Question 1

McGordon Corporation has provided the following data:$\begin{array}{|l|r|}
\hline \text { Sales } & \$ 800,000 \
\hline \text { Variable expenses } & \$ 560,000 \
\hline \text { Fixed expenses } & \$ 168,000 \
\hline
\end{array}$

-What is the contribution margin?

Accepted Answer

A)  $240,000. 
B)  $560,000. 
C)  $632,000. 
D)  $72,000. 
A)  $240,000. 
B)  $560,000. 
C)  $632,000. 
D)  $72,000.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Company Y is considering two production technologies,Bronze and Platinum,for producing its new product.The cost structures of the two technologies are as follows:
$$\begin{array} { | l | r | r | } 
\hline & \text { Bronze } & \text { Platinum } \
\hline \text { Selling price per unit } & \$ 150 & \$ 150 \
\hline \begin{array} { l } 
\text { Variable production costs } \
\text { per urit }
\end{array} & \$ 120 & \$ 50 \
\hline \text { Total fixed production costs } & \$ 300,000 & \$ 1,210,000 \
\hline
\end{array}$$
At what level of sales volume in units (rounded to the nearest whole unit)would Company Y be indifferent in choosing between the Bronze and Platinum technologies?

Accepted Answer

A)  10,000 units. 
B)  12,100 units. 
C)  13,000 units. 
D)  Cannot be determined without additional information. 
A)  10,000 units. 
B)  12,100 units. 
C)  13,000 units. 
D)  Cannot be determined without additional information.

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 degree of operating leverage?

Accepted Answer

A)  3. 
B)  8. 
C)  0.33. 
D)  5. 
A)  3. 
B)  8. 
C)  0.33. 
D)  5.

Question 5

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.

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

Accepted Answer

A)  0.12. 
B)  2.5. 
C)  0.4. 
D)  3.3. 
A)  0.12. 
B)  2.5. 
C)  0.4. 
D)  3.3.

Question 6

The following is last month's contribution format income statement:
$\begin{array}{|l|r|}
\hline \text { Sales }(8,000 \text { units) } & \$ 800,000 \
\hline \text { Less: variable expenses } & 500,000 \
\hline \text { Contribution margin } & 300,000 \
\hline \text { Less: fixed expenses } & 200,000 \
\hline \text { Operating income } & \$ 100,000 \
\hline
\end{array}$
What is the company's degree of operating leverage?

Accepted Answer

A)  0.125. 
B)  8.0. 
C)  3.0. 
D)  0.333. 
A)  0.125. 
B)  8.0. 
C)  3.0. 
D)  0.333.

Question 7

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?

Accepted Answer

A)  47.1%. 
B)  2.1%. 
C)  1.9%. 
D)  52.9%. 
A)  47.1%. 
B)  2.1%. 
C)  1.9%. 
D)  52.9%.

Question 8

Which of the following is defined as the amount by which a company's sales can decline before operating losses are incurred?

Accepted Answer

A)  Contribution margin. 
B)  Degree of operating leverage. 
C)  Margin of safety. 
D)  Contribution margin ratio. 
A)  Contribution margin. 
B)  Degree of operating leverage. 
C)  Margin of safety. 
D)  Contribution margin ratio.

Question 9

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.

-The breakeven point in sales dollars is closest to:

Accepted Answer

A)  $137,500. 
B)  $40,000. 
C)  $120,000. 
D)  $60,000. 
A)  $137,500. 
B)  $40,000. 
C)  $120,000. 
D)  $60,000.

Question 10

The basic cost-volume-profit model assumes no change in inventories when the model is applied to a manufacturing company.
Required:
Explain the reasoning behind this assumption.

Accepted Answer

The basic model assumes that sales for t

Question 11

The formula for the break-even point is the same as the formula to attain a given target operating profit for the special case where the target operating profit is zero.

Accepted Answer

A) True 
 B)False

Question 12

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 margin of safety percentage?

Accepted Answer

A)  25%. 
B)  20%. 
C)  40%. 
D)  10%. 
A)  25%. 
B)  20%. 
C)  40%. 
D)  10%.

Question 13

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?
$\begin{array}{|l|l|l|}
\hline & \text { Contribution margin } & \text { Break-even point } \
\hline \text { A) } & \text { Increase } & \text { Decrease } \
\hline \text { B) } & \text { Decrease } & \text { Increase } \
\hline \text { C) } & \text { No change } & \text { Increase } \
\hline \text { D) } & \text { No change } & \text { No change } \
\hline
\end{array}$

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D 
A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 14

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

Accepted Answer

A)  Unit sales volume. 
B)  Total fixed expenses. 
C)  Unit variable expenses. 
D)  Selling price. 
A)  Unit sales volume. 
B)  Total fixed expenses. 
C)  Unit variable expenses. 
D)  Selling price.

Question 15

The following data pertain to Wistron Company's two products:
$\begin{array}{|l|r|r|}
\hline & \text { Product X } & \text { Product Y } \
\hline \text { Sales in dollars } & \$ 100,000 & \$ 80,000 \
\hline \text { Contribution margin ratio } & 48 \% & 30 \% \
\hline
\end{array}$
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 in sales dollar for the company?

Accepted Answer

A)  $150,000. 
B)  $153,846. 
C)  $100,000. 
D)  $132,000. 
A)  $150,000. 
B)  $153,846. 
C)  $100,000. 
D)  $132,000.

Question 16

How is the margin of safety percentage computed?

Accepted Answer

A)  Break-even sales divided by Total sales. 
B)  Total sales minus Break-even sales. 
C)  (Total sales - Break-even sales) divided by Break-even sales. 
D)  (Total sales - Break-even sales) divided by Total sales. 
A)  Break-even sales divided by Total sales. 
B)  Total sales minus Break-even sales. 
C)  (Total sales - Break-even sales) divided by Break-even sales. 
D)  (Total sales - Break-even sales) divided by Total sales.

Question 17

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?

Accepted Answer

a)Determine the break-even number of pro

Question 18

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?

Accepted Answer

A)  20%. 
B)  16%. 
C)  160%. 
D)  40%. 
A)  20%. 
B)  16%. 
C)  160%. 
D)  40%.

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

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.

-What is the company's break-even in units?

Accepted Answer

A)  20,000 units. 
B)  0 units. 
C)  18,000 units. 
D)  12,000 units. 
A)  20,000 units. 
B)  0 units. 
C)  18,000 units. 
D)  12,000 units.

McGordon Corporation has provided the following data: Sales \ 800,000 Variable expenses \ 560,000 Fixed expenses \ 168,000 -What is the contribution margin?

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

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 degree of operating leverage?

The following is last month's contribution format income statement: Sales (8,000 units) \ 800,000 Less: variable expenses 500,000 Contribution margin 300,000 Less: fixed expenses 200,000 Operating income \ 100,000 What is the company's degree of operating leverage?

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?

Which of the following is defined as the amount by which a company's sales can decline before operating losses are incurred?

Fletcher Company has three products with the following characteristics: Product A Product B Product C Monthly sales in dollars \ 60,000 \ 80,000 \ 100,000 Contribution margin ratio 20\% 40\% 16\% Fixed Costs = $30,000 per month. -The breakeven point in sales dollars is closest to:

The basic cost-volume-profit model assumes no change in inventories when the model is applied to a manufacturing company. Required: Explain the reasoning behind this assumption.

The formula for the break-even point is the same as the formula to attain a given target operating profit for the special case where the target operating profit is zero.

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

How is the margin of safety percentage computed?

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 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.

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

McGordon Corporation has provided the following data: Sales \ 800,000 Variable expenses \ 560,000 Fixed expenses \ 168,000 -What is the contribution margin?

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

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 degree of operating leverage?

The following is last month's contribution format income statement: Sales (8,000 units) \ 800,000 Less: variable expenses 500,000 Contribution margin 300,000 Less: fixed expenses 200,000 Operating income \ 100,000 What is the company's degree of operating leverage?

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?

Which of the following is defined as the amount by which a company's sales can decline before operating losses are incurred?

Fletcher Company has three products with the following characteristics: Product A Product B Product C Monthly sales in dollars \ 60,000 \ 80,000 \ 100,000 Contribution margin ratio 20\% 40\% 16\% Fixed Costs = $30,000 per month. -The breakeven point in sales dollars is closest to:

The basic cost-volume-profit model assumes no change in inventories when the model is applied to a manufacturing company. Required: Explain the reasoning behind this assumption.

The formula for the break-even point is the same as the formula to attain a given target operating profit for the special case where the target operating profit is zero.

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

How is the margin of safety percentage computed?

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 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.

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