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Exam 5: Cost-Volume-Profit Relationships

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Question 101

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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.

E) B) and C)
F) B) and D)

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Question 102

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Mechem Corporation produces and sells a single product.In April,the company sold 2,100 units.Its total sales were $205,800,its total variable expenses were $107,100,and its total fixed expenses were $82,400. Required: a.Construct the company's contribution format income statement for April. b.Redo the company's contribution format income statement assuming that the company sells 2,200 units.

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Question 103

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Escareno Corporation has provided its contribution format income statement for June.The company produces and sells a single product. If the company sells 8,200 units,its total contribution margin should be closest to:

A company that makes organic fertilizer has supplied the following data: -The company's degree of operating leverage is closest to:

Cleghorn Corporation produces and sells a single product.Data concerning that product appear below: Required: Determine the monthly break-even in total dollar sales.Show your work!

Kelsay Corporation has provided the following contribution format income statement. All questions concern situations that are within the relevant range. -The contribution margin ratio is closest to:

Sattler Corporation has provided the following contribution format income statement.All questions concern situations that are within the relevant range. Required: a.What is the contribution margin per unit? b.What is the variable expense ratio? c.If sales decline to 7,900 units,what would be the estimated net operating income? d.If the variable cost per unit increases by $5,spending on advertising increases by $2,000,and unit sales increase by 3,400 units,what would be the estimated net operating income? e.What is the break-even point in dollar sales? f.Estimate how many units must be sold to achieve a target profit of $50,400. g.What is the margin of safety percentage? h.Using the degree of operating leverage,what is the estimated percent increase in net operating income of a 15% increase in sales?

Bethard Corporation produces and sells a single product.Data concerning that product appear below: Fixed expenses are $354,000 per month.The company is currently selling 5,000 units per month. Required: The marketing manager would like to cut the selling price by $8 and increase the advertising budget by $23,000 per month.The marketing manager predicts that these two changes would increase monthly sales by 600 units.What should be the overall effect on the company's monthly net operating income of this change? Show your work!

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.

The degree of operating leverage in a company is smallest at the break-even point and increases as sales rise.

Ingrum Corporation produces and sells two products. In the most recent month, Product R38T had sales of $20,000 and variable expenses of $7,400. Product X08S had sales of $39,000 and variable expenses of $6,170. The fixed expenses of the entire company were $41,160. -If the sales mix were to shift toward Product R38T with total sales remaining constant,the overall break-even point for the entire company:

Sorin Inc.,a company that produces and sells a single product,has provided its contribution format income statement for January. If the company sells 4,600 units,its total contribution margin should be closest to:

Lubke Corporation's contribution format income statement for the most recent month follows: Required: a.Compute the degree of operating leverage to two decimal places. b.Using the degree of operating leverage,estimate the percentage change in net operating income that should result from a 3% increase in sales.

Rovinsky Corporation,a company that produces and sells a single product,has provided its contribution format income statement for November. If the company sells 5,300 units,its net operating income should be closest to:

Bussy Corporation produces and sells a single product whose contribution margin ratio is 54%.The company's monthly fixed expense is $561,600 and the company's monthly target profit is $34,560. Required: Determine the dollar sales to attain the company's target profit.Show your work!

The smaller the contribution margin ratio,the smaller the amount of sales required to cover a given amount of fixed expenses.

The margin of safety is the amount by which sales can decrease before losses are incurred by the company.

Sun Corporation has provided the following contribution format income statement.All questions concern situations that are within the relevant range. Required: a.What is the margin of safety in dollars? b.What is the degree of operating leverage?

Chovanec Corporation produces and sells a single product.Data concerning that product appear below: 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?

Zaccaria Corporation has provided the following contribution format income statement.All questions concern situations that are within the relevant range. Required: a.What is the contribution margin ratio? b.If sales increase to 5,040 units,what would be the estimated increase in net operating income? c.If the selling price increases by $4 per unit and the sales volume decreases by 400 units,what would be the estimated net operating income? d.What is the break-even point in unit sales? e.What is the margin of safety in dollars? f.What is the degree of operating leverage?