Exam 7: Cost-Volume-Profit Relationships

Kilimanjaro Company (KC)makes and sells one product: dehydrated meals for backpacking.Both the average sales price per meal and the average variable cost per meal remain constant regardless of the number meals prepared and sold.Reported sales and after-tax operating income for Year 8 were 25,000 meals and $72,000,respectively.Fixed costs depend on number of meals prepared and sold,as the following schedule shows: KC expects the cost structure and average selling price per meal for Year 8 NOT to change in Year 9. Maximum plant capacity will also remain at 76,000 meals in Year 9. The company can sell every meal it prepares and its marginal income tax rate of 40 percent for Year 8 will also remain unchanged in Year 9. Required: a) Calculate the dollar contribution margin per meal for Year 8 when 25,000 meals were prepared and sold. b) Calculate KC's expected break-even point for Year 9 for EACH of the THREE ranges of meals preparation and sales. If there is no break-even point for a given range of meals preparation and sales level state so, including a brief (but clear) explanation. c) Calculate the number of meals KC must prepare and sell in Year 9 to maximize its after-tax operating income. d) Calculate KC's (i) degree of operating leverage and (ii) margin of safety percentage for Year 8 when 25,000 meals were prepared and sold. e) Using ONLY the degree of operating leverage number you just calculated in part (d) above, calculate the expected dollar amount increase or decrease in before-tax operating income if KC expects to prepare and sell 22,500 meals in Year 9. (NOTE: No credit will be given for answers that include preparation of an income statement for the 22,500 meals.)

Lindsay Company reported the following results from sales of 5,000 units for the month of June: 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 an operating income of $20,000?

Oslo Co.'s industrial photo-finishing division incurred the following expenses last year: During the year, the division sold 300,000 photo-prints for $2.00 each. -If the division produces and sells 350,000 photo-prints,what would its total expenses be?

The following is Addison Corporation's contribution format income statement for last month: The company has no beginning or ending inventories. A total of 20,000 units were produced and sold last month. -If sales increase by 100 units,by how much should operating income increase?

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: -The break-even in sales dollars for the expected sales mix is closest to which of the following?

The following monthly data are available for the Eager Company and its only product: What was the margin of safety for the company for March?

The total contribution margin decreases if sales volume remains the same and which of the following occurs?

A company has provided the following data: If the sales volume decreases by 25%,the variable cost per unit increases by 15%,and all other factors remain the same,what will the outcome be for operating income?

Austin Manufacturing had the following operating data for the year just ended: Management plans to improve the quality of its only product by replacing a component that costs $3.50 with a higher-grade component that costs $5.50,and renting a packing machine for $18,000 a year.If the desired target operating profit is $288,000,how many units must the company sell?

Paxton Corp has provided the following data concerning its operations last month: Paxton Corp is a retailing organization. -What is the contribution margin ratio?

Barnes Company sells three products: A,B,and C.Budgeted sales by product and in total for the coming month are as follows: As shown by these data, operating income is budgeted at $36,400 for the month, and break-even sales at $430,000. Assume that actual sales for the month total $500,000 as planned. Actual sales by product are: A $160,000 B $200,000 C $140,000 Required: a) Prepare a contribution income statement for the month based on actual sales data. Assume variable expenses as a percentage of sales and total fixed expenses are the same as budgeted. Present the income statement in the format shown in the images above. b) Compute break-even sales for the month, based on actual data. c) Explain why the company did not meet the budgeted operating results or break-even sales even though it met its $500,000 sales budget.

The margin of safety in the Flaherty Company is $24,000.If the company's sales are $120,000 and its variable expenses are $80,000,what must its fixed expenses be?

The following is last month's contribution format income statement: What is the company's degree of operating leverage?

Which of the following is defined as the ratio of fixed expenses to the unit contribution margin?

Fletcher Company has three products with the following characteristics: -What is the overall contribution margin ratio for the company as a whole,rounded to the nearest tenth of a percent?

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

The following monthly budgeted data is available for the Baxter Company: Budgeted operating income for the month is $260,000. Required: a) Calculate the break-even sales for the month. b) Calculate the margin of safety. c) Calculate the degree of operating leverage

A company with an income tax rate of 40% and an objective of an after-tax target operating profit of $48,000 should generate a before-tax target operating profit of $120,000.

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

Rawlings Company prepared the following budget information for the coming year: The budget assumes the sale of 20,000 units of A, 100,000 units of B, and 80,000 units of C. Required: a) What is the company's break-even point given the sales mix above? b) If the budgeted sales mix is maintained, what is the total contribution margin and operating income if 300,000 units are sold?