Question 1

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

Accepted Answer

A)  Break-even point in unit sales. 
B)  Profit margin. 
C)  Contribution margin ratio. 
D)  Margin of safety. 
A)  Break-even point in unit sales. 
B)  Profit margin. 
C)  Contribution margin ratio. 
D)  Margin of safety. A

Question 2

Arthur Company had the following data for the year just ended:
$\begin{array}{|l|r|}
\hline \text { Sales } & 4,000 \text { units } \
\hline \text { Sales price } & \$ 60 \text { per unit } \
\hline \text { Variable cost } & \$ 18 \text { per unit } \
\hline \text { Fixed costs } & \$ 42,000 \
\hline
\end{array}$

-If the company wants its margin of safety to equal $35,000 next year,all other factors remaining the same,how many units will it need to sell?

Accepted Answer

A)  1,000 units. 
B)  833 units. 
C)  1,583 units. 
D)  1,833 units. 
A)  1,000 units. 
B)  833 units. 
C)  1,583 units. 
D)  1,833 units. C

Question 3

The following data pertain to last month's operations:
$\begin{array}{|l|r|}
\hline \text { Selling price } & \$ 20 \text { per unit } \
\hline \text { Variable production cost } & \$ 12 \text { per unit } \
\hline \text { Fixed production cost } & \$ 3,000 \
\hline \text { Variable selling \& administrative expenses } & \$ 3 \text { per unit } \
\hline \text { Fixed selling \& administrative expenses } & \$ 1,500 \
\hline
\end{array}$
What is the break-even point in dollars?

Accepted Answer

A)  $18,000. 
B)  $6,000. 
C)  $11,250. 
D)  $7,500. 
A)  $18,000. 
B)  $6,000. 
C)  $11,250. 
D)  $7,500. A

Question 4

Paxton Corp has provided the following data concerning its operations last month:
$\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 400,000 \
\hline \text { Variable expenses } & \$ 250,000 \
\hline \text { Fixed expenses } & \$ 100,000 \
\hline
\end{array}$Paxton Corp is a retailing organization.

-What is the break-even point in sales dollars,rounded to the nearest dollar?

Accepted Answer

A)  $148,148. 
B)  $266,667. 
C)  $333,333. 
D)  $350,000. 
A)  $148,148. 
B)  $266,667. 
C)  $333,333. 
D)  $350,000.

Question 5

The following data relate to a company that produces and sells a travel guide that is updated monthly:
$\begin{array} { | l | r | } 
\hline \text { Fixed costs: } & \
\hline \text { Copy editing } & \$ 6,000 \
\hline \text { Art work } & \$ 2,000 \
\hline \text { Typesetting } & \$ 72,000 \
\hline
\end{array}$
$\begin{array} { | l | l | } 
\hline \text { Variable costs: } & \
\hline \text { Printing and binding } & \$ 3.20 \text { per copy } \
\hline \text { Bookstore discounts } & \$ 4.00 \text { per copy } \
\hline \text { Salespersons' commissions } & \$ 0.50 \text { per copy } \
\hline \text { Author's royalties } & \$ 2.00 \text { per copy }\\hline 
\end{array}$Each book sells for $20.00. The company sold 8,000 books in June and 10,000 books in July.

-What is the contribution margin ratio for the book?

Accepted Answer

A)  71.5%. 
B)  54.0%. 
C)  51.5%. 
D)  51.9%. 
A)  71.5%. 
B)  54.0%. 
C)  51.5%. 
D)  51.9%.

Question 6

Rawlings Company prepared the following budget information for the coming year:
 $\begin{array}{|l|r|r|r|r|}
\hline&\text { Product A }&\text { Product B }&\text { Product C}&\text { Total }\
\hline \text { Sales } & \$ 85,714 & \$ 1,000,000 & \$ 177,777 & \$ 1,263,49 \
\hline \begin{array}{l}
\text { Variable } \
\text { expenses }
\end{array} & \underline{25,714} & \underline{800,000} & \underline{97,777} & \underline{923,491} \
\hline \begin{array}{l}
\text { Contribution } \
\text { margin }
\end{array} & \$ 60,000 & \$ 200,000 & \$ 80,000 & \$ 340,000 \
\hline \text { Fixed expense } & & & & \underline{255,000} \
\hline \begin{array}{l}
\text { Operating } \
\text { income }
\end{array} & & & & \$ 85,000 \
\hline
\end{array}$
 
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?

Accepted Answer

None

Question 7

The following is Allison Corporation's contribution format income statement for last month:
$\begin{array}{|l|r|}
\hline \text { Sales } & \$ 800,000 \
\hline \text { Less: variable expenses } & \underline{300,000} \
\hline \text { Contribution margin } & 500,000 \
\hline \text { Less: fixed expenses } & \underline{400,000} \
\hline \text { Operating income } & \$ 100,000 \
\hline
\end{array}$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?

Accepted Answer

A)  62.5%. 
B)  160%. 
C)  500%. 
D)  20%. 
A)  62.5%. 
B)  160%. 
C)  500%. 
D)  20%.

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

A company has provided the following data:
$\begin{array}{|l|r|}
\hline \text { Sales } & 3,000 \text { units } \
\hline \text { Sales price } & \$ 70 \text { per unit } \
\hline \text { Variable cost } & \$ 50 \text { per unit } \
\hline \text { Fixed cost } & \$ 25,000 \
\hline
\end{array}$
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?

Accepted Answer

A)  Decrease by $31,875. 
B)  Decrease by $15,000. 
C)  Increase by $20,625. 
D)  Decrease by $3,125. 
A)  Decrease by $31,875. 
B)  Decrease by $15,000. 
C)  Increase by $20,625. 
D)  Decrease by $3,125.

Question 10

Marling Corporation has budgeted the following data:
Expected Sales $600,000
Variable Expenses $420,000
Fixed Expenses $120,000
What is the break-even in sales dollars?

Accepted Answer

A)  $400,000. 
B)  $420,000. 
C)  $540,000. 
D)  $660,000. 
A)  $400,000. 
B)  $420,000. 
C)  $540,000. 
D)  $660,000.

Question 11

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?

Accepted Answer

A)  $43,200. 
B)  $60,000. 
C)  $16,800. 
D)  Cannot be determined from the data given. 
A)  $43,200. 
B)  $60,000. 
C)  $16,800. 
D)  Cannot be determined from the data given.

Question 12

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.
48,000/(1-.4)= $80,000.

Accepted Answer

A) True 
 B)False

Question 13

The following monthly data are available for the Phelps Company:
$\begin{array}{|l|r|r|r|r|}
\hline & \text { Product A } & \text { Product B } & \text { Product C } & \text { Total } \
\hline \text { Sales } & \$ 150,000 & \$ 130,000 & \$ 90,000 & \$ 370,000 \
\hline \text { Variable } & 91,000& 104,000 & 27,000 & 222,000 \\text { expenses } & & & & \
\hline \text { Contribution } & \$ 59,000 & \$ 26,000 & \$ 63,000 & 148,000 \\text { margin } & & & & \
\hline \text { Fixed expenses } & & & & 55,000 \
\hline & & & & \$ 93,000 \
\hline
\end{array}$
What are the break-even sales for the month for the company?

Accepted Answer

A)  $91,667. 
B)  $203,000. 
C)  $148,000. 
D)  $137,500. 
A)  $91,667. 
B)  $203,000. 
C)  $148,000. 
D)  $137,500.

Question 14

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?

Accepted Answer

A)  $8,000. 
B)  $32,000. 
C)  $24,000. 
D)  $16,000. 
A)  $8,000. 
B)  $32,000. 
C)  $24,000. 
D)  $16,000.

Question 15

A product sells for $20 per unit,and has a contribution margin ratio of 40%.Fixed expenses total $120,000 annually.The company that makes and sells the product has an income tax rate of 40%.How many units must be sold to yield an after-tax operating profit of $30,000?

Accepted Answer

A)  21,250 units. 
B)  18,750 units. 
C)  24,375 units. 
D)  14,167 units. 
A)  21,250 units. 
B)  18,750 units. 
C)  24,375 units. 
D)  14,167 units.

Question 16

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?

Accepted Answer

A)  $48,000. 
B)  $80,000. 
C)  $60,000. 
D)  $0. 
A)  $48,000. 
B)  $80,000. 
C)  $60,000. 
D)  $0.

Question 17

Fletcher Company has three products with the following characteristics:
$\begin{array} { | l | r | r | r | } 
\hline & \text { Product A } & \text { Product B } & \text { Product C } \
\hline \begin{array} { l } 
\text { Monthly sales in } \
\text { dollars }
\end{array} & \$ 60,000 & \$ 80,000 & \$ 100,000 \
\hline \begin{array} { l } 
\text { Contribution margin } \
\text { ratio }
\end{array} & 20 \% & 40 \% & 16 \% \
\hline
\end{array}$Fixed Costs = $30,000 per month.

-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?

Accepted Answer

A)  Increase. 
B)  Decrease. 
C)  Remain unchanged. 
D)  The effect cannot be predicted without additional information. 
A)  Increase. 
B)  Decrease. 
C)  Remain unchanged. 
D)  The effect cannot be predicted without additional information.

Question 18

The following monthly data are available for the Eager Company and its only product:
$\begin{array}{|l|r|}
\hline \text { Unit sales price } & \$ 75 \
\hline \text { Unit variable expenses } & \$ 30 \
\hline \text { Total fixed expenses } & \$ 180,000 \
\hline \text { Actual sales for the month of March } & 7,000 \text { units } \
\hline
\end{array}$
What was the margin of safety for the company for March?

Accepted Answer

A)  $315,000. 
B)  $225,000. 
C)  $135,000. 
D)  $495,000. 
A)  $315,000. 
B)  $225,000. 
C)  $135,000. 
D)  $495,000.

Question 19

The following is Alsatia Corporation's contribution format income statement for last month:
 $\begin{array}{|l|r|}
\hline \text { Sales } & \$ 1,400,000 \
\hline \text { Less: variable expenses } & 900,000 \
\hline \text { Contribution margin } & 500,000 \
\hline \text { Less: fixed expenses } & \underline{300,000} \
\hline \text { Operating income } & \$ 200,000 \
\hline
\end{array}$ 
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?

Accepted Answer

A)Contribution margin ratio
CM ratio = C

Question 20

Junsin Corporation's budget for next year appears below. The budget assumes the company will sell 30,000 units.
$\begin{array}{|l|r|r|}
\hline \text { Sales } & & \$ 600,000 \
\hline \text { Less: expenses } & & \
\hline \text { Variable } & \$ 390,000 & \
\hline \text { Fixed } &  \$ 140,000& \$ 530,000 \
\hline \text { Operating income } & & \$ 70,000 \
\hline
\end{array}$

-What is the company's margin of safety as a percentage of sales,rounded to the nearest whole percent?

Accepted Answer

A)  33%. 
B)  50%. 
C)  12%. 
D)  67%. 
A)  33%. 
B)  50%. 
C)  12%. 
D)  67%.

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

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 its margin of safety to equal $35,000 next year,all other factors remaining the same,how many units will it need to sell?

The following data pertain to last month's operations: Selling price \ 20 per unit Variable production cost \ 12 per unit Fixed production cost \ 3,000 Variable selling \& administrative expenses \ 3 per unit Fixed selling \& administrative expenses \ 1,500 What is the break-even point in dollars?

Paxton Corp has provided the following data concerning its operations last month: Sales \ 400,000 Variable expenses \ 250,000 Fixed expenses \ 100,000 Paxton Corp is a retailing organization. -What is the break-even point in sales dollars,rounded to the nearest dollar?

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 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 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?

Marling Corporation has budgeted the following data: Expected Sales $600,000 Variable Expenses $420,000 Fixed Expenses $120,000 What is the break-even in sales dollars?

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?

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. 48,000/(1-.4)= $80,000.

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?

A product sells for $20 per unit,and has a contribution margin ratio of 40%.Fixed expenses total $120,000 annually.The company that makes and sells the product has an income tax rate of 40%.How many units must be sold to yield an after-tax operating profit of $30,000?

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?

The following monthly data are available for the Eager Company and its only product: Unit sales price \ 75 Unit variable expenses \ 30 Total fixed expenses \ 180,000 Actual sales for the month of March 7,000 units What was the margin of safety for the company for March?

Managerial Accounting and the Business Environment

Cost Terms,concepts,and Classifications

Cost Behaviour: Analysis and Use

Systems Design: Job-Order Costing

Systems Design: Process Costing

Activity-Based Costing: A Tool to Aid Decision Making

Variable Costing: A Tool for Management

Budgeting

Standard Costs and Overhead Analysis

Reporting for Control

Relevant Costs for Decision Making

Capital Budgeting Decisions

Financial Statement Analysis

Filters

Exam 4: Cost-Volume-Profit Relationships

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

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 its margin of safety to equal $35,000 next year,all other factors remaining the same,how many units will it need to sell?

The following data pertain to last month's operations: Selling price \ 20 per unit Variable production cost \ 12 per unit Fixed production cost \ 3,000 Variable selling \& administrative expenses \ 3 per unit Fixed selling \& administrative expenses \ 1,500 What is the break-even point in dollars?

Paxton Corp has provided the following data concerning its operations last month: Sales \ 400,000 Variable expenses \ 250,000 Fixed expenses \ 100,000 Paxton Corp is a retailing organization. -What is the break-even point in sales dollars,rounded to the nearest dollar?

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.

Marling Corporation has budgeted the following data: Expected Sales $600,000 Variable Expenses $420,000 Fixed Expenses $120,000 What is the break-even in sales dollars?

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?

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. 48,000/(1-.4)= $80,000.

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?

A product sells for $20 per unit,and has a contribution margin ratio of 40%.Fixed expenses total $120,000 annually.The company that makes and sells the product has an income tax rate of 40%.How many units must be sold to yield an after-tax operating profit of $30,000?

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?

The following monthly data are available for the Eager Company and its only product: Unit sales price \ 75 Unit variable expenses \ 30 Total fixed expenses \ 180,000 Actual sales for the month of March 7,000 units What was the margin of safety for the company for March?

Managerial Accounting and the Business Environment

Cost Terms,concepts,and Classifications

Cost Behaviour: Analysis and Use

Systems Design: Job-Order Costing

Systems Design: Process Costing

Activity-Based Costing: A Tool to Aid Decision Making

Variable Costing: A Tool for Management

Budgeting

Standard Costs and Overhead Analysis

Reporting for Control

Relevant Costs for Decision Making

Capital Budgeting Decisions

Financial Statement Analysis

Filters