Ans: True AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy 3.. Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Me
Trang 1Ans: True AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
3 In two companies making the same product and with the same total sales and total expenses, the contribution margin ratio will be lower in the company with a higher proportion of fixed expenses in its cost structure
Ans: False AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
4 If the variable expense per unit increases, and all other factors remain constant, the contribution margin ratio will increase
Ans: False AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
5 The impact on net operating income of any given dollar change in total sales can be estimated by multiplying the CM ratio by the dollar change in total sales
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy
6 A company with sales of $70,000 and variable expenses of $40,000 should spend
$10,000 on increased advertising if the increased advertising will increase sales by
$20,000
Ans: False AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Medium
Trang 27 The formula for the break-even point is the same as the formula to attain a given targetprofit for the special case where the target profit is zero.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5; 6 Level: Medium
8 An increase in total fixed expenses will not affect the break-even point so long as the contribution margin ratio remains unchanged
Ans: False AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Medium
9 All other things the same, a reduction in the variable expense per unit will cause the break-even point to rise
Ans: False AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Medium
10 The unit sales volume necessary to reach a target profit is determined by dividing the target profit by the contribution margin per unit
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium
11 All other things the same, the margin of safety in dollars at a given level of sales will tend to be lower for a capital-intensive company than for a labor-intensive company with high variable expenses
Ans: True AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 7 Level: Medium
12 The margin of safety in dollars equals the excess of budgeted (or actual) sales over thebreak-even volume of sales
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Easy
13 A company with high operating leverage will experience a lower reduction in net operating income in a period of declining sales than will a company with low
operating leverage
Trang 314 If Q is the quantity of a product sold, P is the price per unit, V is the variable expense per unit, and F is the total fixed expense, then the degree of operating leverage is equalto: [Q(P-V)] ÷ [Q(P-V)-F]
Ans: True AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Hard
15 A shift in the sales mix from products with high contribution margin ratios toward products with low contribution margin ratios will raise the break-even point
Ans: True AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 9 Level: Medium
Multiple Choice Questions
16 Contribution margin can be defined as:
A) the amount of sales revenue necessary to cover variable expenses
B) sales revenue minus fixed expenses
C) the amount of sales revenue necessary to cover fixed and variable expenses.D) sales revenue minus variable expenses
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
17 Which of the following statements is correct with regard to a CVP graph?
A) A CVP graph shows the maximum possible profit
B) A CVP graph shows the break-even point as the intersection of the total sales revenue line and the total expense line
C) A CVP graph assumes that total expense varies in direct proportion to unit sales.D) A CVP graph shows the operating leverage as the gap between total sales revenue and total expense at the actual level of sales
Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
Trang 418 If both the fixed and variable expenses associated with a product decrease, what will
be the effect on the contribution margin ratio and the break-even point, respectively?
Contribution margin ratio Break-even point
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3; 5 Level: Medium Source: CMA; adapted
19 Which of the following is true regarding the contribution margin ratio of a single product company?
A) As fixed expenses decrease, the contribution margin ratio increases
B) The contribution margin ratio multiplied by the selling price per unit equals the contribution margin per unit
C) The contribution margin ratio will decline as unit sales decline
D) The contribution margin ratio equals the selling price per unit less the variable expense ratio
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
20 If a company is operating at the break-even point:
A) its contribution margin will be equal to its variable expenses
B) its margin of safety will be equal to zero
C) its fixed expenses will be equal to its variable expenses
D) its selling price will be equal to its variable expense per unit
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5; 7 Level: Medium
21 At the break-even point:
A) sales would be equal to contribution margin
B) contribution margin would be equal to fixed expenses
C) contribution margin would be equal to net operating income
D) sales would be equal to fixed expenses
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
Trang 522 The break-even point would be increased by:
A) a decrease in total fixed expenses
B) a decrease in the ratio of variable expenses to sales
C) an increase in the contribution margin ratio
D) none of these
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Medium
23 Which of the following strategies could be used to reduce the break-even point?
Fixed expenses Contribution margin
A) Increase Increase
B) Decrease Decrease
C) Decrease Increase
D) Increase Decrease
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
24 Break-even analysis assumes that:
A) Total revenue is constant
B) Unit variable expense is constant
C) Unit fixed expense is constant
D) Selling prices must fall in order to generate more revenue
Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
25 Target profit analysis is used to answer which of the following questions?
A) What sales volume is needed to cover all expenses?
B) What sales volume is needed to cover fixed expenses?
C) What sales volume is needed to earn a specific amount of net operating income?D) What sales volume is needed to avoid a loss?
Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Trang 626 The margin of safety can be calculated by:
A) Sales − (Fixed expenses/Contribution margin ratio)
B) Sales − (Fixed expenses/Variable expense per unit)
C) Sales − (Fixed expenses + Variable expenses)
D) Sales − Net operating income
Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 7 Level: Medium
27 If the degree of operating leverage is 4, then a one percent change in quantity sold should result in a four percent change in:
A) unit contribution margin
B) revenue
C) variable expense
D) net operating income
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Easy Source: CMA; adapted
28 Which of the following is the correct calculation for the degree of operating leverage?A) net operating income divided by total expenses
B) net operating income divided by total contribution margin
C) total contribution margin divided by net operating income
D) variable expense divided by total contribution margin
Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Easy
29 Which of the following is an assumption underlying standard CVP analysis?
A) In multiproduct companies, the sales mix is constant
B) In manufacturing companies, inventories always change
C) The price of a product or service is expected to change as volume changes.D) Fixed expenses will change as volume increases
Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 9 Level: Easy
Trang 730 Hopi Corporation expects the following operating results for next year:
Sales $400,000
Margin of safety $100,000
Contribution margin ratio 75%
Degree of operating leverage 4
What is Hopi expecting total fixed expenses to be next year?
A) $75,000
B) $100,000
C) $200,000
D) $225,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1; 3; 8 Level: Hard
Solution:
Current sales - Breakeven sales = Margin of safety
Substituting the given information into the above equation, we will have:
$400,000 − Breakeven sales = $100,000
Breakeven sales = $300,000
Breakeven sales = Fixed expenses ÷ Contribution margin ratio
Substituting the given information into the above equation, we will have:
$300,000 = Fixed expenses ÷ 0.75
Fixed expenses = $225,000
Trang 831 Escareno Corporation has provided its contribution format income statement for June The company produces and sells a single product.
Sales (8,400 units) $764,400
Variable expenses 445,200
Contribution margin 319,200
Fixed expenses 250,900
Net operating income $ 68,300
If the company sells 8,200 units, its total contribution margin should be closest to:A) $301,000
B) $311,600
C) $319,200
D) $66,674
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
Solution:
Current contribution margin ÷ Current sales in units = Contribution margin per unit
$319,200 ÷ 8,400 = $38 contribution margin per unit
If 8,200 units are sold, the total contribution margin will be 8,200 × $38, or $311,600
32 Rovinsky Corporation, a company that produces and sells a single product, has
provided its contribution format income statement for November
Sales (5,700 units) $319,200
Variable expenses 188,100
Contribution margin 131,100
Fixed expenses 106,500
Net operating income $ 24,600
If the company sells 5,300 units, its net operating income should be closest to:
Trang 9Current sales dollars ÷ Current sales in units = Sales price per unit
$319,200 ÷ 5,700 = $56 sales price per unit
Current variable expenses ÷ Current sales in units = Variable expense per unit
$188,100 ÷ 5,700 = $33 variable expense per unit
Sales (5,300 units × $56) $296,800
Variable expenses (5,300 units × $33) 174,900
Contribution margin 121,900
Fixed expenses 106,500
Net operating income $ 15,400
33 Sorin Inc., a company that produces and sells a single product, has provided its contribution format income statement for January
Sales (4,200 units) $155,400
Variable expenses 100,800
Contribution margin 54,600
Fixed expenses 42,400
Net operating income $ 12,200
If the company sells 4,600 units, its total contribution margin should be closest to:A) $54,600
B) $59,800
C) $69,400
D) $13,362
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
Solution:
Current contribution margin ÷ Current sales in units = Contribution margin per unit
$54,600 ÷ 4,200 = $13 contribution margin per unit
If 4,600 units are sold, the total contribution margin will be 4,600 × $13, or $59,800
Trang 1034 Decaprio Inc produces and sells a single product The company has provided its contribution format income statement for June.
Sales (8,800 units) $528,000
Variable expenses 290,400
Contribution margin 237,600
Fixed expenses 211,700
Net operating income $ 25,900
If the company sells 9,200 units, its net operating income should be closest to:
A) $27,077
B) $49,900
C) $36,700
D) $25,900
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
Solution:
Current sales dollars ÷ Current sales in units = Sales price per unit
$528,000 ÷ 8,800 = $60 sales price per unit
Current variable expenses ÷ Current sales in units = Variable expense per unit
$290,400 ÷ 8,800 = $33 variable expense per unit
Trang 1135 The Bronco Birdfeed Company reported the following information:
Sales (400 cases) $100,000
Variable expenses 60,000
Contribution margin 40,000
Fixed expenses 35,000
Net operating income $5,000
How much will the sale of one additional case add to Bronco's net operating income?A) $250.00
B) $100.00
C) $150.00
D) $12.50
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
Solution:
Current contribution margin ÷ Current sales in cases = Contribution margin per case
$40,000 ÷ 400 = $100 contribution margin per case
If one additional case is sold, net operating income will increase by $100
Trang 1236 The margin of safety in the Flaherty Company is $24,000 If the company's sales are
$120,000 and its variable expenses are $80,000, its fixed expenses must be:
A) $8,000
B) $32,000
C) $24,000
D) $16,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3; 5; 7 Level: Hard
Solution:
Current sales - Breakeven sales = Margin of safety
Substituting the given information into the above equation, we will have:
$120,000 - Breakeven sales = $24,000
Breakeven sales = $96,000
Sales - Variable expenses = Contribution margin
$120,000 - $80,000 = $40,000
Contribution margin ratio = Contribution margin ÷ Sales
Contribution margin ratio = $ 40,000 ÷ $120,000
Contribution margin ratio = 0.33333
Breakeven sales = Fixed costs ÷ Contribution margin ratio
Substituting the given information into the above equation, we will have:
$96,000 = Fixed costs ÷ 0.33333
Fixed costs = $32,000
Trang 1337 Dodero Company produces a single product which 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) 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
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3; 5 Level: Medium
Solution:
Answer A is not correct because:
Sales = Variable expenses + Fixed expenses + Profit
$100Q = $60Q + $12,000 + $0
$40Q = $12,000
Q = $12,000 ÷ $40 per unit = 300 units
300 units × $100 selling price per unit = $30,000 breakeven sales in dollars
Answer B is not correct because fixed costs change as activity level changes
Answer C is correct because:
Contribution margin per unit = Selling price per unit - Variable expenses per unit
Trang 1438 Holt Company's variable expenses are 70% of sales At a $300,000 sales level, the degree of operating leverage is 10 If sales increase by $60,000, the degree of
operating leverage will be:
A) 12
B) 10
C) 6
D) 4
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3; 8 Level: Hard
Net operating income $ ?
Current degree of operating leverage = Current contribution margin ÷ Current net operating income
10 = $90,000 ÷ Current net operating income
Current net operating income = $90,000 ÷ 10 = $9,000
Contribution margin = Fixed expenses - Net operating income
Net operating income $ 27,000
Degree of operating leverage = Contribution margin ÷ Net operating income
= $108,000/$27,000 = 4.0
Trang 1539 Gayne Corporation's contribution margin ratio is 12% and its fixed monthly expenses are $84,000 If the company's sales for a month are $738,000, what is the best estimate
of the company's net operating income? Assume that the fixed monthly expenses do not change
A) $565,440
B) $654,000
C) $88,560
D) $4,560
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Net operating income $ 4,560
40 Jilk Inc.'s contribution margin ratio is 58% and its fixed monthly expenses are
$36,000 Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $103,000?A) $23,740
B) $59,740
C) $67,000
D) $7,260
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Trang 1641 Creswell Corporation's fixed monthly expenses are $29,000 and its contribution margin ratio is 56% Assuming that the fixed monthly expenses do not change, what isthe best estimate of the company's net operating income in a month when sales are
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Net operating income $24,200
42 Wilson Company prepared the following preliminary budget assuming no advertising expenditures:
Selling price $10 per unit
be the budgeted net operating income?
A) $175,000
B) $190,000
C) $205,000
D) $365,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Medium Source: CPA; adapted
Trang 17Net operating income $ 205,000
* Current variable expenses ÷ Current sales in units = Variable expense per unit $600,000 ÷ 100,000 = $6 variable expense per unit
43 Data concerning Kardas Corporation's single product appear below:
Per Unit Percent of SalesSelling price $140 100%
Variable expenses 28 20%
Contribution margin $112 80%
The company is currently selling 8,000 units per month Fixed expenses are $719,000 per month The marketing manager believes that a $20,000 increase in the monthly advertising budget would result in a 180 unit increase in monthly sales What should
be the overall effect on the company's monthly net operating income of this change?A) decrease of $160
B) increase of $20,160
C) decrease of $20,000
D) increase of $160
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
Solution:
8,000 units 8,180 unitsSales (8,000 units, 8,180 units × $140) $1,120,000 $1,145,200
Variable expenses
($1,120,000, $1,145,200 × 20%) 224,000 229,040
Contribution margin 896,000 916,160
Fixed expenses 719,000 739,000
Net operating income $ 177,000 $ 177,160
Increase in net operating income: $177,160 - $177,000 = $160
Trang 1844 Kuzio Corporation produces and sells a single product Data concerning that product appear below:
Per Unit Percent of SalesSelling price $130 100%
Variable expenses 78 60%
Contribution margin $ 52 40%
The company is currently selling 6,000 units per month Fixed expenses are $263,000 per month The marketing manager believes that a $5,000 increase in the monthly advertising budget would result in a 140 unit increase in monthly sales What should
be the overall effect on the company's monthly net operating income of this change?A) increase of $2,280
B) increase of $7,280
C) decrease of $5,000
D) decrease of $2,280
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
Solution:
6,000 units 6,140 unitsSales (6,000 units, 6,140 units × $130) $780,000 $798,200
Variable expenses
($780,000, $798,200 × 60%) 468,000 478,920
Contribution margin 312,000 319,280
Fixed expenses 263,000 268,000
Net operating income $ 49,000 $ 51,280
Increase in net operating income: $51,280 - $49,000 = $2,280
Trang 1945 Data concerning Dorazio Corporation's single product appear below:
Per Unit Percent of SalesSelling price $160 100%
Variable expenses 48 30%
Contribution margin $112 70%
Fixed expenses are $87,000 per month The company is currently selling 1,000 units per month Management is considering using a new component that would increase the unit variable cost by $28 Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 400 units What should be the overall effect on the company's monthly net operating income of this change?
A) increase of $5,600
B) increase of $33,600
C) decrease of $5,600
D) decrease of $33,600
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
Solution:
1,000 units 1,400 unitsSales (1,000 units, 1,400 units × $160) $160,000 $224,000
Variable expenses
(1,000 units × $48, 1,400 units × $76) 48,000 106,400
Contribution margin 112,000 117,600
Fixed expenses 87,000 87,000
Net operating income $ 25,000 $ 30,600
Increase in net operating income: $30,600 - $25,000 = $5,600
Trang 2046 Chovanec Corporation produces and sells a single product Data concerning that product appear below:
Per Unit Percent of SalesSelling price $170 100%
Variable expenses 68 40%
Contribution margin $102 60%
Fixed expenses are $521,000 per month The company is currently selling 7,000 units per month Management is considering using a new component that would increase the unit variable cost by $6 Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 500 units What should be the overall effect on the company's monthly net operating income of this change?
A) decrease of $48,000
B) decrease of $6,000
C) increase of $48,000
D) increase of $6,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
Solution:
7,000 units 7,500 unitsSales (7,000 units, 7,500 units × $170) $1,190,000 $1,275,000
Variable expenses
(7,000 units × $68, 7,500 units × $74) 476,000 555,000
Contribution margin 714,000 720,000
Fixed expenses 521,000 521,000
Net operating income $ 193,000 $ 199,000
Increase in net operating income: $199,000 - $193,000 = $6,000
Trang 2147 Data concerning Pellegren Corporation's single product appear below:
Per Unit Percent of SalesSelling price $200 100%
Variable expenses 40 20%
Contribution margin $160 80%
Fixed expenses are $531,000 per month The company is currently selling 4,000 units per month The marketing manager would like to cut the selling price by $14 and increase the advertising budget by $35,000 per month The marketing manager predicts that these two changes would increase monthly sales by 500 units What should be the overall effect on the company's monthly net operating income of this change?
A) decrease of $18,000
B) increase of $38,000
C) decrease of $38,000
D) increase of $58,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
Solution:
4,000 units 4,500 unitsSales (4,000 units × $200, 4,500 units × $186) $800,000 $837,000Variable expenses
(4,000 units × $40, 4,500 units × $40) 160,000 180,000Contribution margin 640,000 657,000Fixed expenses 531,000 566,000Net operating income $109,000 $ 91,000Decrease in net operating income: $109,000 - $91,000 = $18,000
Trang 2248 Cobble Corporation produces and sells a single product Data concerning that product appear below:
Per Unit Percent of SalesSelling price $160 100%
Variable expenses 48 30%
Contribution margin $112 70%
Fixed expenses are $499,000 per month The company is currently selling 5,000 units per month The marketing manager would like to cut the selling price by $13 and increase the advertising budget by $33,000 per month The marketing manager predicts that these two changes would increase monthly sales by 900 units What should be the overall effect on the company's monthly net operating income of this change?
A) increase of $56,100
B) decrease of $8,900
C) increase of $99,300
D) decrease of $56,100
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
Solution:
5,000 units 5,900 unitsSales (5,000 units × $160, 5,900 units × $147) $800,000 $867,300Variable expenses
(5,000 units × $48, 5,900 units × $48) 240,000 283,200Contribution margin 560,000 584,100Fixed expenses 499,000 532,000Net operating income $ 61,000 $ 52,100Decrease in net operating income: $61,000 - $52,100 = $8,900
Trang 2349 Data concerning Bazin Corporation's single product appear below:
Per Unit Percent of SalesSelling price $100 100%
Variable expenses 20 20%
Contribution margin $ 80 80%
Fixed expenses are $384,000 per month The company is currently selling 6,000 units per month The marketing manager would like to introduce sales commissions as an incentive for the sales staff The marketing manager has proposed a commission of $9 per unit In exchange, the sales staff would accept a decrease in their salaries of
$46,000 per month (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 500 units What should be the overall effect on the company's monthly net operating income of this change?
A) increase of $27,500
B) decrease of $64,500
C) increase of $41,500
D) increase of $507,500
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
Solution:
6,000 units 6,500 unitsSales (6,000 units × $100, 6,500 units × $100) $600,000 $650,000Variable expenses
(6,000 units × $20, 6,500 units × $29) 120,000 188,500Contribution margin 480,000 461,500Fixed expenses 384,000 338,000Net operating income $ 96,000 $123,500Increase in net operating income: $123,500 - $96,000 = $27,500
Trang 2450 Sannella Corporation produces and sells a single product Data concerning that product appear below:
Per Unit Percent of SalesSelling price $220 100%
Variable expenses 66 30%
Contribution margin $154 70%
Fixed expenses are $991,000 per month The company is currently selling 8,000 units per month The marketing manager would like to introduce sales commissions as an incentive for the sales staff The marketing manager has proposed a commission of
$11 per unit In exchange, the sales staff would accept a decrease in their salaries of
$74,000 per month (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 200 units What should be the overall effect on the company's monthly net operating income of this change?
A) increase of $1,246,600
B) increase of $14,600
C) decrease of $133,400
D) increase of $71,800
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
Solution:
8,000 units 8,200 unitsSales (8,000 units × $220, 8,200 units × $220) $1,760,000 $1,804,000Variable expenses
(8,000 units × $66, 8,200 units × $77) 528,000 631,400Contribution margin 1,232,000 1,172,600Fixed expenses 991,000 917,000Net operating income $ 241,000 $ 255,600Increase in net operating income: $255,600 - $241,000 = $14,600
Trang 2551 Cherry Street Market reported the following information for the sales of their only product, cherries sold by the pint:
Total Per UnitSales $31,500 $4.50
Variable expenses 9,450 1.35
Contribution margin 22,050 $3.15
Fixed expenses 13,000
Net operating income $ 9,050
Cherry Street would like to increase their selling price by 50 cents per unit, and feel that this will decrease sales volume by 10% Should Cherry Street increase the price, and what will the effect be on net operating income?
A) Yes; $3,500 increase
B) Yes; $945 increase
C) No; no change
D) No; $945 decrease
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Medium
Solution:
Current sales (dollars) = Current per unit price × Current sales (units)
$31,500 = $4.50 × Current sales (units)
7,000 = Current sales (units)
7,000 units 6,300 unitsSales (7,000 units × $4.50, 6,300 units × $5.00) $31,500 $31,500Variable expenses
(7,000 units × $1.35, 6,300 units × $1.35) 9,450 8,505Contribution margin 22,050 22,995Fixed expenses 13,000 13,000Net operating income $ 9,050 $ 9,995Increase in net operating income: $9,995 - $9,050 = $945
Trang 2652 A company makes a single product that it sells for $16 per unit Fixed costs are
$76,800 per month and the product has a contribution margin ratio of 40% If the company's actual sales are $224,000, its margin of safety is:
A) $32,000
B) $96,000
C) $128,000
D) $192,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5; 7 Level: Medium Source: CIMA; adaptedSolution:
Break-even in total sales dollars = Fixed expenses/CM ratio
= $76,800/0.400 = $192,000
Margin of safety in dollars = Sales - Break-even sales
= $224,000 - $192,000 = $32,000
53 The following data are available for the Phelps Company for a recent month:
Product A Product B Product C TotalSales $150,000 $130,000 $90,000 $370,000Variable expenses 91,000 104,000 27,000 222,000Contribution margin $ 59,000 $ 26,000 $63,000 148,000Fixed expenses 55,000Net operating income $ 93,000The break-even sales for the month for the company are:
A) $91,667
B) $203,000
C) $148,000
D) $137,500
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5; 9 Level: Medium
Trang 27Product A Product B Product C TotalSales $150,000 $130,000 $90,000 $370,000Variable expenses 91,000 104,000 27,000 222,000Contribution margin $ 59,000 $ 26,000 $63,000 148,000Fixed expenses 55,000Net operating income $ 93,000Overall CM ratio = Total contribution margin/Total sales
Selling price per unit $1.80
Contribution margin ratio 40%
Total fixed expenses for the year $218,700
How many units will Hartl have to sell next year in order to break-even?
A) 121,500
B) 202,500
C) 303,750
D) 546,750
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Medium
Solution:
Variable cost per unit = $1.80 × (1 - 40%)
Variable cost per unit = $1.08
Sales = Variable expenses + Fixed expenses + Profit
$1.80Q = $1.08Q + $218,700 + $0
$0.72Q = $218,700
Q = $218,700 ÷ $0.72 per unit = 303,750 units
Trang 28appear below:
Selling price per unit $150.00
Variable expense per unit $73.50
Fixed expense per month $308,295
The break-even in monthly unit sales is closest to:
A) 2,055
B) 4,030
C) 4,194
D) 3,426
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
Sales = Variable expenses + Fixed expenses + Profit
$150.00Q = $73.50Q + $308,295 + $0
$76.50Q = $308,295
Q = $308,295 ÷ $76.50 per unit = 4,030 units
56 Data concerning Buchenau Corporation's single product appear below:
Selling price per unit $150.00
Variable expense per unit $34.50
Fixed expense per month $466,620
The break-even in monthly unit sales is closest to:
A) 3,111
B) 6,892
C) 4,040
D) 13,525
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
Sales = Variable expenses + Fixed expenses + Profit
Trang 2957 Hevesy Inc produces and sells a single product The selling price of the product is
$200.00 per unit and its variable cost is $80.00 per unit The fixed expense is $300,000per month The break-even in monthly unit sales is closest to:
A) 2,500
B) 1,500
C) 3,750
D) 2,583
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
Sales = Variable expenses + Fixed expenses + Profit
$200.00Q = $80.00Q + $300,000 + $0
$120.00Q = $300,000
Q = $300,000 ÷ $120.00 per unit = 2,500 units
58 Wenstrom Corporation produces and sells a single product Data concerning that product appear below:
Selling price per unit $130.00
Variable expense per unit $41.60
Fixed expense per month $109,616
The break-even in monthly dollar sales is closest to:
A) $342,550
B) $204,455
C) $109,616
D) $161,200
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
Sales = Variable expenses + Fixed expenses + Profit
$130.00Q = $41.60Q + $109,616 + $0
$88.40Q = $109,616
Q = $109,616 ÷ $88.40 per unit = 1,240 units
1,240 units × $130.00 selling price = $161,200
Trang 3059 Data concerning Follick Corporation's single product appear below:
Selling price per unit $110.00
Variable expense per unit $30.80
Fixed expense per month $321,552
The break-even in monthly dollar sales is closest to:
A) $1,148,400
B) $638,851
C) $321,552
D) $446,600
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
Sales = Variable expenses + Fixed expenses + Profit
$110.00Q = $30.80Q + $321,552 + $0
$79.20Q = $321,552
Q = $321,552 ÷ $79.20 per unit = 4,060 units
4,060 units × $110.00 selling price = $446,600
60 Wimpy Inc produces and sells a single product The selling price of the product is
$150.00 per unit and its variable cost is $58.50 per unit The fixed expense is $366,915per month
The break-even in monthly dollar sales is closest to:
A) $601,500
B) $366,915
C) $636,408
D) $940,808
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Trang 31Sales = Variable expenses + Fixed expenses + Profit
$150.00Q = $58.50Q + $366,915 + $0
$91.50Q = $366,915
Q = $366,915 ÷ $91.50 per unit = 4,010 units
4,010 units × $150.00 selling price = $601,500
61 The Saginaw Ice Company had sales of $400,000, with variable expenses of $162,000 and fixed expenses of $98,000 Which of the following is closest to Saginaw's break-even point?
A) $260,000
B) $165,000
C) $140,000
D) $238,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Trang 3262 Product Y sells for $15 per unit, and has related variable expenses of $9 per unit Fixed expenses total $300,000 per year How many units of Product Y must be sold each year to yield an annual profit of $90,000:
A) 50,000 units
B) 65,000 units
C) 15,000 units
D) 43,333 units
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Sales = Variable expenses + Fixed expenses + Target profit
$15Q = $9Q + $300,000 + $90,000
$6Q = $390,000
Q = $390,000 ÷ $6 per unit = 65,000 units
63 Caneer Corporation produces and sells a single product Data concerning that product appear below:
Selling price per unit $240.00
Variable expense per unit $81.60
Fixed expense per month $997,920
The unit sales to attain the company's monthly target profit of $44,000 is closest to:A) 7,896
B) 12,769
C) 6,578
D) 4,341
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Trang 3364 Data concerning Bedwell Enterprises Corporation's single product appear below:
Selling price per unit $160.00
Variable expense per unit $65.60
Fixed expense per month $387,040
The unit sales to attain the company's monthly target profit of $17,000 is closest to:A) 6,159
B) 4,280
C) 2,525
D) 4,321
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Sales = Variable expenses + Fixed expenses + Target profit
$160.00Q = $65.60Q + $387,040 + $17,000
$94.40Q = $404,040
Q = $404,040 ÷ $94.40 per unit = 4,280 units (rounded)
65 Hettrick International Corporation's only product sells for $120.00 per unit and its variable expense is $52.80 The company's monthly fixed expense is $396,480 per month The unit sales to attain the company's monthly target profit of $13,000 is closest to:
A) 7,755
B) 6,093
C) 5,753
D) 3,412
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Trang 3466 Logsdon Corporation produces and sells a single product whose contribution margin ratio is 63% The company's monthly fixed expense is $720,720 and the company's monthly target profit is $28,000 The dollar sales to attain that target profit is closest to:
A) $471,694
B) $454,054
C) $1,188,444
D) $1,144,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Total sales dollars to attain target profit
= (Fixed expenses + Target profit)/CM ratio
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Total sales dollars to attain target profit
= (Fixed expenses + Target profit)/CM ratio
= ($296,400 + $7,000)/0.52 = $583,462 (rounded)
Trang 3568 Majid Corporation sells a product for $240 per unit The product's current sales are 41,300 units and its break-even sales are 36,757 units.
What is the margin of safety in dollars?
A) $8,821,680
B) $6,608,000
C) $9,912,000
D) $1,090,320
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 7 Level: Easy
Solution:
Margin of safety in dollars:
Break-even sales = $240 per unit × 36,757 = $8,821,680
Current sales = $240 per unit × 41,300 = $9,912,000
Margin of safety in dollars = Sales - Break-even sales
= $9,912,000 - $8,821,680 = $1,090,320
69 Mcmurtry Corporation sells a product for $170 per unit The product's current sales are 10,000 units and its break-even sales are 8,100 units The margin of safety as a percentage of sales is closest to:
A) 23%
B) 81%
C) 19%
D) 77%
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 7 Level: Easy
Solution:
Margin of safety in dollars:
Break-even sales = $170 per unit × 8,100 = $1,377,000
Current sales = $170 per unit × 10,000 = $1,700,000
Margin of safety in dollars = Sales - Break-even sales
= $1,700,000 - $1,377,000 = $323,000
Margin of safety as a percentage of sales = Margin of safety in dollars ÷ Current sales
= $323,000 ÷ $1,700,000 = 19%
Trang 3670 Cubie Corporation has provided the following data concerning its only product:
Selling price $100 per unit
Current sales 10,600 units
Break-even sales 9,540 units
What is the margin of safety in dollars?
A) $1,060,000
B) $106,000
C) $954,000
D) $706,667
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 7 Level: Easy
Solution:
Margin of safety in dollars:
Break-even sales = $100 per unit × 9,540 = $954,000
Current sales = $100 per unit × 10,600 = $1,060,000
Margin of safety in dollars = Sales - Break-even sales
= $1,060,000 - $954,000 = $106,000
Trang 3771 Ensley Corporation has provided the following data concerning its only product:
Selling price $200 per unit
Current sales 30,300 units
Break-even sales 21,816 units
The margin of safety as a percentage of sales is closest to:
A) 61%
B) 28%
C) 72%
D) 39%
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 7 Level: Easy
Solution:
Margin of safety in dollars:
Break-even sales = $200 per unit × 30,300 = $6,060,000
Current sales = $200 per unit × 21,816 = $4,363,200
Margin of safety in dollars = Sales - Break-even sales
Net operating income $ 75,000
What is the company's margin of safety percentage to the nearest whole percent?A) 42%
B) 38%
C) 33%
D) 25%
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 7 Level: Medium
Trang 38Margin of safety in dollars:
Break-even sales = $50 per unit × 8,000 = $400,000
Current sales = $50 per unit × 12,000 = $600,000
Margin of safety in dollars = Sales - Break-even sales
B) 16%
C) 160%
D) 40%
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Easy
Solution:
Degree of operating leverage = Contribution margin ÷ Net operating income
Degree of operating leverage = $50,000 ÷ $10,000 = 5
Percent increase in net operating income
= Percent increase in sales × Degree of operating leverage
= 8% × 5 = 40%
Trang 3974 The February contribution format income statement of Mcabier Corporation appears below:
a Degree of operating leverage = Contribution margin/Net operating income
= $251,100/$41,300 = 6.08
b Percent increase in net operating income
= Percent increase in sales × Degree of operating leverage
= 19% × 6.08 = 115.52%
Sales $211,200Variable expenses 96,000Contribution margin 115,200Fixed expenses 84,100Net operating income $ 31,100
The degree of operating leverage is closest to:
A) 0.27
B) 6.79
C) 3.70
D) 0.15
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Easy
Solution:
Degree of operating leverage = Contribution margin/Net operating income
= $115,200/$31,100 = 3.70
Trang 4075 Serfass Corporation's contribution format income statement for July appears below:
Sales $260,000
Variable expenses 176,000
Contribution margin 84,000
Fixed expenses 71,800
Net operating income $ 12,200
The degree of operating leverage is closest to:
A) 0.05
B) 0.15
C) 21.31
D) 6.89
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Easy
Solution:
Degree of operating leverage = Contribution margin/Net operating income
= $84,000/$12,200 = 6.89
76 Rushenberg Corporation's operating leverage is 10.8 If the company's sales increase
by 14%, its net operating income should increase by about:
A) 151.2%
B) 14.0%
C) 77.1%
D) 10.8%
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Easy
Solution:
Percent increase in net operating income
= Percent increase in sales × Degree of operating leverage
= 14% × 10.8 = 151.2%