Question 1

The following monthly budgeted data are available for the International Company:

Budgeted operating income for the month is $220,000.

Required:

a) Calculate the break-even sales for the month.
b) Calculate the margin of safety.
c) Calculate the degree of operating leverage.

Accepted Answer

a) Break-even sales

B) Margin of safety
Total sales - Break-even sales = $1,700,000 - $892,857 = $807,143

C) Operating leverage

Question 2

Paxton Corp has provided the following data concerning its operations last month:

Paxton Corp is a retailing organization.
-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. B

Question 3

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. C

Question 4

The following data relate to a company that produces and sells a travel guide that is updated monthly:

Each book sells for $20.00. The company sold 8,000 books in June and 10,000 books in July.
-What is the degree of operating leverage for July?

Accepted Answer

A)   The same as that for June.
B)   Higher than that for June.
C)   Lower than that for June.
D)   Not determinable.

Question 5

Hurst Co. manufactures and sells a single product. Price and cost data regarding this product are as follows:

-In the current year,the company sold 43,000 units.Due to competition,management will be forced to lower the selling price by 10% next year.How many units must be sold next year to earn the same operating income as was earned in the current year?

Accepted Answer

A)   50,000 units.
B)   53,200 units.
C)   58,800 units.
D)   60,200 units.

Question 6

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?

Accepted Answer

A)   The company's break-even point is $12,000 per month.
B)   The fixed expenses remain constant at $24 per unit for any activity level within the relevant range.
C)   The company's contribution margin ratio is 40%.
D)   Responses A,B,and C are all correct.

Question 7

A product sells for $20 per unit and has a contribution margin ratio of 40%.Fixed expenses total $240,000 annually.How many units of the product must be sold to yield an operating income of $60,000?

Accepted Answer

A)   37,500 units.
B)   40,000 units.
C)   65,000 units.
D)   30,000 units.

Question 8

Green Company's variable expenses are 75% of sales.At a sales level of $400,000,the company's degree of operating leverage is 8.At this sales level,fixed expenses equal which of the following?

Accepted Answer

A)   $87,500.
B)   $100,000.
C)   $50,000.
D)   $75,000.

Question 9

The following information relates to Clyde Corporation,which produced and sold 50,000 units last month.

There were no beginning or ending inventories.Production and sales next month are expected to be 40,000 units.In the next month,what should the company's unit contribution margin be?

Accepted Answer

A)   $16.63.
B)   $3.10.
C)   $7.98.
D)   $13.30.

Question 10

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 break-even point is closest to which of the following?

Accepted Answer

A)   19,111 units.
B)   10,118 units.
C)   21,500 units.
D)   24,000 units.

Question 11

The following information pertains to Rica Company:

How much is Rica's break-even point?

Accepted Answer

A)   9,848 units.
B)   10,000 units.
C)   18,571 units.
D)   26,000 units.

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

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 14

The following is Addison Corporation's contribution format income statement for last month:

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 margin of safety in dollars?

Accepted Answer

A)   $400,000.
B)   $600,000.
C)   $120,000.
D)   $880,000.

Question 15

Dorian Company produces and sells a single product. The product sells for $60 per unit and has a contribution margin ratio of 40%. The company's monthly fixed expenses are $28,800
-What is the variable expense per unit?

Accepted Answer

A)   $31.20.
B)   $24.00.
C)   $36.00.
D)   $28.80.

Question 16

If the fixed expenses increase in a company,and all other factors remain unchanged,then one would expect the margin of safety to decrease.

Accepted Answer

A) True 
 B)False

Question 17

The following is Allison Corporation's contribution format income statement for last month:

The company has no beginning or ending inventories. The company produced and sold 10,000 units last month.
-What is the company's break-even sales in dollars?

Accepted Answer

A)   $0.
B)   $640,000.
C)   $700,000.
D)   $400,000.

Question 18

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?

Accepted Answer

A)   $375,000.
B)   $451,000.
C)   $431,000.
D)   $400,000.

Question 19

The following is Addison Corporation's contribution format income statement for last month:

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.

Question 20

Arthur Company had the following data for the year just ended:

-If the company wants its margin of safety to equal $35,000 next year,all other factors remaining the same,how many units will it need to sell?

Accepted Answer

A)   1,000 units.
B)   833 units.
C)   1,583 units.
D)   1,833 units.

Exam 7: Cost-Volume-Profit Relationships

The following monthly budgeted data are available for the International Company: Budgeted operating income for the month is $220,000. Required: a) Calculate the break-even sales for the month. b) Calculate the margin of safety. c) Calculate the degree of operating leverage.

Paxton Corp has provided the following data concerning its operations last month: Paxton Corp is a retailing organization. -What is the break-even point in sales dollars,rounded to the nearest dollar?

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?

The following data relate to a company that produces and sells a travel guide that is updated monthly: Each book sells for $20.00. The company sold 8,000 books in June and 10,000 books in July. -What is the degree of operating leverage for July?

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?

A product sells for $20 per unit and has a contribution margin ratio of 40%.Fixed expenses total $240,000 annually.How many units of the product must be sold to yield an operating income of $60,000?

Green Company's variable expenses are 75% of sales.At a sales level of $400,000,the company's degree of operating leverage is 8.At this sales level,fixed expenses equal which of the following?

The following information relates to Clyde Corporation,which produced and sold 50,000 units last month. There were no beginning or ending inventories.Production and sales next month are expected to be 40,000 units.In the next month,what should the company's unit contribution margin be?

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 break-even point is closest to which of the following?

The following information pertains to Rica Company: How much is Rica's break-even point?

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.

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

The following is Addison Corporation's contribution format income statement for last month: 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 margin of safety in dollars?

Dorian Company produces and sells a single product. The product sells for $60 per unit and has a contribution margin ratio of 40%. The company's monthly fixed expenses are $28,800 -What is the variable expense per unit?

If the fixed expenses increase in a company,and all other factors remain unchanged,then one would expect the margin of safety to decrease.

The following is Allison Corporation's contribution format income statement for last month: The company has no beginning or ending inventories. The company produced and sold 10,000 units last month. -What is the company's break-even sales in dollars?

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?

The following is Addison Corporation's contribution format income statement for last month: 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?

Arthur Company had the following data for the year just ended: -If the company wants its margin of safety to equal $35,000 next year,all other factors remaining the same,how many units will it need to sell?