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.

What is the company's degree of operating leverage?

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?

P.Harrison Limited manufactures and sells highly faddish products directed toward the preteen market.A new product has come onto the market that the company is anxious to manufacture and sell.Enough capacity exists in the company's plant to manufacture a maximum of 35,000 units of the new product each month.Total fixed costs (both manufacturing and non-manufacturing)will amount to $60,000 per month.The company's controller projects an operating loss of $15,000 if the company manufactures and sells 30,000 units of the new product per month. The marketing department predicts that demand for the new product will exceed the maximum 35,000 units that the company is able to manufacture in its own plant.Additional manufacturing capacity can be rented from another company at a fixed cost of $20,000 per month to manufacture 50,000 units of the new product monthly.The variable costs to manufacture and sell units of the new product made in the rented facility will be higher at $3.75,due to somewhat less efficient operations than in the company's own plant.The new product,however,will sell for $4.50 per unit,regardless of where it is manufactured. Required: a)Calculate the monthly break-even sales for the new product in units if the company operates only in its own plant,that is,it manufactures a maximum of 35,000 units.(NOTE: If there is no break-even sales level,state so together with the supporting calculations and reasoning. ) b)Calculate the monthly break-even sales for the new product in units if the company rents the additional manufacturing capacity,that is,it manufactures more than 35,000 units.NOTE: Again,if there is no break-even sales level,state so together with the supporting calculations and reasoning. ) c)Suppose there are NO manufacturing capacity constraints for the manufacture of the new product at either the company's own plant or the rented facility. (i)At what level of non-zero production and sales (in units)would you expect the company to be indifferent between the two manufacturing facilities? (ii)Calculate the degree of operating leverage at a monthly sales level of 50,000 units at EACH manufacturing facility. (iii)Which one of the two manufacturing facilities will be MORE advantageous for the manufacture of the new product,assuming the marketing department predicts very strong and increasing demand for the new product? Explain,strictly on the basis of the degree of operating leverage calculations in Part c (ii)above.

What is the unit contribution margin per book?

The company has an opportunity to secure a special order of 800 units if it is willing to drop the selling price on these units to $13.Costs of securing the special order would be $1,000.The special order would not affect the company's regular sales.If the special order is accepted,what will be the impact on the company's overall operating income?

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?

Curtis Company anticipates selling 10,000 units next year.The company wants to earn an operating income equal to 10% of sales.If variable expenses are $12 per unit,and fixed expenses total $78,000 per year,what selling price must be established to achieve the desired level of operating income?

What is the degree of operating leverage?

What is the break-even point in units per year?

Last year,Twins Company reported $750,000 in sales (25,000 units)and an operating income of $25,000.At the break-even point,the company's total contribution margin equals $500,000.Based on this information,which of the following statements is true?

What is the degree of operating leverage for July?

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?

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.

If Total sales next month are $330,000 and Fletchers sales mix remains unchanged,the total sales for product C will be closest to:

The following monthly data are available for the Phelps Company: What are the break-even sales for the month for the company?

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 following data pertain to last month's operations: What is the break-even point in dollars?

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?

Koby Co.has sales of $200,000 with variable expenses of $150,000,fixed expenses of $60,000,and a net loss of $10,000.How much would Koby have to sell in order to achieve an operating income of 10% of sales?