Exam 7: Cost-Volume-Profit Relationships

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

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

The following is Arkadia Corporation's contribution format income statement for last month: The company has no beginning or ending inventories and produced and sold 20,000 units during the month. Required: a) What is the company's contribution margin ratio? b) What is the company's break-even in units? c) If sales increase by 100 units, by how much should operating income increase? d) How many units would the company have to sell to attain target operating income of $125,000? e) What is the company's margin of safety in dollars? f) What is the company's degree of operating leverage?

Brasher Company manufactures and sells a single product that has a positive contribution margin.If the selling price and variable expenses both decrease by 5% and fixed expenses do not change,then what would be the effect on the contribution margin per unit and the contribution margin ratio?

If two companies produce the same product and have the same total sales and same total expenses,operating leverage will be lower in the company with a higher proportion of fixed expenses in its cost structure.

A company with a degree of operating leverage of 4 would expect income to increase by 200% if sales increased from $100,000 to $150,000.

The break-even point in sales for Rice Company is $360,000,and the company's contribution margin ratio is 20%.Its income tax rate is 40%.If Rice Company desires an after-tax operating profit of $84,000,what would total sales have to be?

Junsin Corporation's budget for next year appears below. The budget assumes the company will sell 30,000 units. -What is the company's margin of safety as a percentage of sales,rounded to the nearest whole percent?

The contribution margin ratio always increases when which of the following occurs?

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. -What was the division's total contribution margin?

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

If fixed expenses increase by $10,000 per year,then the level of sales needed to break even will also increase by $10,000.

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.What is Roberts Company's break-even point?

McGordon Corporation has provided the following data: -What is the contribution margin?

Scott Company's variable expenses are 72% of sales.The company's break-even point in sales is $2,450,000.If sales are $60,000 below the break-even point,what operating loss would the company report?

Fletcher Company has three products with the following characteristics: -If total units sold remain unchanged,but the sales mix shifts more heavily toward Product C,what would the overall contribution margin ratio be expected to do?

The following monthly data are available for the Challenger Company and its only product,Product SW: Required: a) Without resorting to calculations, what is the total contribution margin at the break-even point? b) Management is contemplating the use of plastic gearing rather than metal gearing in Product SW. This change would reduce variable costs by $15. The company's marketing manager predicts that this would reduce the overall quality of the product and thus would result in a decline in sales to a level of 350 units per month. Should this change be made? c) Assume that Challenger Company is currently selling 400 units of Product SW per month. Management wants to increase sales and feels that this can be done by cutting the selling price by $25 per unit and increasing the advertising budget by $20,000 per month. Management believes that these actions will increase unit sales by 50%. Should these changes be made? d) Assume that Challenger Company is currently selling 400 units of Product SW. Management wants to automate a portion of the production process for Product SW. The new equipment would reduce direct labour costs by $20 per unit but would result in a monthly rental cost for the new robotic equipment of $10,000. Management believes that the new equipment will increase the reliability of Product SW, thus resulting in an increase in monthly sales of 12%. Should these changes be made?

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. -What is the company's contribution margin ratio?

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

The total volume in sales dollars that would be required to attain a given target operating profit is determined by dividing the sum of the fixed expenses and the target operating profit by the contribution margin ratio.