Question

1. A company's contribution margin is $90 per unit at a sales level of 5,400 units. The company's operating income is $37,000. The company's operating leverage is closest to _____. (Round-off the answer to one decimal place.)

a.14.9

b.13.1

c.12.4

d.14.0

2. The break-even point is:

a.the same for every company in the same industry.

b.the point where a company's profits are maximized.

c.the point where total revenue equals total cost.

d.the point where sales revenues equal variable costs.

3. Burlywood Company sells two products that are expected to produce total revenue of $198,846 and total variable cost of $129,250 next year. Total fixed cost is expected to equal $44,050.

Determine the break-even point in sales dollars for Burlywood. Round all ratios to two decimal places.

a.$228,831

b.$125,857

c.$44,050

d.$251,714

4. The margin of safety is:

a.the same as gross margin.

b.the difference between sales and target profit.

c.the amount by which sales should be increased to generate a profit.

d.the units sold or the revenue earned above the break-even volume.

**5.** In general, assuming that fixed costs remain
unchanged, the contribution margin ratio can be used to find
the:

a.profit impact of a change in customer specifications.

b.number of units sold in the previous period.

c.profit of the next five reporting periods.

d.profit impact of a change in sales revenue.

**6.** Which of following equations is used to
obtain the total change in profits from a change in revenues?

a.Change in Profits = Contribution Margin Ratio × Change in Sales

b.Change in Profits = Variable Cost Ratio × Total Sales

c.Change in Profits = Contribution Margin Ratio × Total Sales

d.Change in Profits = Variable Cost Ratio × Change in Sales

**7.** Carnelian Company sells bicycles at $100
each. Variable cost per unit is $75, and total fixed cost is
$155,125. Calculate the sales that Carnelian must make to earn an
operating income of $23,500.

a.$238,167

b.$243,100

c.$714,500

d.$624,200

**8.** Gamma Company's projected sales for the
coming year is $24,000,000. It has total variable cost of
$10,800,000. Annual fixed operating costs amount to $11,880,000.
Gamma's contribution margin ratio is:

a.47%.

b.55%.

c.45%.

d.52%.

**9.** Contribution margin is the difference
between:

a.variable expense and operating income.

b.sales and variable expense.

c.variable expenses and fixed expense.

d.sales and fixed expense.

**10.** The relative combination of products being
sold by a firm is:

a.the unit selling price times the number of units sold.

b.the package contribution margin.

c.the unit variable cost times the number of units sold.

d.sales mix.

**11.** In cost-volume-profit analysis, assuming
price and total fixed costs remain the same, any increase in unit
variable costs will mean:

a.a higher gross margin.

b.a higher gross operating margin.

c.a higher contribution margin.

d.a higher break-even point.

**12.** Which of the following is true of direct
fixed expenses?

a.These costs change with a change in sales price.

b.These costs will continue to exist even if one segment or product is eliminated.

c.These costs can be traced to a particular segment.

d.These costs change in accordance with the number of units produced.

Answer #1

1.

Operating Leverage = Contribution Margin / Operating Income

= $5400 x 90 / 37000 = 13.13

Answer is b.13.1

2.

Answer is c.the point where total revenue equals total cost.

3.

Contribution Margin Ratio = ($198846-129250) / 198846 = 35%

Break even point = $44050 / 35% = $125857

Answer is b.$125,857

4.

Answer is d.the units sold or the revenue earned above the
break-even volume.

5.

Answer is d.profit impact of a change in sales revenue.

6.

Answer isa.Change in Profits = Contribution Margin Ratio × Change
in Sales

7.

Sales Required = ($155125+23500) / 25% = $714500

Answer is c.$714,500

8.

Contribution Margin Ratio = 13200 / 24000 = 55%

Answer is b.55%

9.

Answer is b.sales and variable expense

10.

Answer is d.sales mix.

11.

Answer is c.a higher contribution margin

12.

Answer is c.These costs can be traced to a particular segment.

In CVP analysis, the unit contribution margin is:
Sales price per unit less cost of goods sold per unit
Sales price per unit less FC per unit
Sales price per unit less total VC per unit
Same as the CM
Maroon Company’s CM ratio of 24%. Total FC are
$84,000. What is Maroon’s B/E point in sales dollars?
$20,160
$110,536
$240,000
$350,000
If a firm’s forecasted sales are $250,000 and its B/E sales are
$190,000, the margin of safety in dollars is:...

________ is the excess of sales over the cost of goods sold.
A) Gross margin
B) Contribution-margin ratio
C) Variable-cost ratio
D) Contribution margin
Answer:
Which statement is FALSE?
A) Each different sales-mix of products has a different
break-even point.
B) Changes in the sales-mix of products sold affects a company's
net operating profit.
C) Changes in the sales-mix of products sold affects a company's
contribution margin.
D) If the sales-mix of products sold changes, the break-even
point does not...

Break-Even Units, Contribution Margin Ratio, Multiple-Product
Breakeven, Margin of Safety, Degree of Operating Leverage
Jellico Inc.'s projected operating income (based on sales of
450,000 units) for the coming year is as follows:
Total
Sales
$11,700,000
Total variable cost
8,190,000
Contribution margin
$3,510,000
Total fixed cost
2,254,200
Operating income
$1,255,800
Required:
1(a). Compute variable cost per unit. Round
your answer to the nearest cent.
$per unit
1(b). Compute contribution margin per unit.
Round your answer to the nearest cent.
$per unit...

Break-Even Units, Contribution Margin Ratio, Margin of
Safety
Khumbu Company's projected profit for the coming year is as
follows:
Total
Per Unit
Sales
$3,331,250
$41.00
Total variable cost
999,375
12.30
Contribution
margin
$ 2,331,875
$ 28.7
Total fixed cost
1,009,369
Operating income
$ 1,322,506
Required:
1. Compute the break-even point in units. If
required, round your answer to nearest whole value.
units
2. How many units must be sold to earn a profit
of $240,000? If required, round your answer...

Break-Even Units, Contribution Margin Ratio, Margin of
Safety
Khumbu Company's projected profit for the coming year is as
follows:
Total
Per Unit
Sales
$2,030,000
$40.00
Total variable cost
568,400
11.20
Contribution margin
$ 1,461,600
$ 28.8
Total fixed cost
539,980
Operating income
$ 921,620
Required:
1. Compute the break-even point in units. If
required, round your answer to nearest whole value.
units
2. How many units must be sold to earn a profit
of $240,000? If required, round your answer...

Break-Even Units,
Contribution Margin Ratio, Margin of Safety
Khumbu Company's
projected profit for the coming year is as follows:
Total
Per Unit
Sales
$3,150,000
$45.00
Total variable cost
819,000
11.70
Contribution
margin
$2,331,000
$ 33.3
Total fixed cost
819,000
Operating income
$1,512,000
Required:
1.
Compute the break-even point in units. If required, round your
answer to nearest whole value.
______ units
2.
How many units must be sold to earn a profit of $240,000? If
required, round your answer to...

Mastery Problem: CVP Analysis - Constructing a
Cost-Volume-Profit Chart
CVP Analysis and the Contribution Margin Income
Statement
For planning and control purposes, managers have a powerful tool
known as cost-volume-profit (CVP) analysis. CVP analysis shows how
revenues, expenses, and profits behave as volume changes, which
helps identify problems and create solutions. In CVP analysis,
costs are classified according to behavior: variable or fixed,
rather than by category: product (which includes both variable and
fixed) or period (which includes both variable...

Mastery
Problem: CVP Analysis - Constructing a Cost-Volume-Profit
Chart
CVP Analysis
and the Contribution Margin Income Statement
For planning and
control purposes, managers have a powerful tool known as
cost-volume-profit (CVP) analysis. CVP analysis shows how revenues,
expenses, and profits behave as volume changes, which helps
identify problems and create solutions. In CVP analysis, costs are
classified according to behavior: variable or fixed, rather than by
category: product (which includes both variable and fixed) or
period (which includes both variable...

Break-Even Units, Contribution Margin Ratio, Multiple-Product
Breakeven, Margin of Safety, Degree of Operating Leverage
Jellico Inc.'s projected operating income (based on sales of
450,000 units) for the coming year is as follows:
Total
Sales
$ 11,700,000
Total variable cost
6,669,000
Contribution margin
$ 5,031,000
Total fixed cost
2,871,024
Operating income
$ 2,159,976
Required:
1(a). Compute variable cost per unit. Enter
your answer to the nearest cent.
$per unit
1(b). Compute contribution margin per unit.
Enter your answer to the nearest...

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Break-Even Units, Contribution Margin Ratio, Multiple-Product
Breakeven, Margin of Safety, Degree of Operating Leverage
Jellico Inc.'s projected operating income (based on sales of
450,000 units) for the coming year is as follows:
Total
Sales
$ 9,000,000
Total variable cost
5,310,000
Contribution margin
$ 3,690,000
Total fixed cost
2,476,400
Operating income
$ 1,213,600
Required:
1(a). Compute variable cost per unit. Enter
your answer to the nearest cent.
$per unit
1(b). Compute contribution margin per...

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