Question

1.

Note that data typically changes for each new question, even when the same company or product name is used.

Fernley Company produces two different products with the following data for the most recent month:

	Table	Chair	Total
Selling price per unit	$600	$200
Variable cost per unit	$480	$120
Expected unit sales	28,000	7,000	35,000
Sales mix	80%	20%	100%
Fixed costs			$2,800,000

Assume the sales mix remains the same at all levels of sales. __________ units in total must be sold to earn a monthly profit of $1,008,000.

• 9,000

• 25,000

• 19,040

• 34,000

2.

Fernley Company produces two different products with the following data for the most recent month:

	Table	Chair	Total
Selling price per unit	$600	$200
Variable cost per unit	$480	$120
Expected unit sales	28,000	7,000	35,000
Sales mix	80%	20%	100%
Fixed costs			$2,800,000

Assume the sales mix remains the same at all levels of sales.   Response area units of the Table product and Response area units of the Chair product must be sold to earn a monthly profit of $1,008,000.

30,464

27,200

3,808

6,800

7,616

15,232

3.

Current sales are $200,000, CM is $120,000, and OI is $60,000.

What is the Degree of Operating Leverage?

• .50

• 1.67

• 3.33

• 2.0

4.

Current Sales are $200,000, Contribution Margin is $120,000, and Operating Income is $60,000. If sales increase by 20%,by how much will Operating Income increase?

• 10%

• 2.67%

• 20%

• 40%

Answer 1

1		Table	Chair
	Selling price	600	200
	Variable cost	480	120
	Contribution margin	120	80
	Sales mix	80%	20%
	Contribution margin per unit	96	16	112
	Number of units = (Fixed cost + Operating profit)/ Contribution margin
	Number of units = (2800000+1008000)/112	34000	Units
2		Table	Chair
	Total units to be sold	34000	34000
	Sales mix	80%	20%
	Units	27200	6800
3	Operating leverage = Contribution margin / Operating margin	2.00
		(120000/60000)
4	Operating leverage	2
	Increase in sales	20%
	Increase in operating income	40%	(2*20%)