Exam 4: Cost-Volume-Profit Relationships

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.

The following is last month's contribution format income statement: What is the company's break-even sales in units?

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

The following monthly data are available for the Challenger Company and its only product,Product SW: Required: a)Without resorting to calculations,what is the total contribution margin at the break-even point? b)Management is contemplating the use of plastic gearing rather than metal gearing in Product SW.This change would reduce variable costs by $15.The company's marketing manager predicts that this would reduce the overall quality of the product and thus would result in a decline in sales to a level of 350 units per month.Should this change be made? c)Assume that Challenger Company is currently selling 400 units of Product SW per month.Management wants to increase sales and feels that this can be done by cutting the selling price by $25 per unit and increasing the advertising budget by $20,000 per month.Management believes that these actions will increase unit sales by 50%.Should these changes be made? d)Assume that Challenger Company is currently selling 400 units of Product SW.Management wants to automate a portion of the production process for Product SW.The new equipment would reduce direct labour costs by $20 per unit but would result in a monthly rental cost for the new robotic equipment of $10,000.Management believes that the new equipment will increase the reliability of Product SW,thus resulting in an increase in monthly sales of 12%.Should these changes be made?

What is the company's break-even sales in dollars?

What is the break-even point in units?

The contribution margin ratio is closest to which of the following?

Rawlings Company prepared the following budget information for the coming year: 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?

A company with sales of $80,000 and variable expenses of $40,000 should spend $12,000 on increased advertising,if the increased advertising will increase sales by $22,000. CM ratio = 50% so incremental CM = 22,000 * .5 which is less than $12,000.

How many units need to be sold to earn an annual operating income equal to 10% of sales?

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?

A company has provided the following data: 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?

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.

What is the company's degree of operating leverage?

What is the break-even point in units?

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 the selling price is reduced by 5%,variable expenses reduced by $1.00,and fixed expenses increased to a total of $38,400,how many units would need to be sold to earn an operating income of $21,000?

The contribution margin ratio always increases when which of the following occurs?

Dodero Company produces a single product that sells for $100 per unit.Fixed expenses total $12,000 per month,and variable expenses are $60 per unit.The company's sales average 500 units per month.Which of the following statements is correct?

The following monthly budgeted data is available for the Baxter Company: Budgeted operating income for the month is $260,000. Required: a)Calculate the break-even sales for the month. b)Calculate the margin of safety. c)Calculate the degree of operating leverage.