Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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.

-What is the overall contribution margin ratio for the company as a whole,rounded to the nearest tenth of a percent?

Accepted Answer

A)  25.3%. 
B)  75.0%. 
C)  25.0%. 
D)  28.5%. 
A)  25.3%. 
B)  75.0%. 
C)  25.0%. 
D)  28.5%.

Question 3

Carver Company produces a product that sells for $30.Variable manufacturing costs are $15 per unit.Fixed manufacturing costs are $5 per unit based on the current level of activity,and fixed selling and administrative costs are $4 per unit.A selling commission of 10% of the selling price is paid on each unit sold.What is the contribution margin per unit?

Accepted Answer

A)  $3. 
B)  $15. 
C)  $8. 
D)  $12. 
A)  $3. 
B)  $15. 
C)  $8. 
D)  $12.

Question 4

The following is last month's contribution format income statement:
$\begin{array}{|l|r|}
\hline \text { Sales }(10,000 \text { units }) & \$ 1,200,000 \
\hline \text { Less: variable expenses } & \$ 00,000 \
\hline \text { Contribution margin } & 400,000 \
\hline \text { Less: fixed expenses } & 240,000 \
\hline \text { Operating income } & \$ 160,000 \
\hline
\end{array}$
What is the company's break-even sales in units?

Accepted Answer

A)  0 units. 
B)  12,000 units. 
C)  6,000 units. 
D)  8,000 units. 
A)  0 units. 
B)  12,000 units. 
C)  6,000 units. 
D)  8,000 units.

Question 5

The margin of safety percentage is equal to the margin of safety in dollars divided by total sales in dollars.

Accepted Answer

A) True 
 B)False

Question 6

Wilson Company prepared the following preliminary budget assuming no advertising expenditures:
$\begin{array}{|l|r|}
\hline \text { Selling price } & \$ 10 \text { per unit } \
\hline \text { Unit sales } & 100,000 \
\hline \text { Variable expenses } & \$ 600,000 \
\hline \text { Fixed expenses } & \$ 300,000 \
\hline
\end{array}$
Based on a market study,the company estimated that it could increase the unit selling price by 15% and increase the unit sales volume by 10%,if $100,000 were spent on advertising.Assuming that these changes are incorporated in its budget,what should be the budgeted operating income?

Accepted Answer

A)  $175,000. 
B)  $190,000. 
C)  $205,000. 
D)  $365,000. 
A)  $175,000. 
B)  $190,000. 
C)  $205,000. 
D)  $365,000.

Question 7

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.

-Assume sales next year total $240,000; product A $70,000,product B $90,000 and C $80,000.Total Contribution Margin for Fletcher will be closest to:

Accepted Answer

A)  $60,000. 
B)  $62,800. 
C)  $32,800. 
D)  $30,000. 
A)  $60,000. 
B)  $62,800. 
C)  $32,800. 
D)  $30,000.

Question 8

The following is Arkadia Corporation's contribution format income statement for last month:
 $\begin{array}{|l|r|}
\hline \text { Sales } & \$ 1,200,000 \
\hline \text { Less: variable expenses } & \$ 00,000 \
\hline \text { Contribution margin } & 400,000 \
\hline \text { Less: fixed expenses } & \underline{300,000} \
\hline \text { Operating income } & \$ 100,000 \
\hline
\end{array}$ 
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?
g)If the tax rate is 30%,how many units must be sold to attain an after tax profit of $84,000?

Accepted Answer

a)Contribution margin ratio
CM ratio = C

Question 9

The following is Allison Corporation's contribution format income statement for December 2014:
 $\begin{array}{|l|r|}
\hline \text { Sales } & \$ 800,000 \
\hline \text { Less: variable expenses } & 300,000 \
\hline \text { Contribution margin } & 500,000 \
\hline \text { Less: fixed expenses } & \$ 400,000 \
\hline \text { Operating income } & \$ 100,000 \
\hline
\end{array}$

Accepted Answer

The company had no beginning or ending i

Question 10

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

$\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 1,000,000 \
\hline \text { Less: variable expenses } & \underline { 700,000 } \
\hline \text { Contribution margin } & 300,000 \
\hline \text { Less: fixed expenses } & \underline { 180,000 } \
\hline \text { Operating income } & \$ 120,000 \
\hline
\end{array}$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?

Accepted Answer

A)  $400. 
B)  $4,800. 
C)  $1,500. 
D)  $2,500. 
A)  $400. 
B)  $4,800. 
C)  $1,500. 
D)  $2,500.

Question 11

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:
$\begin{array} {| l | r | r | } 
\hline & \text { Standard } & \text { Deluxe } \
\hline \text { Selling price per unit } & \$ 150 & \$ 165 \
\hline \text { Variable production costs } & \$ 120 & \$ 126 \
\hline \begin{array} { l } 
\text { Variable selling expense per } \
\text { unit }
\end{array} & \$ 16 & \$ 13 \
\hline \begin{array} { l } 
\text { Expected monthly sales in } \
\text { units }
\end{array} & 600 & 1,200 \
\hline \begin{array} { l } 
\text { Total monthly fixed cost } \
\text { (common in both) }
\end{array} & & \$ 15,000 \
\hline
\end{array}$

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

Accepted Answer

A)  $160,772. 
B)  $95,178. 
C)  $109,091. 
D)  $175,644. 
A)  $160,772. 
B)  $95,178. 
C)  $109,091. 
D)  $175,644.

Question 12

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'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?

Accepted Answer

A)  200-unit increase. 
B)  440-unit decrease. 
C)  200-unit decrease. 
D)  No change in the break-even point. 
A)  200-unit increase. 
B)  440-unit decrease. 
C)  200-unit decrease. 
D)  No change in the break-even point.

Question 13

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

$\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 1,000,000 \
\hline \text { Less: variable expenses } & \underline { 700,000 } \
\hline \text { Contribution margin } & 300,000 \
\hline \text { Less: fixed expenses } & \underline { 180,000 } \
\hline \text { Operating income } & \$ 120,000 \
\hline
\end{array}$The company has no beginning or ending inventories. A total of 20,000 units were produced and sold last month.

-How many units would the company have to sell to attain target operating profits of $150,000?

Accepted Answer

A)  22,000 units. 
B)  37,500 units. 
C)  25,000 units. 
D)  26,667 units. 
A)  22,000 units. 
B)  37,500 units. 
C)  25,000 units. 
D)  26,667 units.

Question 14

If the fixed expenses increase in a company,and all other factors remain unchanged,then one would expect the margin of safety to decrease.

Accepted Answer

A) True 
 B)False

Question 15

Spencer Company's most recent monthly contribution format income statement is given below:
 $\begin{array}{|l|r|}
\hline \text { Sales } & \$ 60,000 \
\hline \text { Less: variable expenses } & \underline{45,000} \
\hline \text { Contribution margin } & 15,000 \
\hline \text { Less: fixed expenses } & 18,000 \
\hline \text { Operating income } & (\$ 3,000) \
\hline
\end{array}$ 
The company sells its only product for $10 per unit.There were no beginning or ending inventories.
Required:
a)What is the company's contribution margin ratio?
b)What are total sales in dollars at the break-even point?
c)What are total variable expenses at the break-even point?
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.)

Accepted Answer

a)The contribution margin ratio is $15,0

Question 16

Goodman Company has sales of 3,000 units at $80 per unit.Variable costs are 35% of the sales price.If total fixed costs are $66,000,what is the degree of operating leverage rounded to 2 decimal places?

Accepted Answer

A)  0.79. 
B)  0.93. 
C)  2.67. 
D)  1.73. 
A)  0.79. 
B)  0.93. 
C)  2.67. 
D)  1.73.

Question 17

The following is last month's contribution format income statement(Do not round intermediate computations):
$\begin{array}{|l|r|}
\hline \text { Sales }(20,000 \text { units }) & \$ 1,800,000 \
\hline \text { Less: variable expenses } & 1,200,000 \
\hline \text { Contribution margin } & 600,000 \
\hline \text { Less: fixed expenses } & \underline{400,000} \
\hline \text { Operating income } & \$ 200,000 \
\hline
\end{array}$
What is the company's break-even in sales dollars?

Accepted Answer

A)  $1,200,000. 
B)  $0. 
C)  $1,800,000. 
D)  $1,600,000. 
A)  $1,200,000. 
B)  $0. 
C)  $1,800,000. 
D)  $1,600,000.

Question 18

The following information relates to Clyde Corporation,which produced and sold 50,000 units last month.
$\begin{array}{|l|l|}
\hline \text { Sales } & \$ 850,000 \
\hline \text { Manufacturing costs: } & \
\hline \text { Fixed } & 210,000 \
\hline \text { Variable } & 140,000 \\hline \text { Selling and admin. Expenses: } & \
\hline \text { Fixed } & 300,000 \
\hline \text { Variable } & 45,000\
\hline
\end{array}$
There were no beginning or ending inventories.Production and sales next month are expected to be 40,000 units.In the next month,what should the company's unit contribution margin be?

Accepted Answer

A)  $16.63. 
B)  $3.10. 
C)  $7.98. 
D)  $13.30. 
A)  $16.63. 
B)  $3.10. 
C)  $7.98. 
D)  $13.30.

Question 19

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 break-even point is closest to which of the following?

Accepted Answer

A)  19,111 units. 
B)  10,118 units. 
C)  21,500 units. 
D)  24,000 units. 
A)  19,111 units. 
B)  10,118 units. 
C)  21,500 units. 
D)  24,000 units.

Question 20

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 dollar contribution margin per unit is increased by 10%,total fixed cost is decreased by 20%,and all other factors remain the same,what will the outcome be for operating income?

Accepted Answer

A)  Increase by $61,000. 
B)  Increase by $20,000. 
C)  Increase by $3,500. 
D)  Increase by $11,000. 
A)  Increase by $61,000. 
B)  Increase by $20,000. 
C)  Increase by $3,500. 
D)  Increase by $11,000.

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

The following is last month's contribution format income statement: Sales (10,000 units ) \ 1,200,000 Less: variable expenses \ 00,000 Contribution margin 400,000 Less: fixed expenses 240,000 Operating income \ 160,000 What is the company's break-even sales in units?

The margin of safety percentage is equal to the margin of safety in dollars divided by total sales in dollars.

The following is Allison Corporation's contribution format income statement for December 2014: Sales \ 800,000 Less: variable expenses 300,000 Contribution margin 500,000 Less: fixed expenses \ 400,000 Operating income \ 100,000

If the fixed expenses increase in a company,and all other factors remain unchanged,then one would expect the margin of safety to decrease.

Goodman Company has sales of 3,000 units at $80 per unit.Variable costs are 35% of the sales price.If total fixed costs are $66,000,what is the degree of operating leverage rounded to 2 decimal places?

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 break-even point is closest to which of the following?

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

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

The following is last month's contribution format income statement: Sales (10,000 units ) \ 1,200,000 Less: variable expenses \ 00,000 Contribution margin 400,000 Less: fixed expenses 240,000 Operating income \ 160,000 What is the company's break-even sales in units?

The margin of safety percentage is equal to the margin of safety in dollars divided by total sales in dollars.

The following is Allison Corporation's contribution format income statement for December 2014: Sales \ 800,000 Less: variable expenses 300,000 Contribution margin 500,000 Less: fixed expenses \ 400,000 Operating income \ 100,000

If the fixed expenses increase in a company,and all other factors remain unchanged,then one would expect the margin of safety to decrease.

Goodman Company has sales of 3,000 units at $80 per unit.Variable costs are 35% of the sales price.If total fixed costs are $66,000,what is the degree of operating leverage rounded to 2 decimal places?

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 break-even point is closest to which of the following?

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