company's overall net income will:

The contribution margin ratio always increases when the:

Once the break-even point has been reached, increases in contribution margin will be reflected dollar for dollar in increased net income.

A company with sales of $70,000 and variable expenses of $40,000 should spend $10,000 on increased advertising if the increased advertising will increase sales by $20,000.

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:

The ratio of fixed expenses to the unit contribution margin is the:

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?

If two companies have the same total sales and total expenses and make the same product, the volatility of net income with changes in sales will tend to be greater in the company with a higher proportion of fixed expenses in its cost structure.

The margin of safety is equal to: