Exam 7: Cost-Volume-Profit Relationships

Jeff Merchandisers (JM)has determined with 100 percent certainty the following costs for making one unit of its only product: The company is, however, not sure of the behaviour of its total indirect manufacturing costs (that is, manufacturing overhead). The controller therefore ran a simple regression based on 20 pairs of monthly observations and obtained the following results: Y represents total monthly manufacturing overhead costs while X represents total monthly manufacturing direct labour costs. Required: a. Assume JM incurs NO selling and administrative expenses. What is your best estimate of the company's monthly breakeven sales in units at a guaranteed selling price of $20.00 per unit? b. Suppose JM uses an ABC system. Which one of the five ABC activity levels in JM's operations does the independent variable in the regression equation support? Why? c. Again, suppose JM uses an ABC system. Identify two different activity levels in JM's operations the intercept term in the regression equation support. Give an example of a resource and an activity for each of the two different levels.

Janet Company produces a game that sells for $17 per game. Variable expenses are $9 per game, and fixed expenses total $172,000 annually. -The contribution margin ratio is closest to which of the following?

Marling Corporation has budgeted the following data: What is the break-even in sales dollars?

Arthur Company had the following data for the year just ended: -If the company's fixed costs decrease by 20% next year,all other factors remaining the same,by how much will the break-even level change compared to that of the current year,rounded to the nearest whole unit?

Arthur Company had the following data for the year just ended: -If the company wants to increase its total contribution margin by 40% in the next year,all other factors remaining the same,by how much will it need to increase its sales?

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 margin of safety percentage?

The following data pertain to Wistron Company's two products: If fixed expenses for the company as a whole are $60,000 and the product mix is constant,what would be the overall break-even point for the company?

For a given level of sales,a low contribution margin ratio will produce less operating income than a high contribution margin ratio.

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

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. -If sales increase by 200 units,by how much should before-tax profits increase?

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 break-even point in units?

Last year,Twins Company reported $750,000 in sales (25,000 units)and an operating 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 statements is true?

A shift in the sales mix from products with a low contribution margin ratio toward products with a high contribution margin ratio will lower the break-even point in the company as a whole.

A total of 30,000 units were sold last year.The contribution margin per unit was $2,and total fixed expenses were $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 operating income as was earned last year?

If the fixed expenses of a product increase while variable expenses and the selling price remain constant,what will happen to the total contribution margin and the break-even point?

If company A has a higher degree of operating leverage than company B,then which of the following statements is true?

Dr.Bertin performs a certain routine surgical procedure at her medical clinic.Her monthly fixed operating costs are $12,000,while her after-tax operating income is $8,000 when she performs 200 such procedures in a month.Dr.Bertin's before-tax operating income is subject to a marginal tax rate of 60%. Required: a)What is the margin of safety percentage for Dr.Bertin,assuming she performs 200 procedures? b)What is the degree of operating leverage for Dr.Bertin,again assuming she performs 200 procedures?

Once the break-even point is reached,which of the following statements is true?

The following is Alsatia Corporation's contribution format income statement for last month: The company has no beginning or ending inventories and produced and sold 10,000 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 $225,000? e) What is the company's margin of safety in dollars? f) What is the company's degree of operating leverage?

The following is last month's contribution format income statement: What is the company's margin of safety percentage,rounded to the nearest whole percent?