Exam 4: Cost-Volume-Profit Relationships

Which of the following is defined as the difference between total sales in dollars and total variable expenses?

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

Gerber Company is planning to sell 200,000 units for $2.00 a unit and will just break even at this level of sales.The contribution margin ratio is 25%.What are the company's fixed expenses?

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

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.

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

Which of the following is defined as the ratio of fixed expenses to the unit contribution margin?

The following data pertain to Wistron Company's two products: 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?

Lindsay Company reported the following results from sales of 5,000 units for the month of June: Assume that Lindsay increases the selling price of the product by 10% on July 1.How many units would have to be sold in July in order to generate an operating income of $20,000?

The degree of operating leverage for July is closest to which of the following?

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.

Scott Company's variable expenses are 72% of sales.The company's break-even point in sales is $2,450,000.If sales are $60,000 below the break-even point,what operating loss would the company report?

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

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

In two companies making the same product and with the same total sales and total expenses,the contribution margin ratio will tend to be lower in the company with a higher proportion of fixed expenses in its cost structure.

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.

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

The following monthly data are available for the Eager Company and its only product: What was the margin of safety for the company for March?

Wallace,Inc. ,prepared the following budgeted data based on a sales forecast of $6,000,000: What would be the amount of sales dollars at the break-even point?

If sales increase by 200 units,by how much should before-tax profits increase?