Question 1

The following is last month's contribution format income statement:  
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 2

Loren Company's single product has a selling price of $15 per unit.Last year,the company reported total variable expenses of $180,000,fixed expenses of $90,000,and an operating income of $30,000.A study by the sales manager discloses that a 15% increase in the selling price would reduce unit sales by 10%.If her proposal is adopted,what would the outcome be for operating income?

Accepted Answer

A)  Increase by $45,000. 
B)  Increase by $37,500. 
C)  Increase by $7,500. 
D)  Increase by $28,500.New Op.Income = (20,000 * .90 * $8.25)- 90,000 = $58,500. 
A)  Increase by $45,000. 
B)  Increase by $37,500. 
C)  Increase by $7,500. 
D)  Increase by $28,500.New Op.Income = (20,000 * .90 * $8.25)- 90,000 = $58,500.

Question 3

What is the break-even point in sales dollars?

Accepted Answer

A)  $240,000. 
B)  $560,000. 
C)  $728,000. 
D)  $408,000. 
A)  $240,000. 
B)  $560,000. 
C)  $728,000. 
D)  $408,000.

Question 4

Seco Corp. ,a wholesale supply company,uses independent sales agents to market the company's products.These agents currently receive a commission of 20% of sales,but are demanding an increase to 25% of sales.Seco had already prepared its budget for next year before learning of the sales agents' demand for an increase in commissions.That budgeted income statement appears below:   
Seco is considering the possibility of employing its own salespersons.Three individuals would be required,at a salary of $30,000 each,plus commissions of 5% of sales.In addition,a sales manager would be employed at a fixed annual salary of $160,000.
Required:
a)Compute Seco's break-even point in sales dollars based upon the company's budgeted income statement,assuming that the company continues to use independent sales agents and that they are paid the old commission rate of 20% of sales.
b)Compute Seco's break-even point in sales dollars,assuming that the company employs its own salespersons.
c)Compute the sales dollars required to attain the target profit of $1,900,000,assuming that the company continues to use independent sales agents and the company agrees to their demand for a 25% sales commission.
d)Compute the sales dollars that would be required to generate the same operating income,whether Seco employs its own salespersons or continues to use the independent sales agents and pays them a 25% commission.

Accepted Answer

a)Estimated break-even based on the budg

Question 5

The break-even point in units can be obtained by dividing total fixed expenses by the contribution margin ratio.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A)  $100,000. 
B)  $600,000. 
C)  $1,500,000. 
D)  $250,000. 
A)  $100,000. 
B)  $600,000. 
C)  $1,500,000. 
D)  $250,000.

Question 7

What is the break-even point in annual sales dollars?

Accepted Answer

A)  $530,000. 
B)  $350,000. 
C)  $460,000. 
D)  $400,000. 
A)  $530,000. 
B)  $350,000. 
C)  $460,000. 
D)  $400,000.

Question 8

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

Accepted Answer

A)  Company A has higher variable expenses. 
B)  Company A's profits are more sensitive to percentage changes in sales. 
C)  Company A is more profitable. 
D)  Company A is less risky. 
A)  Company A has higher variable expenses. 
B)  Company A's profits are more sensitive to percentage changes in sales. 
C)  Company A is more profitable. 
D)  Company A is less risky.

Question 9

How many units would the company have to sell to attain after-tax profits of $72,000,assuming it is subject to a 40% income tax rate?

Accepted Answer

A)  9,440 units. 
B)  11,600 units. 
C)  10,400 units. 
D)  12,000 units. 
A)  9,440 units. 
B)  11,600 units. 
C)  10,400 units. 
D)  12,000 units.

Question 10

If sales increase from $80,000 per year to $120,000 per year,and if the degree of operating leverage is 5,then by what percentage should operating income increase?

Accepted Answer

A)  167%. 
B)  250%. 
C)  100%. 
D)  334%. 
A)  167%. 
B)  250%. 
C)  100%. 
D)  334%.

Question 11

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 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 12

Kern Company prepared the following tentative budget for next year:  
The sales manager argues that the unit selling price could be increased by 20%,with an expected volume decrease of only 10%.If Kern incorporates these changes in its budget,what should be the budgeted operating income?

Accepted Answer

A)  $66,000. 
B)  $90,000. 
C)  $120,000. 
D)  $145,000.Budgeted operating income = 90,000 * $3 - 150,000 = $120,000. 
A)  $66,000. 
B)  $90,000. 
C)  $120,000. 
D)  $145,000.Budgeted operating income = 90,000 * $3 - 150,000 = $120,000.

Question 13

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?

Accepted Answer

A)  $7,500. 
B)  $6,000. 
C)  $2,000. 
D)  $3,000. 
A)  $7,500. 
B)  $6,000. 
C)  $2,000. 
D)  $3,000.

Question 14

What is the break-even point in units?

Accepted Answer

A)  8,247 books. 
B)  7,767 books. 
C)  7,407 books. 
D)  6,504 books. 
A)  8,247 books. 
B)  7,767 books. 
C)  7,407 books. 
D)  6,504 books.

Question 15

The total contribution margin decreases if sales volume remains the same and which of the following occurs?

Accepted Answer

A)  Fixed expenses increase. 
B)  Fixed expenses decrease. 
C)  Variable expense per unit increases. 
D)  Variable expense per unit decreases. 
A)  Fixed expenses increase. 
B)  Fixed expenses decrease. 
C)  Variable expense per unit increases. 
D)  Variable expense per unit decreases.

Question 16

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?

Accepted Answer

A)  11,000 units. 
B)  9,600 units. 
C)  22,000 units. 
D)  12,400 units.B/E = $28,800/3 = 9,600 units. 
A)  11,000 units. 
B)  9,600 units. 
C)  22,000 units. 
D)  12,400 units.B/E = $28,800/3 = 9,600 units.

Question 17

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?

Accepted Answer

A)  42%. 
B)  40%. 
C)  17%. 
D)  20%. 
A)  42%. 
B)  40%. 
C)  17%. 
D)  20%.

Question 18

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 19

The following is last month's contribution format income statement(Do not round intermediate computations):  
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 20

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.

The following is last month's contribution format income statement: What is the company's degree of operating leverage?

What is the break-even point in sales dollars?

The break-even point in units can be obtained by dividing total fixed expenses by the contribution margin ratio.

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

What is the break-even point in annual sales dollars?

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

How many units would the company have to sell to attain after-tax profits of $72,000,assuming it is subject to a 40% income tax rate?

If sales increase from $80,000 per year to $120,000 per year,and if the degree of operating leverage is 5,then by what percentage should operating income increase?

Kern Company prepared the following tentative budget for next year: The sales manager argues that the unit selling price could be increased by 20%,with an expected volume decrease of only 10%.If Kern incorporates these changes in its budget,what should be the budgeted operating income?

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?

What is the break-even point in units?

The total contribution margin decreases if sales volume remains the same and which of the following occurs?

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

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

The following is last month's contribution format income statement(Do not round intermediate computations): What is the company's break-even in sales dollars?

What is the company's degree of operating leverage?

Managerial Accounting and the Business Environment

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Cost Behaviour: Analysis and Use

Systems Design: Job-Order Costing

Systems Design: Process Costing

Activity-Based Costing: a Tool to Aid Decision Making

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Budgeting

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Exam 4: Cost-Volume-Profit Relationships

The following is last month's contribution format income statement: What is the company's degree of operating leverage?

What is the break-even point in sales dollars?

The break-even point in units can be obtained by dividing total fixed expenses by the contribution margin ratio.

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

What is the break-even point in annual sales dollars?

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

How many units would the company have to sell to attain after-tax profits of $72,000,assuming it is subject to a 40% income tax rate?

If sales increase from $80,000 per year to $120,000 per year,and if the degree of operating leverage is 5,then by what percentage should operating income increase?

Kern Company prepared the following tentative budget for next year: The sales manager argues that the unit selling price could be increased by 20%,with an expected volume decrease of only 10%.If Kern incorporates these changes in its budget,what should be the budgeted operating income?

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?

What is the break-even point in units?

The total contribution margin decreases if sales volume remains the same and which of the following occurs?

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

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

The following is last month's contribution format income statement(Do not round intermediate computations): What is the company's break-even in sales dollars?

What is the company's degree of operating leverage?

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 Online

Filters