Exam 7: Cost-Volume-Profit Relationships

Spencer Company's most recent monthly contribution format income statement is given below: The company sells its only product for $10 per unit. There were no beginning or ending inventories. Required: a) What are total sales in dollars at the break-even point? b) What are total variable expenses at the break-even point? c) What is the company's contribution margin ratio? d) If unit sales were increased by 10% and fixed expenses were reduced by $2,000, what would be the company's expected operating income? (Prepare a new income statement.)

The following is last month's contribution format income statement: What is the company's margin of safety in dollars?

Wallace,Inc.,prepared the following budgeted data based on a sales forecast of $6,000,000: What would be the amount of sales dollars at the break-even point?

Which of the following is defined as the difference between total sales in dollars and total variable expenses?

McGordon Corporation has provided the following data: -What is the break-even point in sales dollars?

P. Harrison Limited manufactures and sells highly faddish products directed toward the preteen market. A new product has come onto the market that the company is anxious to manufacture and sell. Enough capacity exists in the company's plant to manufacture a maximum of 35,000 units of the new product each month. Total fixed costs (both manufacturing and non-manufacturing) will amount to $60,000 per month. The company's controller projects an operating loss of $15,000 if the company manufactures and sells 30,000 units of the new product per month. The marketing department predicts that demand for the new product will exceed the maximum 35,000 units that the company is able to manufacture in its own plant. Additional manufacturing capacity can be rented from another company at a fixed cost of $20,000 per month to manufacture 50,000 units of the new product monthly. The variable costs to manufacture and sell units of the new product made in the rented facility will be higher at $3.75, due to somewhat less efficient operations than in the company's own plant. The new product, however, will sell for $4.50 per unit, regardless of where it is manufactured. Required: a) Calculate the monthly break-even sales for the new product in units if the company operates only in its own plant, that is, it manufactures a maximum of 35,000 units. (NOTE: If there is no break-even sales level, state so together with the supporting calculations and reasoning.) b) Calculate the monthly break-even sales for the new product in units if the company rents the additional manufacturing capacity, that is, it manufactures more than 35,000 units. NOTE: Again, if there is no break-even sales level, state so together with the supporting calculations and reasoning.) c) Suppose there are NO manufacturing capacity constraints for the manufacture of the new product at either the company's own plant or the rented facility. (i) At what level of non-zero production and sales (in units) would you expect the company to be indifferent between the two manufacturing facilities? (ii) Calculate the degree of operating leverage at a monthly sales level of 50,000 units at EACH manufacturing facility. (iii) Which one of the two manufacturing facilities will be MORE advantageous for the manufacture of the new product, assuming the marketing department predicts very strong and increasing demand for the new product? Explain, strictly on the basis of the degree of operating leverage calculations in Part c (ii) above.

North Company sells a single product.The product has a selling price of $30 per unit and variable expenses are 70% of sales.If the company's fixed expenses total $60,000 per year,then what will be its break-even?

Wright Corporation's contribution format income statement for last month appears below: There were no beginning or ending inventories. The company produced and sold 3,000 units during the month. -If sales decrease by 500 units in the next month,by how much would fixed expenses have to be reduced to maintain the current operating income?

A company has sales of $87,500 at the break even point and fixed costs are $35,000.Assuming cost behaviour does not change if sales increase by $20,000 how much will operating income will increase by?

How is the degree of operating leverage calculated?

Sales = Variable expenses + Fixed expenses + Target operating income $4.50Q = $3.00Q + $120,000 + $0 $1.50Q = $120,000 Q = $120,000/$1.50 = 80,000 units 2.80,000 units x $4.50 = $360,000 3.Sales = Variable expenses + Fixed expenses + Target operating income $4.50Q = $3.00Q + $120,000 + $90,000 $1.50Q = $210,000 Q = $210,000/$1.50 = 140,000 units 4.Margin of safety = Sales - Sales at break-even = $540,000 - $360,000 = $180,000

The following data relate to a company that produces and sells a travel guide that is updated monthly: Each book sells for $20.00. The company sold 8,000 books in June and 10,000 books in July. -What is the unit contribution margin per book?

The following is last month's contribution format income statement: What is the company's break-even sales in units?

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

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

Paxton Corp has provided the following data concerning its operations last month: Paxton Corp is a retailing organization. -What is the degree of operating leverage?

Last year,Black Company reported sales of $640,000,a contribution margin of $160,000,and an operating loss of $40,000.Based on this information,what was the break-even point?

The following is last month's contribution format income statement: What is the company's break-even in sales dollars?

The following is Allison Corporation's contribution format income statement for last month: 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?

Belli-Pitt,Inc produces a single product.The results of the company's operations for a typical month are summarized in contribution format as follows: Required: a) Given the present situation, compute 1 The break-even sales in kilograms. 2 The break-even sales in dollars. 3 The sales in kilograms that would be required to produce operating income of $90,000. 4 The margin of safety in dollars. b) An important part of processing is performed by a machine that is currently being leased for $20,000 per month. Belli-Pitt has been offered an arrangement whereby it would pay $0.10 royalty per kilogram processed by the machine rather than the monthly lease. 1 Should the company choose the lease or the royalty plan? 2 Under the royalty plan, compute the break-even point in kilograms. 3 Under the royalty plan, compute the break-even point in dollars. 4 Under the royalty plan, determine the sales in kilograms that would be required to produce operating income of $90,000.