Question 1

What is the contribution margin ratio for the book?

Accepted Answer

A)  71.5%. 
B)  54.0%. 
C)  51.5%. 
D)  51.9%.

Question 2

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.

Accepted Answer

A) True 
 B)False

Question 3

Kilimanjaro Company (KC)makes and sells one product: dehydrated meals for backpacking.Both the average sales price per meal and the average variable cost per meal remain constant regardless of the number meals prepared and sold.Reported sales and after-tax operating income for Year 8 were 25,000 meals and $72,000,respectively.Fixed costs depend on number of meals prepared and sold,as the following schedule shows:  
KC expects the cost structure and average selling price per meal for Year 8 NOT to change in Year 9.Maximum plant capacity will also remain at 76,000 meals in Year 9.The company can sell every meal it prepares and its marginal income tax rate of 40 percent for Year 8 will also remain unchanged in Year 9.
Required:
a)Calculate the dollar contribution margin per meal for Year 8 when 25,000 meals were prepared and sold.
b)Calculate KC's expected break-even point for Year 9 for EACH of the THREE ranges of meals preparation and sales.If there is no break-even point for a given range of meals preparation and sales level state so,including a brief (but clear)explanation.
c)Calculate the number of meals KC must prepare and sell in Year 9 to maximize its after-tax operating income.
d)Calculate KC's (i)degree of operating leverage and (ii)margin of safety percentage for Year 8 when 25,000 meals were prepared and sold.
e)Using ONLY the degree of operating leverage number you just calculated in part (d)above,calculate the expected dollar amount increase or decrease in before-tax operating income if KC expects to prepare and sell 22,500 meals in Year 9.(NOTE: No credit will be given for answers that include preparation of an income statement for the 22,500 meals. )

Accepted Answer

The answer of Kilimanjaro Company (KC)makes and sells one product:...

Question 4

If total units sold remain unchanged,but the sales mix shifts more heavily toward Product C,what would the overall contribution margin ratio be expected to do?

Accepted Answer

A)  Increase. 
B)  Decrease. 
C)  Remain unchanged. 
D)  The effect cannot be predicted without additional information.

Question 5

Which of the following is defined as the amount by which a company's sales can decline before operating losses are incurred?

Accepted Answer

A)  Contribution margin. 
B)  Degree of operating leverage. 
C)  Margin of safety. 
D)  Contribution margin ratio.

Question 6

Brasher Company manufactures and sells a single product that has a positive contribution margin.If the selling price and variable expenses both decrease by 5% and fixed expenses do not change,then what would be the effect on the contribution margin per unit and the contribution margin ratio?

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 7

Wilson Company prepared the following preliminary budget assuming no advertising expenditures: 
Based on a market study,the company estimated that it could increase the unit selling price by 15% and increase the unit sales volume by 10%,if $100,000 were spent on advertising.Assuming that these changes are incorporated in its budget,what should be the budgeted operating income?

Accepted Answer

A)  $175,000. 
B)  $190,000. 
C)  $205,000. 
D)  $365,000.Budgeted Operating Income = 100,000 * 1.10 * $5.50 - 300,000 - 100,000 = $205,000.

Question 8

Goodman Company has sales of 3,000 units at $80 per unit.Variable costs are 35% of the sales price.If total fixed costs are $66,000,what is the degree of operating leverage rounded to 2 decimal places?

Accepted Answer

A)  0.79. 
B)  0.93. 
C)  2.67. 
D)  1.73.DOL = 156,000/(156,000 - 66,000)= 1.73

Question 9

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

Accepted Answer

A)  $18,000. 
B)  $6,000. 
C)  $11,250. 
D)  $7,500.

Question 10

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 11

How many units would the company have to sell to attain target operating profits of $150,000?

Accepted Answer

A)  22,000 units. 
B)  37,500 units. 
C)  25,000 units. 
D)  26,667 units.

Question 12

At the break-even point: Sales - Variable expenses = Fixed expenses.

Accepted Answer

A) True 
 B)False

Question 13

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?

Accepted Answer

A)  200-unit increase. 
B)  440-unit decrease. 
C)  200-unit decrease. 
D)  No change in the break-even point.

Question 14

Barnes Company sells three products: A,B,and C.Budgeted sales by product and in total for the coming month are as follows:

As shown by these data,operating income is budgeted at $36,400 for the month,and break-even sales at $430,000.
Assume that actual sales for the month total $500,000 as planned.Actual sales by product are:
A $160,000
B $200,000
C $140,000
Required:
a)Prepare a contribution income statement for the month based on actual sales data.Assume variable expenses as a percentage of sales and total fixed expenses are the same as budgeted.Present the income statement in the format shown in the images above.
b)Compute break-even sales for the month,based on actual data.
c)Explain why the company did not meet the budgeted operating results or break-even sales even though it met its $500,000 sales budget.

Accepted Answer

The answer of Barnes Company sells three products: A,B,and C.Budgeted...

Question 15

If sales increase by 100 units,by how much should operating income increase?

Accepted Answer

A)  $400. 
B)  $4,800. 
C)  $1,500. 
D)  $2,500.

Question 16

Company Y is considering two production technologies,Bronze and Platinum,for producing its new product.The cost structures of the two technologies are as follows: 
At what level of sales volume in units (rounded to the nearest whole unit)would Company Y be indifferent in choosing between the Bronze and Platinum technologies?

Accepted Answer

A)  10,000 units. 
B)  12,100 units. 
C)  13,000 units. 
D)  Cannot be determined without additional information.

Question 17

The break-even in units sold will decrease if there is an increase in which of the following?

Accepted Answer

A)  Unit sales volume. 
B)  Total fixed expenses. 
C)  Unit variable expenses. 
D)  Selling price.

Question 18

How many units would the company have to sell to attain target operating profits of $150,000?

Accepted Answer

A)  22,000 units. 
B)  37,500 units. 
C)  25,000 units. 
D)  26,667 units.

Question 19

A company with an income tax rate of 40% and an objective of an after-tax target operating profit of $48,000 should generate a before-tax target operating profit of $120,000.
48,000/(1-.4)= $80,000

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A)  47.1%. 
B)  2.1%. 
C)  1.9%. 
D)  52.9%.

Exam 4: Cost-Volume-Profit Relationships

What is the contribution margin ratio for the book?

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.

If total units sold remain unchanged,but the sales mix shifts more heavily toward Product C,what would the overall contribution margin ratio be expected to do?

Which of the following is defined as the amount by which a company's sales can decline before operating losses are incurred?

Brasher Company manufactures and sells a single product that has a positive contribution margin.If the selling price and variable expenses both decrease by 5% and fixed expenses do not change,then what would be the effect on the contribution margin per unit and the contribution margin ratio?

Goodman Company has sales of 3,000 units at $80 per unit.Variable costs are 35% of the sales price.If total fixed costs are $66,000,what is the degree of operating leverage rounded to 2 decimal places?

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

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?

How many units would the company have to sell to attain target operating profits of $150,000?

At the break-even point: Sales - Variable expenses = Fixed expenses.

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?

If sales increase by 100 units,by how much should operating income increase?

The break-even in units sold will decrease if there is an increase in which of the following?

How many units would the company have to sell to attain target operating profits of $150,000?

A company with an income tax rate of 40% and an objective of an after-tax target operating profit of $48,000 should generate a before-tax target operating profit of $120,000. 48,000/(1-.4)= $80,000

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