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Exam 4: Cost-Volume-Profit Relationships

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Question 21

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Loren Company's single product has a selling price of $15 per unit.Last year,the company reported total variable expenses of $180,000,fixed expenses of $90,000,and an operating income of $30,000.A study by the sales manager discloses that a 15% increase in the selling price would reduce unit sales by 10%.If her proposal is adopted,what would the outcome be for operating income?

A) Increase by $45,000.
B) Increase by $37,500.
C) Increase by $7,500.
D) Increase by $28,500.New Op.Income = (20,000 * .90 * $8.25) - 90,000 = $58,500.

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Question 22

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What is the company's contribution margin ratio?

A) 62.5%.
B) 160%.
C) 500%.
D) 20%.

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Question 23

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What is the company's margin of safety in dollars?

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?

A total of 30,000 units were sold last year.The contribution margin per unit was $2,and total fixed expenses were $20,000 for the year.This year,fixed expenses are expected to increase to $26,000,but the contribution margin per unit will remain unchanged at $2.How many units must be sold this year to earn the same operating income as was earned last year?

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?

At a break-even point of 800 units sold,White Company's variable expenses are $8,000 and its fixed expenses are $4,000.What will the company's operating income be at a volume of 801 units?

Assume sales next year total $240,000;product A $70,000,product B $90,000 and C $80,000.Total Contribution Margin for Fletcher will be closest to:

Dr.Bertin performs a certain routine surgical procedure at her medical clinic.Her monthly fixed operating costs are $12,000,while her after-tax operating income is $8,000 when she performs 200 such procedures in a month.Dr.Bertin's before-tax operating income is subject to a marginal tax rate of 60%. Required: a)What is the margin of safety percentage for Dr.Bertin,assuming she performs 200 procedures? b)What is the degree of operating leverage for Dr.Bertin,again assuming she performs 200 procedures?

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?

What is the break-even point in sales dollars?

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.

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?

Last year,Black Company reported sales of $640,000,a contribution margin of $160,000,and an operating loss of $40,000.Based on this information,what was the break-even point?

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

What is the contribution margin ratio?

Dr.Bertin performs a certain routine surgical procedure at her medical clinic.Her monthly fixed operating costs are $12,000,while her after-tax operating income is $8,000 when she performs 200 such procedures in a month.Dr.Bertin's before-tax operating income is subject to a marginal tax rate of 60%. Required: a)What is the margin of safety percentage for Dr.Bertin,assuming she performs 200 procedures? b)What is the degree of operating leverage for Dr.Bertin,again assuming she performs 200 procedures?

How many units would the company have to sell to attain after-tax profits of $72,000,assuming it is subject to a 40% income tax rate?

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?