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Exam 2: Cost-Volume-Profit Relationships

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Question 21

True/False

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If the fixed expenses increase in a company, and all other factors remain unchanged, then one would expect the margin of safety to decrease.

A) True
B) False

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Question 22

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James Company has a margin of safety percentage of 20% based on its actual sales. The break-even point is $200,000 and the variable expenses are 45% of sales. Given this information, the actual profit is:

A) $27,500
B) $18,000
C) $22,500
D) $22,000

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

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Question 23

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Shiraki Corporation produces and sells a single product. Data concerning that product appear below: The break-even in monthly dollar sales is closest to:

The contribution margin ratio of Thronson Corporation's only product is 69%. The company's monthly fixed expense is $455,400 and the company's monthly target profit is $41,400. Required: Determine the dollar sales to attain the company's target profit. Show your work!

The break-even point in sales dollars is:

If sales decrease by 500 units by next month, by how much would fixed expenses have to be reduced to maintain the current net operating income?

If Q equals the level of output, P is the selling price per unit, V is the variable expense per unit, and F is the fixed expense, then the break-even point in units is:

The contribution margin ratio for the Business model is:

The following monthly data are available for the Eager Company and its only product: The margin of safety for the company for March was:

The margin of safety as a percentage of sales is closest to:

The following monthly data are available for the W.K. Kent Company: The break-even sales for the month for the company are closest to:

The company's contribution margin ratio is closest to:

In September, Pino Corporation sold 2,100 units of its only product. Its total sales were $195,300, its total variable expenses were $84,000, and its total fixed expenses were $98,700. Required: a. Construct the company's contribution format income statement for September in good form. b. Redo the company's contribution format income statement assuming that the company sells 2,300 units.

Titlow, Inc., produces and sells a single product. The product sells for $220.00 per unit and its variable expense is $57.20 per unit. The company's monthly fixed expense is $713,064. Required: Determine the monthly break-even in unit sales. Show your work!

The company's degree of operating leverage is closest to:

On a CVP graph for a profitable company, the total revenue line will be steeper than the total expense line.

If the company sells 7,300 units, its net operating income should be closest to:

Longiotti 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!

The company's contribution margin ratio is closest to:

The following monthly data in contribution format are available for the MN Company and its only product, Product SD: The company produced and sold 300 units during the month and had no beginning or ending inventories. Required: a. Without resorting to calculations, what is the total contribution margin at the break-even point? b. Management is contemplating the use of plastic gearing rather than metal gearing in Product SD. This change would reduce variable expenses by $18 per unit. The company's sales manager predicts that this would reduce the overall quality of the product and thus would result in a decline in sales to a level of 250 units per month. Should this change be made? c. Assume that MN Company is currently selling 300 units of Product SD per month. Management wants to increase sales and feels this can be done by cutting the selling price by $22 per unit and increasing the advertising budget by $20,000 per month. Management believes that these actions will increase unit sales by 50 percent. Should these changes be made? d. Assume that MN Company is currently selling 300 units of Product SD. Management wants to automate a portion of the production process for Product SD. The new equipment would reduce direct labor costs by $20 per unit but would result in a monthly rental cost for the new robotic equipment of $10,000. Management believes that the new equipment will increase the reliability of Product SD thus resulting in an increase in monthly sales of 12%. Should these changes be made?