Chapter 06

Chapter 6
Cost-Volume-Profit Relationships
True/False
1.Toestimatewhattheprofitwillbeatvariouslevelsofactivity,amanagercansimplytakethenumber
ofunitstobesoldoverthebreakevenpointandmultiplythatnumberbytheunitcontributionmargin.
Level:MediumLO:1Ans:T
2.Incrementalanalysisisgenerallythesimplestandmostdirectapproachtodecisionmaking.
Level:EasyLO:1Ans:T
3.Tofacilitatedecisionmaking,fixedexpensesshouldbeexpressedonaperunitbasis.
Level:MediumLO:1Ans:F
4.OneassumptioninCVPanalysisisthatinventoriesdonotchange.
Level:EasyLO:1Ans:T
5.OnaCVPgraphforaprofitablecompany,thetotalexpenselinewillbesteeperthanthetotalrevenue
line.
6.Ifsalesvolumeincreases,andallotherfactorsremainunchanged,thecontributionmarginratiowill
decrease.
7.Thebreakevenpointforacapitalintensive,automatedcompanywilltendtobehigherthanforaless
capitalintensivecompanywhilethemarginofsafetywilltendtobelower.
Level:MediumLO:5,7Ans:T
8.Anincreaseinthenumberofunitssoldwilldecreaseacompanysbreakevenpoint.
9.Assumingthattheunitcontributionmarginispositive,a10%decreaseinsellingpricewillincreasethe
breakevenpointintermsofunitsalesmorethanwilla10%increaseinthevariableexpense.
Level:HardLO:5Ans:T
Brewer,IntroductiontoManagerialAccounting,3/e
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10.Thebreakevenpointisthepointwheretotalcontributionmarginequalstotalvariableexpenses.
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11.Thebreakevenpointcanusuallybedeterminedbysimplyaddingtogetheralloftheexpensesfrom
theincomestatement.
12.Twocompanieswiththesamemarginofsafetyindollarswillalsohavethesametotalcontribution
margin.
13.Ifacompanyhashighoperatingleverage,thenprofitswillbeverysensitivetochangesinsales.
Level:EasyLO:8Ans:T
14.Operatingleveragewilldecreaseasthecompanysmarginofsafetyincreases.
Level:HardLO:7,8Ans:T
15.Theoverallcontributionmarginratioforacompanyproducingthreeproductsmaybeobtainedby
addingthecontributionmarginratiosforthethreeproductsanddividingthetotalbythree.
Level:HardLO:9Ans:F
MultipleChoice
16.Whichofthefollowingiscorrect?ThebreakevenpointoccursontheCVPgraphwhere:
A)totalprofitequalstotalexpenses.
B)totalprofitequalstotalfixedexpenses.
C)totalcontributionmarginequalstotalfixedexpenses.
D)totalvariableexpensesequaltotalcontributionmargin.
Level:MediumLO:1,2Ans:C
17.Ifacompanydecreasesitstotalfixedexpenseswhileincreasingthevariableexpenseperunit,the
totalexpenselinerelativetoitspreviouspositiononacostvolumeprofitgraphwill:
A)shiftupwardandhaveasteeperslope.
B)shiftupwardandhaveaflatterslope.
C)shiftdownwardandhaveasteeperslope.
D)shiftdownwardandhaveaflatterslope.
Level:MediumLO:2Ans:C
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18.EastCompanymanufacturesandsellsasingleproductwithapositivecontributionmargin.Ifthe
sellingpriceandthevariableexpenseperunitbothincrease5%andfixedexpensesdonotchange,what
istheeffectonthecontributionmarginperunitandthecontributionmarginratio?
A)Aabove
B)Babove
C)Cabove
D)Dabove
Source:CMA,adapted
19.MossfeetShoeCompanyisasingleproductfirm.Mossfeetispredictingthatapriceincreasenext
yearwillnotcauseunitsalestodecrease.Whateffectwouldthispriceincreasehaveonthefollowing
itemsfornextyear?
A)Aabove
B)Babove
C)Cabove
D)Dabove
Level:MediumLO:3,5Ans:A
20.Thecontributionmarginratioisequalto:
A)Totalmanufacturingexpenses/Sales.
B)(SalesVariableexpenses)/Sales.
C)1(GrossMargin/Sales).
D)1(ContributionMargin/Sales).
Level:MediumLO:3Ans:B
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21.Thecontributionmarginratioalwaysincreaseswhenthe:
A)breakevenpointincreases.
B)breakevenpointdecreases.
C)variableexpensesasapercentageofnetsalesdecrease.
D)variableexpensesasapercentageofnetsalesincrease.
Source:CPA,adapted
Level:HardLO:3Ans:C
22.Inthemiddleoftheyear,thepriceofLakeCorporationsmajorrawmaterialincreasedby8%.How
wouldthisincreaseaffectthecompanysbreakevenpointandmarginofsafety?
A)Aabove
B)Babove
C)Cabove
D)Dabove
Level:EasyLO:5,7Ans:B
23.A$2.00increaseinaproductsvariableexpenseperunitaccompaniedbya$2.00increaseinits
sellingpriceperunitwill:
A)decreasethedegreeofoperatingleverage.
B)decreasethecontributionmargin.
C)havenoeffectonthebreakevenvolume.
D)havenoeffectonthecontributionmarginratio.
Level:HardLO:5,8Ans:C
24.Thebreakevenpointinunitsalesisfoundbydividingtotalfixedexpensesby:
A)thecontributionmarginratio.
B)thevariableexpensesperunit.
C)thesalespriceperunit.
D)thecontributionmarginperunit.
Level:EasyLO:5Ans:D
25.Whichofthefollowingwouldnotaffectthebreakevenpoint?
A)numberofunitssold
B)variableexpenseperunit
C)totalfixedexpenses
D)sellingpriceperunit
Source:CMA,adapted
Level:MediumLO:5Ans:A
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26.Ifacompanyincreasesitssellingpriceby$2perunitduetoanincreaseinitsvariablelaborcostof$2
perunit,thebreakevenpointinunitswill:
A)decrease.
B)increase.
C)notchange.
D)changebutdirectioncannotbedetermined.
27.Toobtainthedollarsalesvolumenecessarytoattainagiventargetprofit,whichofthefollowing
formulasshouldbeused?
A)(Fixedexpenses+Targetnetprofit)/Totalcontributionmargin
B)(Fixedexpenses+Targetnetprofit)/Contributionmarginratio
C)Fixedexpenses/Contributionmarginperunit
D)Targetnetprofit/Contributionmarginratio
Level:EasyLO:6Ans:B
28.SalinasCorporationhasadegreeofoperatingleverageof8.Thismeansthata1%changeinsales
dollarsatSalinaswillgeneratean8%changein:
A)variableexpenses.
B)fixedexpenses.
C)contributionmargin.
D)netoperatingincome.
Level:MediumLO:8Ans:D
29.Incalculatingthebreakevenpointforamultiproductcompany,whichofthefollowingassumptions
arecommonlymade?
A)IandII
B)IandIII
C)IIandIII
D)I,II,andIII
Level:EasyLO:9Ans:D
30.ThefollowinginformationrelatestothebreakevenpointatPezzoCorporation:
IfPezzowantstogeneratenetoperatingincomeof$12,000,whatwillitssalesdollarshavetobe?
A)$132,000
B)$136,000
C)$168,000
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D)$176,000
Level:HardLO:1,3,5,6Ans:C
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31.ThefollowinginformationrelatestoSnowbirdCorporation:
WhatisSnowbirdsmarginofsafety?
A)$62,500
B)$187,500
C)$100,000
D)$212,500
Level:HardLO:1,3,5,7Ans:B
32.TheDogHuthotdogstandexpectsthefollowingoperatingresultsfornextyear:
WhatisDogHutsbreakevenpointnextyearinsalesdollars?
A)$120,000
B)$181,300
C)$196,000
D)$250,000
Level:HardLO:1,3,5Ans:D
33.ThefollowinginformationrelatestoZincCorporationforlastyear:
SalesatZincareexpectedtobe$600,000nextyear.Assumingnochangeincoststructure,thismeans
thatnetoperatingincomefornextyearshouldbe:
A)$30,000
B)$45,000
C)$50,000
D)$125,000
Level:HardLO:1,3,8Ans:C
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34.ThefollowinginformationpertainstoNovaCo.scostvolumeprofitrelationships:
Howmuchwillbecontributedtonetoperatingincomebythe1,001stunitsold?
A)$650
B)$500
C)$150
D)$0
35.BarnesCorporationexpectedtosell150,000gamesduringthemonthofNovember.Thefollowing
budgeteddataarebasedonthatlevelofsales:
BarnesactualsalesduringNovemberwere180,000games.Whatshouldtheactualnetoperatingincome
duringNovemberhavebeen?
A)$450,000
B)$270,000
C)$420,000
D)$510,000
Source:CMA,adapted
36.CarverCompanyproducesaproductwhichsellsfor$40.Variablemanufacturingcostsare$18per
unit.Fixedmanufacturingcostsare$5perunitbasedonthecurrentlevelofactivity,andfixedsellingand
administrativecostsare$4perunit.Asellingcommissionof15%ofthesellingpriceispaidoneachunit
sold.Thecontributionmarginperunitis:
A)$7
B)$17
C)$22
D)$16
Level:EasyLO:1Ans:D
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37.TiceCompanyisamediumsizedmanufactureroflamps.DuringtheyearanewlinecalledHorolin
wasmadeavailabletoTicescustomers.ThebreakevenpointforsalesofHorolinis$200,000witha
contributionmarginof40%.AssumingthattheprofitfortheHorolinlineduringtheyearamountedto
$100,000,totalsalesduringtheyearwouldhaveamountedto:
A)$300,000
B)$420,000
C)$450,000
D)$475,000
Source:CPA,adapted
Level:HardLO:3,5,6Ans:C
38.BlackCompanyssalesare$600,000,itsfixedexpensesare$150,000,anditsvariableexpensesare
60%ofsales.Basedonthisinformation,themarginofsafetyis:
A)$90,000
B)$190,000
C)$225,000
D)$240,000
Level:MediumLO:3,5,7Ans:C
39.VariableexpensesforAlphaCompanyare40%ofsales.Whataresalesatthebreakevenpoint,
assumingthatfixedexpensestotal$150,000peryear:
A)$250,000
B)$375,000
C)$600,000
D)$150,000
Level:EasyLO:3,5Ans:A
40.MinistCompanysellsasingleproductatasellingpriceof$15.00perunit.Lastyear,thecompanys
salesrevenuewas$225,000anditsnetoperatingincomewas$18,000.Iffixedexpensestotaled$72,000
fortheyear,thebreakevenpointinunitsaleswas
A)15,000
B)9,900
C)14,100
D)12,000
Level:HardLO:3,5Ans:D
41.WingerCorp.sellsaproductfor$5perunit.Thefixedexpensesare$210,000andtheunitvariable
expensesare60%ofthesellingprice.WhatsaleswouldbenecessaryinorderforWingerCorp.torealize
aprofitof10%ofsales?
A)$700,000
B)$525,000
C)$472,500
D)$420,000
Source:CPA,adapted
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Level:HardLO:3,6Ans:A
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42.SalesinEastCompanydeclinedfrom$100,000peryearto$80,000peryear,whilenetoperating
incomedeclinedby300percent.Giventhesedata,thecompanymusthavehadanoperatingleverageof:
A)15
B)2.7
C)30
D)12
43.DarthCompanysellsthreeproducts.Salesandcontributionmarginratiosforthethreeproducts
follow:
Giventhesedata,thecontributionmarginratioforthecompanyasawholewouldbe:
A)25%
B)75%
C)33.3%
D)itisimpossibletodeterminefromthegivendata
44.SunnripeCompanymanufacturesandsellstwotypesofbeachtowels,standardanddeluxe.Sunnripe
expectsthefollowingoperatingresultsnextyearforeachtypeoftowel:
Sunnripeexpectstohaveatotalof$57,600infixedexpensesnextyear.WhatisSunnripesbreakeven
pointnextyearinsalesdollars?
A)$72,000
B)$144,000
C)$192,000
D)$240,000
45.Cindy,Inc.sellsaproductfor$10perunit.Thevariableexpensesare$6perunit,andthefixed
expensestotal$35,000perperiod.Byhowmuchwillnetoperatingincomechangeifsalesareexpectedto
increaseby$40,000?
A)$16,000increase
B)$5,000increase
C)$24,000increase
D)$11,000decrease
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46.BirneyCompanyhaspreparedthefollowingbudgetdata:
Anadvertisingagencyclaimsthatanaggressiveadvertisingcampaignwouldenablethecompanyto
increaseitsunitsalesby20%.Whatisthemaximumamountthatthecompanycanpayforadvertising
andobtainanetoperatingincomeof$200,000?
A)$100,000
B)$200,000
C)$300,000
D)$550,000
Source:CPA,adapted
47.Duringlastyear,ThorLabsuppliedhospitalswithacomprehensivediagnostickitfor$120.Ata
volumeof80,000kits,Thorhadfixedexpensesof$1,000,000andnetoperatingincomeof$200,000.
Becauseofanadverselegaldecision,Thorsliabilityinsuranceexpensesthisyearwillbe$1,200,000
morethantheywerelastyear.Assumingthatthevolumeandothercostsareunchanged,whatshouldbe
thesalespricethisyearifThoristomakethesame$200,000netoperatingincome?
A)$120
B)$135
C)$150
D)$240
Source:CPA,adapted
Level:MediumLO:4,6Ans:B
48.Howmuchwillacompanysnetoperatingincomechangeifitundertakesanadvertisingcampaign
giventhefollowingdata:
A)$200increase
B)$25,200increase
C)$15,000increase
D)$9,800increase
Level:HardLO:4Ans:D
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49.SunCompanystentativebudgetfornextyearisasfollows:
Mr.Johnston,themarketingmanager,hasproposedanaggressiveadvertisingcampaigncostingan
additional$50,000thathepredictswillresultina30%unitsalesincrease.AssumingthatJohnstons
proposalisincorporatedintothebudget,whatshouldbetheincreaseinthebudgetednetoperating
incomefornextyear?
A)$12,000
B)$22,000
C)$72,000
D)$130,000
Source:CPA,adapted
Level:HardLO:4Ans:B
50.Lastyear,variableexpenseswere60%oftotalsalesandfixedexpenseswere10%oftotalsales.Ifthe
companyincreasesitssellingpricesby10%,butiffixedexpenses,variablecostsperunit,andunitsales
remainunchanged,theeffectoftheincreaseinsellingpriceonthecompanystotalcontributionmargin
wouldbe:
A)adecreaseof2%
B)anincreaseof5%
C)anincreaseof10%
D)anincreaseof25%
Source:CIMA,adapted
Level:HardLO:4Ans:D
51.MoruzziCorporationisasingleproductcompanythatexpectsthefollowingoperatingresultsfornext
year:
HowmanyunitswouldMoruzzihavetosellnextyeartobreakeven?
A)50,000
B)200,000
C)280,000
D)350,000
Level:HardLO:5Ans:D
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52.MasonCompanyssellingpricewas$20.00perunit.Fixedexpensestotaled$54,000,variable
expenseswere$14.00perunit,andthecompanyreportedaprofitof$9,000fortheyear.Thebreakeven
pointforMasonCompanyis:
A)10,500units
B)4,500units
C)8,500units
D)9,000units
53.Giventhefollowingdata:
Thebreakevenpointindollarsis:
A)$6,000
B)$4,500
C)$2,647
D)$4,000
Level:EasyLO:5Ans:A
54.HollisCompanysellsasingleproductfor$20perunit.Thecompanysfixedexpensestotal$240,000
peryear,andvariableexpensesare$12perunitofproduct.Thecompanysbreakevenpointis:
A)$400,000
B)$600,000
C)20,000units
D)12,000units
Level:EasyLO:5Ans:B
55.Darwin,Inc.,sellsaparticulartextbookfor$20.Variableexpensesare$14perbook.Atthecurrent
volumeof50,000bookssoldperyearthecompanyisjustbreakingeven.Giventhesedata,theannual
fixedexpensesassociatedwiththetextbooktotal:
A)$300,000
B)$1,000,000
C)$1,300,000
D)$700,000
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56.SingaporeCandyCaneCompanyisasingleproductfirmwiththefollowingcoststructurefornext
year:
Whatisthecompanysbreakevenpointnextyearinsalesdollars?
A)$90,000
B)$108,000
C)$135,000
D)$162,000
57.GarciaVeterinaryClinicexpectsthefollowingoperatingresultsnextyear:
WhatisGarciasbreakevenpointnextyearinsalesdollars?
A)$240,000
B)$375,000
C)$400,000
D)$420,000
58.FrankCompanymanufacturersasingleproductthathasasellingpriceof$20.00perunit.Fixed
expensestotal$45,000peryear,andthecompanymustsell5,000unitstobreakeven.Ifthecompanyhas
atargetprofitof$13,500,salesinunitsmustbe:
A)6,000
B)5,750
C)6,500
D)7,925
Level:HardLO:6Ans:C
59.SpencerCompanyexpectstosell60,000unitsnextyear.Variableproductioncostsare$4perunit,
andvariablesellingcostsare10%ofthesellingprice.Fixedexpensesare$115,000peryear,andthe
companyhassetatargetprofitof$50,000.Basedonthisinformation,theunitsellingpriceshouldbe:
A)$7.00
B)$10.75
C)$7.50
D)$6.75
Level:HardLO:6Ans:C
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60.CompanyXsold25,000unitsofproductlastyear.Thecontributionmarginperunitwas$2,andfixed
expensestotaled$40,000fortheyear.Thisyearfixedexpensesareexpectedtoincreaseto$45,000,but
thecontributionmarginperunitwillremainunchangedat$2.Howmanyunitsmustbesoldthisyearto
earnthesamenetoperatingincomeaswasearnedlastyear:
A)22,500
B)27,500
C)35,000
D)2,500
61.Aproductsellsfor$10perunitandhasvariableexpensesof$6perunit.Fixedexpensestotal$45,000
permonth.Howmanyunitsoftheproductmustbesoldeachmonthtoyieldamonthlyprofitof$15,000?
A)6,000units
B)3,750units
C)15,000units
D)10,000units
Level:EasyLO:6Ans:C
62.TheBreidenCompanysellsrodaksfor$6.00perunit.Fixedexpensestotal$37,500permonthand
variableexpensesare$2.00perunit.Howmanyrodaksmustbesoldeachmonthtorealizeaprofitbefore
incometaxesof15%ofsales(tothenearestwholeunit):
A)9,375units
B)11,029units
C)12,097units
D)9,740units
Source:CMA,adapted
Level:HardLO:6Ans:C
63.ChibuCorporationisasingleproductfirmwiththefollowingcostformulaforallofitscostsfornext
year:
Y=$225,000+$30X
Chibusellsitsproductfor$120perunit.WhatwouldChibustotalsalesdollarshavetobenextyearin
ordertogenerate$270,000ofnetoperatingincome?
A)$618,750
B)$660,000
C)$1,080,000
D)$1,980,000
Level:HardLO:6Ans:B
64.GammaCompanyhassalesof$120,000,acontributionmarginof$48,000,andanetoperating
incomeof$12,000.Thecompanysdegreeofoperatingleverageis:
A)2.5
B)4.0
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C)10.0
D)4.8
Level:EasyLO:8Ans:B
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65.AlphaCompanyreportedthefollowingdataforitsmostrecentyear:sales,$500,000;variable
expenses,$300,000;andfixedexpenses,$150,000.Thecompanysdegreeofoperatingleverageis:
A)10
B)2
C)4
D)2.5
66.MasonEnterpriseshaspreparedthefollowingbudgetforthemonthofJuly:
Assumingthattotalfixedexpenseswillbe$150,000andthesalesmixremainsconstant,thebreakeven
pointwouldbeclosestto:
A)$276,008
B)$235,292
C)$294,545
D)$141,278
Source:CMA,adapted
Level:HardLO:9Ans:C
67.TheunitcontributionmarginsofProductXandProductYare$10and$9,respectively.Totalfixed
expenseswillbethesameregardlessofwhichproductisproducedandsold.Whichofthefollowing
statementswillalwaysbetrue:
A)ProductXhasahighercontributionmarginratiothanProductY.
B)iftotalsalesare$300,000nomatterwhichproductissold,itismoreprofitabletosellProductXthan
ProductY.
C)lessunitswouldberequiredtobreakevenifonlyProductXissoldthanifonlyProductYissold.
D)responsesA,B,andCareallcorrect.
Level:HardLO:9Ans:C
68.AcompanysellstwoproductsJandK.Thesalesmixisexpectedtobe$3.00ofsalesofProductK
forevery$1.00ofsalesofProductJ.ProductJhasacontributionmarginratioof40%whereasProductK
hasacontributionmarginratioof50%.Annualfixedexpensesareexpectedtobe$120,000.Theoverall
breakevenpointforthecompanyindollarsalesisexpectedtobeclosestto:
A)$196,000
B)$200,000
C)$253,000
D)$255,000
Source:CIMA,adapted
Level:HardLO:9Ans:C
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69.LepageCorporationhasprovideditscontributionformatincomestatementforJanuary.Thecompany
producesandsellsasingleproduct.
Ifthecompanysells4,700units,itstotalcontributionmarginshouldbeclosestto:
A)$83,600
B)$18,373
C)$89,300
D)$98,000
Level:EasyLO:1Ans:C
70.OfarrellCorporation,acompanythatproducesandsellsasingleproduct,hasprovidedits
contributionformatincomestatementforMarch.
Ifthecompanysells5,400units,itsnetoperatingincomeshouldbeclosestto:
A)$19,008
B)$17,600
C)$24,000
D)$34,000
Level:EasyLO:1Ans:C
71.BreesInc.,acompanyproducesandsellsasingleproduct,hasprovideditscontributionformat
incomestatementforApril.
Ifthecompanysells5,800units,itstotalcontributionmarginshouldbeclosestto:
A)$55,800
B)$52,200
C)$6,642
D)$47,000
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Level:EasyLO:1Ans:B
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72.FlorekInc.producesandsellsasingleproduct.Thecompanyhasprovideditscontributionformat
incomestatementforMarch.
Ifthecompanysells5,900units,itsnetoperatingincomeshouldbeclosestto:
A)$14,000
B)$10,600
C)$18,600
D)$10,972
Level:EasyLO:1Ans:A
73.MaackCorporationscontributionmarginratiois16%anditsfixedmonthlyexpensesare$44,000.If
thecompanyssalesforamonthare$299,000,whatisthebestestimateofthecompanysnetoperating
income?Assumethatthefixedmonthlyexpensesdonotchange.
A)$207,160
B)$3,840
C)$255,000
D)$47,840
Level:EasyLO:3Ans:B
74.BoldingInc.scontributionmarginratiois61%anditsfixedmonthlyexpensesare$42,000.
Assumingthatthefixedmonthlyexpensesdonotchange,whatisthebestestimateofthecompanysnet
operatingincomeinamonthwhensalesare$126,000?
A)$76,860
B)$7,140
C)$34,860
D)$84,000
Level:EasyLO:3Ans:C
75.BoweCorporationsfixedmonthlyexpensesare$21,000anditscontributionmarginratiois61%.
Assumingthatthefixedmonthlyexpensesdonotchange,whatisthebestestimateofthecompanysnet
operatingincomeinamonthwhensalesare$74,000?
A)$7,860
B)$45,140
C)$24,140
D)$53,000
Level:EasyLO:3Ans:C
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76.DataconcerningMassingCorporationssingleproductappearbelow:
Thecompanyiscurrentlyselling9,000unitspermonth.Fixedexpensesare$837,000permonth.The
marketingmanagerbelievesthata$16,000increaseinthemonthlyadvertisingbudgetwouldresultina
150unitincreaseinmonthlysales.Whatshouldbetheoveralleffectonthecompanysmonthlynet
operatingincomeofthischange?
A)increaseof$1,250
B)decreaseof$16,000
C)decreaseof$1,250
D)increaseof$17,250
Level:EasyLO:4Ans:A
77.DybalaCorporationproducesandsellsasingleproduct.Dataconcerningthatproductappearbelow:
Thecompanyiscurrentlyselling5,000unitspermonth.Fixedexpensesare$173,000permonth.The
marketingmanagerbelievesthata$6,000increaseinthemonthlyadvertisingbudgetwouldresultina
170unitincreaseinmonthlysales.Whatshouldbetheoveralleffectonthecompanysmonthlynet
operatingincomeofthischange?
A)increaseof$1,480
B)decreaseof$6,000
C)increaseof$7,480
D)decreaseof$1,480
Level:EasyLO:4Ans:A
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78.DataconcerningBunckCorporationssingleproductappearbelow:
Fixedexpensesare$202,000permonth.Thecompanyiscurrentlyselling2,000unitspermonth.
Managementisconsideringusinganewcomponentthatwouldincreasetheunitvariablecostby$18.
Sincethenewcomponentwouldincreasethefeaturesofthecompanysproduct,themarketingmanager
predictsthatmonthlysaleswouldincreaseby400units.Whatshouldbetheoveralleffectonthe
companysmonthlynetoperatingincomeofthischange?
A)decreaseof$47,200
B)decreaseof$11,200
C)increaseof$47,200
D)increaseof$11,200
Level:EasyLO:4Ans:D
79.SalleyCorporationproducesandsellsasingleproduct.Dataconcerningthatproductappearbelow:
Fixedexpensesare$1,133,000permonth.Thecompanyiscurrentlyselling9,000unitspermonth.
Sincethenewcomponentwouldincreasethefeaturesofthecompanysproduct,themarketingmanager
predictsthatmonthlysaleswouldincreaseby500units.Whatshouldbetheoveralleffectonthe
companysmonthlynetoperatingincomeofthischange?
A)decreaseof$68,500
B)decreaseof$5,500
C)increaseof$68,500
D)increaseof$5,500
Level:EasyLO:4Ans:D
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80.DataconcerningWytheCorporationssingleproductappearbelow:
Fixedexpensesare$106,000permonth.Thecompanyiscurrentlyselling2,000unitspermonth.The
marketingmanagerwouldliketocutthesellingpriceby$15andincreasetheadvertisingbudgetby
$5,000permonth.Themarketingmanagerpredictsthatthesetwochangeswouldincreasemonthlysales
by800units.Whatshouldbetheoveralleffectonthecompanysmonthlynetoperatingincomeofthis
change?
A)increaseof$31,000
B)decreaseof$31,000
C)increaseof$103,000
D)increaseof$1,000
Level:EasyLO:4Ans:D
81.JolyCorporationproducesandsellsasingleproduct.Dataconcerningthatproductappearbelow:
marketingmanagerwouldliketocutthesellingpriceby$16andincreasetheadvertisingbudgetby
change?
A)decreaseof$59,800
B)increaseof$59,800
D)decreaseof$20,200
Level:EasyLO:4Ans:D
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82.DataconcerningHinksonCorporationssingleproductappearbelow:
marketingmanagerwouldliketointroducesalescommissionsasanincentiveforthesalesstaff.The
marketingmanagerhasproposedacommissionof$9perunit.Inexchange,thesalesstaffwouldaccepta
decreaseintheirsalariesof$60,000permonth.(Thisisthecompanyssavingsfortheentiresalesstaff.)
Themarketingmanagerpredictsthatintroducingthissalesincentivewouldincreasemonthlysalesby100
units.Whatshouldbetheoveralleffectonthecompanysmonthlynetoperatingincomeofthischange?
A)increaseof$59,100
B)decreaseof$121,700
D)decreaseof$1,700
Level:EasyLO:4Ans:D
83.HartungCorporationproducesandsellsasingleproduct.Dataconcerningthatproductappearbelow:
marketingmanagerwouldliketointroducesalescommissionsasanincentiveforthesalesstaff.The
marketingmanagerhasproposedacommissionof$13perunit.Inexchange,thesalesstaffwouldaccept
adecreaseintheirsalariesof$22,000permonth.(Thisisthecompanyssavingsfortheentiresalesstaff.)
Themarketingmanagerpredictsthatintroducingthissalesincentivewouldincreasemonthlysalesby400
units.Whatshouldbetheoveralleffectonthecompanysmonthlynetoperatingincomeofthischange?
A)increaseof$16,800
B)increaseof$226,000
C)increaseof$30,000
D)decreaseof$14,000
Level:EasyLO:4Ans:C
84.BlaneCorporationproducesandsellsasingleproduct.Dataconcerningthatproductappearbelow:
Thebreakeveninmonthlyunitsalesisclosestto:
A)4,401
B)2,360
C)3,470
52
D)7,374
Level:EasyLO:5Ans:C
53
85.DataconcerningNazarioCorporationssingleproductappearbelow:
Thebreakeveninmonthlyunitsalesisclosestto:
A)819
B)2,214
C)1,300
D)1,444
Level:EasyLO:5Ans:C
86.HoldtInc.producesandsellsasingleproduct.Thesellingpriceoftheproductis$230.00perunitand
itsvariablecostis$66.70perunit.Thefixedexpenseis$212,290permonth.Thebreakeveninmonthly
unitsalesisclosestto:
A)1,300
B)3,183
C)1,802
D)923
Level:EasyLO:5Ans:A
87.PreyerCorporationproducesandsellsasingleproduct.Dataconcerningthatproductappearbelow:
Thebreakeveninmonthlydollarsalesisclosestto:
A)$2,344,795
B)$492,407
C)$623,300
D)$1,153,501
Level:EasyLO:5Ans:C
88.DataconcerningWangCorporationssingleproductappearbelow:
A)$207,000
B)$255,321
C)$138,690
D)$420,273
Level:EasyLO:5Ans:A
54
55
89.WylyInc.producesandsellsasingleproduct.Thesellingpriceoftheproductis$170.00perunitand
itsvariablecostis$62.90perunit.Thefixedexpenseis$356,643permonth.
A)$963,900
B)$628,881
C)$566,100
D)$356,643
Level:EasyLO:5Ans:C
90.SanesCorporationproducesandsellsasingleproduct.Dataconcerningthatproductappearbelow:
Theunitsalestoattainthecompanysmonthlytargetprofitof$19,000isclosestto:
A)3,426
B)5,833
C)3,806
D)2,158
Level:EasyLO:6Ans:A
91.DataconcerningCutshallEnterprisesCorporationssingleproductappearbelow:
Theunitsalestoattainthecompanysmonthlytargetprofitof$16,000isclosestto:
A)3,872
B)2,320
C)4,834
D)4,462
Level:EasyLO:6Ans:D
92.HavelyInternationalCorporationsonlyproductsellsfor$200.00perunitanditsvariableexpenseis
$70.00.Thecompanysmonthlyfixedexpenseis$390,000permonth.Theunitsalestoattainthe
companysmonthlytargetprofitof$10,000isclosestto:
A)5,714
B)3,077
C)3,597
D)2,000
Level:EasyLO:6Ans:B
56
93.MoonenCorporationproducesandsellsasingleproductwhosecontributionmarginratiois57%.The
companysmonthlyfixedexpenseis$487,350andthecompanysmonthlytargetprofitis$10,000.The
dollarsalestoattainthattargetprofitisclosestto:
A)$855,000
B)$277,790
C)$872,544
D)$283,490
Level:EasyLO:6Ans:C
94.ThecontributionmarginratioofBaginskiCorporationsonlyproductis53%.Thecompanys
monthlyfixedexpenseis$617,980andthecompanysmonthlytargetprofitis$23,000.Thedollarsales
toattainthattargetprofitisclosestto:
A)$1,166,000
B)$1,209,396
C)$339,719
D)$327,529
Level:EasyLO:6Ans:B
95.MorgantiCorporationsellsaproductfor$140perunit.Theproductscurrentsalesare40,700units
anditsbreakevensalesare31,339units.
Whatisthemarginofsafetyindollars?
A)$3,798,667
B)$5,698,000
C)$4,387,460
D)$1,310,540
Level:EasyLO:7Ans:D
96.PalomoCorporationsellsaproductfor$170perunit.Theproductscurrentsalesare35,200unitsand
itsbreakevensalesare25,344units.Themarginofsafetyasapercentageofsalesisclosestto:
A)72%
B)39%
C)28%
D)61%
Level:EasyLO:7Ans:C
97.MalleyCorporationhasprovidedthefollowingdataconcerningitsonlyproduct:
Whatisthemarginofsafetyindollars?
A)$1,390,000
B)$562,950
C)$2,085,000
57
D)$1,522,050
Level:EasyLO:7Ans:B
58
98.RenfrewCorporationhasprovidedthefollowingdataconcerningitsonlyproduct:
Themarginofsafetyasapercentageofsalesisclosestto:
A)29%
B)59%
C)71%
D)41%
Level:EasyLO:7Ans:A
99.TheJunecontributionformatincomestatementofStandrodCorporationappearsbelow:
Thedegreeofoperatingleverageisclosestto:
A)0.11
B)3.44
C)9.18
D)0.29
Level:EasyLO:8Ans:B
100.SeiersenCorporationscontributionformatincomestatementforFebruaryappearsbelow:
Thedegreeofoperatingleverageisclosestto:
A)10.98
B)0.22
C)0.09
D)4.48
Level:EasyLO:8Ans:D
59
101.CleckleyCorporationsoperatingleverageis5.9.Ifthecompanyssalesincreaseby19%,itsnet
operatingincomeshouldincreasebyabout:
A)5.9%
B)31.1%
C)19.0%
D)112.1%
Level:EasyLO:8Ans:D
102.TribleyInc.hasanoperatingleverageof8.0.Ifthecompanyssalesincreaseby19%,itsnet
operatingincomeshouldincreasebyabout:
A)152.0%
B)19.0%
C)8.0%
D)42.1%
Level:EasyLO:8Ans:A
103.HitchensInc.producesandsellstwoproducts.Dataconcerningthoseproductsforthemostrecent
monthappearbelow:
Thefixedexpensesoftheentirecompanywere$24,010.Thebreakevenpointfortheentirecompanyis
closestto:
A)$33,817
B)$10,990
C)$34,160
D)$24,010
Level:EasyLO:9Ans:A
104.MacmullenCorporationproducesandsellstwoproducts.Dataconcerningthoseproductsforthe
mostrecentmonthappearbelow:
Thefixedexpensesoftheentirecompanywere$30,970.IfthesalesmixweretoshifttowardProduct
D08Qwithtotalsalesremainingconstant,theoverallbreakevenpointfortheentirecompany:
A)wouldincrease.
B)woulddecrease.
C)wouldnotchange.
D)couldincreaseordecrease.
Level:EasyLO:9Ans:B
60
61
105.ClosserCorporationproducesandsellstwoproducts.Inthemostrecentmonth,ProductM50Shad
salesof$39,000andvariableexpensesof$12,870.ProductH50Ghadsalesof$12,000andvariable
expensesof$4,980.Andthefixedexpensesoftheentirecompanywere$33,050.Thebreakevenpoint
fortheentirecompanyisclosestto:
A)$50,846
B)$50,900
C)$17,950
D)$33,050
Level:EasyLO:9Ans:A
106.ComingsCorporationproducesandsellstwoproducts.Inthemostrecentmonth,ProductR19Jhad
salesof$30,000andvariableexpensesof$9,000.ProductO37Ghadsalesof$34,000andvariable
expensesof$10,840.Andthefixedexpensesoftheentirecompanywere$35,560.Ifthesalesmixwere
toshifttowardProductR19Jwithtotalsalesremainingconstant,theoverallbreakevenpointforthe
entirecompany:
A)wouldincrease.
B)wouldnotchange.
C)couldincreaseordecrease.
D)woulddecrease.
Level:EasyLO:9Ans:D
Usethefollowingtoanswer107109
Acementmanufacturerhassuppliedthefollowingdata:
107.Whatisthecompanysunitcontributionmargin?
A)$4.20
B)$0.45
C)$1.90
D)$2.10
Level:EasyLO:1Ans:D
108.Thecompanyscontributionmarginratioisclosestto:
A)40.0%
B)50.0%
C)60.0%
D)10.7%
62
Level:EasyLO:3Ans:B
63
109.Ifthecompanyincreasesitsunitsalesvolumeby5%withoutincreasingitsfixedexpenses,thentotal
netoperatingincomeshouldbeclosestto:
A)$5,000
B)$123,100
C)$105,000
D)$102,500
Atilemanufacturerhassuppliedthefollowingdata:
110.Whatisthecompanysunitcontributionmargin?
A)$0.23
B)$4.90
C)$3.10
D)$1.80
Level:EasyLO:1Ans:D
A)29.4%
B)4.7%
C)63.3%
D)36.7%
Level:EasyLO:3Ans:D
112.Ifthecompanyincreasesitsunitsalesvolumeby5%withoutincreasingitsfixedexpenses,thentotal
netoperatingincomeshouldbeclosestto:
A)$6,600
B)$184,200
C)$134,422
D)$138,600
64
DrakeCompanysincomestatementforthemostrecentyearappearsbelow:
113.Theunitcontributionmarginis:
A)$17.00
B)$8.00
C)$1.00
D)$9.00
Level:EasyLO:1Ans:B
114.Thebreakevenpointinsalesdollarsis:
A)$731,250
B)$676,000
C)$675,000
D)$720,000
115.Ifthecompanydesiresanetoperatingincomeof$20,000,thenumberofunitsneededtobesoldis:
A)28,500
B)31,000
C)31,750
D)26,500
116.Thesalesmanagerisconvincedthata$60,000expenditureonadvertisingwillincreaseunitsalesby
fiftypercentwithoutanyotherincreaseinfixedexpenses.Ifthesalesmanageriscorrect,thecompanys
netoperatingincomewouldincreaseby:
A)$44,000
B)$34,000
C)$30,000
D)$49,000
65
RobertsCompanybasesitsbudgetonthefollowingdata:
117.Ifthecompanywantstoincreaseitstotalcontributionmarginby40%,itwillneedtoincreaseits
salesbyabout:
A)$48,840
B)$72,000
C)$50,400
D)$34,188
Level:HardLO:1Ans:B
118.Ifthecompanywantsitsmarginofsafetytoequal$40,000,itwillneedtosellabout:
A)1,158units
B)1,958units
C)2,300units
D)800units
Level:HardLO:7Ans:B
119.Ifthecompanysfixedexpensesdecreaseby20%,thebreakevenpointwillchangefromits
previouslevelbyabouta:
A)232unitincrease
B)510unitdecrease
C)232unitdecrease
D)510unitincrease
Level:HardLO:4,5Ans:C
ThefollowingdataweresuppliedbyReaderCorporation:
120.Thecontributionmarginis:
A)$420,000
B)$54,000
C)$474,000
66
D)$180,000
Level:EasyLO:1Ans:D
67
121.Thebreakevenpointinsalesdollarsis:
A)$470,000
B)$180,000
C)$420,000
D)$561,000
Level:EasyLO:5Ans:A
Amanufacturerofpremiumwirestrippershassuppliedthefollowingdata:
122.Thecompanysmarginofsafetyinunitsisclosestto:
A)384,762
B)263,704
C)61,017
D)522,740
123.Thecompanysunitcontributionmarginisclosestto:
A)$2.95
B)$5.45
C)$7.30
D)$4.05
Level:EasyLO:1Ans:A
124.Thecompanysdegreeofoperatingleverageisclosestto:
A)9.18
B)3.11
C)2.07
D)26.13
68
Acompanythatmakesorganicfertilizerhassuppliedthefollowingdata:
125.Thecompanysmarginofsafetyinunitsisclosestto:
A)140,000
B)202,238
C)125,714
D)32,105
126.Thecompanysunitcontributionmarginisclosestto:
A)$4.10
B)$3.80
C)$4.55
D)$7.15
Level:EasyLO:1Ans:B
A)1.97
B)15.54
C)1.25
D)7.48
ThefollowingdatawasprovidedbyTruxtonCorporation:
69
128.Thevariableexpenseperunitis:
A)$21
B)$9
C)$12
D)$18
Level:HardLO:3Ans:A
129.Thebreakevenlevelinsalesdollarsis:
A)$180,000
B)$90,000
C)$210,000
D)$54,000
Level:HardLO:5Ans:A
130.Netoperatingincomeatsalesof10,000unitsis:
A)$0
B)$36,000
C)$90,000
D)$300,000
Level:HardLO:4Ans:B
Amanufacturerofcedarshingleshassuppliedthefollowingdata:
131.Thecompanysbreakeveninunitsalesisclosestto:
A)130,149
B)81,081
C)25,038
D)240,000
A)66.2%
B)73.0%
C)27.0%
70
D)33.8%
Level:EasyLO:3Ans:D
71
A)2.80
B)7.00
C)2.29
D)20.72
Amanufactureroftilinggrouthassuppliedthefollowingdata:
134.Thecompanysbreakeveninunitsalesisclosestto:
A)43,774
B)237,143
C)76,615
D)80,606
A)67.7%
B)74.2%
C)32.3%
D)25.8%
Level:EasyLO:3Ans:C
A)14.77
B)2.65
C)4.77
D)2.27
ClarksonIndustriesproducesanelectroniccalculatorthatsellsfor$75perunit.Variableexpensesare$45
perunitandfixedexpensesare$150,000.
72
137.ThebreakevenpointforClarksonIndustriesis:
A)2,000units
B)3,333units
C)10,000units
D)5,000units
Level:EasyLO:5Ans:D
138.Thecontributionmarginratiois:
A)20%
B)66.6%
C)60%
D)40%
Level:EasyLO:3Ans:D
KerenskyCorporation,awholesalecompany,hasprovidedthefollowingdata:
139.Thecontributionmarginratioisclosestto:
A)57%
B)58%
C)42%
D)62%
140.Themarginofsafetypercentageisclosestto:
A)46%
B)60%
C)42%
D)62%
141.Thenumberofunitsneededtoachieveatargetnetoperatingincomeof$20,000isclosestto:
A)1,404units
B)542units
C)1,898units
D)1,361units
73
74
MarkCorporationproducestwomodelsofcalculators.TheBusinessmodelsellsfor$60,andtheMath
modelsellsfor$40.Thevariableexpensesaregivenbelow:
Thefixedexpensesare$75,000permonth.Theexpectedmonthlysalesofeachmodelare:Business,
1,000units;Math,500units.
142.ThecontributionmarginratiofortheBusinessmodelis:
A)40percent
B)75percent
C)85percent
D)60percent
143.Thebreakevenpointfortheexpectedsalesmixis(roundtonearestwholeunit):
A)833ofeach
B)1,667Businessand833Math
C)1,667ofeach
D)833Businessand1,667Math
Level:HardLO:5Ans:B
Nextyear,ComaPaintCompanyexpectstosell18,000gallonsofpaint.Comaisbudgetingthefollowing
operatingresultsfornextyear:
144.WhatisComasbreakevenpointnextyearinsalesdollars?
A)$49,500
B)$90,000
C)$108,000
D)$150,000
75
76
145.HowmanygallonsofpaintwouldComahavetosellnextyearinordertodoubleitsprojectednet
operatingincomeof$72,000?
A)22,800gallons
B)25,200gallons
C)26,000gallons
D)36,000gallons
146.AssumethatComawantstosell20,000gallonsnextyear.WhatminimumsellingpricewouldComa
havetochargeforeachgalloninordertostillobtainitsprojectednetoperatingincomeof$72,000?
A)$11.00
B)$13.50
C)$14.00
D)$14.10
ThefollowingbudgetedincomestatementwaspreparedbyFulltonCorporation:
147.Howmanyunitswouldhavetobesoldtobreakeven?
A)50
B)58
C)68
D)75
Source:CPA,adapted
77
148.Whatwouldthenetoperatingincomebeifsalesincreaseby25%?
A)$3,125
B)$3,750
C)$4,000
D)$5,000
Source:CPA,adapted
149.Whatwouldbethesalesatthebreakevenpointiffixedfactoryoverheadincreasesby$1,700?
A)$6,700
B)$8,400
C)$8,666
D)$9,200
Source:CPA,adapted
Level:MediumLO:4,5Ans:B
BarnesCorporationsincomestatementforlastyearappearsbelow:
150.Thebreakevenpointlastyearwas:
A)$146,341
B)$636,364
C)$729,730
D)$181,818
Source:CMA,adapted
78
151.ThemanagementofBarnesCorporationanticipatesa10percentincreaseintotalsales,a12percent
increaseintotalvariableexpenses,anda$45,000increaseintotalfixedexpensesnextyear.Thebreak
evenpointfornextyearis:
A)$729,027
B)$862,103
C)$214,018
D)$474,000
Source:CMA,adapted
HolgerIncorporated,whichproducesandsellsasingleproduct,hasprovidedthefollowingdata:
Considereachofthefollowingquestionsindependently.
152.Ifthedollarcontributionmarginperunitisincreasedby10%andiftotalfixedexpenseisdecreased
by20%,netoperatingincomeisexpectedto:
A)increaseby$2,000
B)increaseby$12,000
C)increaseby$8,000
D)increaseby$16,000
Level:HardLO:4Ans:C
153.Ifthesalesvolumedecreasesby25%andthevariableexpenseperunitincreasesby15%,net
operatingincomeisexpectedto:
A)decreaseby$19,000
B)decreaseby$1,000
C)increaseby$1,750
D)decreaseby$15,000
Level:HardLO:4Ans:A
154.Ifthecompanysfixedexpensesincreasedby$8,000,howmanyunitsmustbesoldtoreachatarget
netoperatingincomeof$36,000:
A)1,400units
B)2,200units
C)2,400units
D)3,200units
Level:HardLO:6Ans:D
79
155.Ifthecompanyssalesvolumeinunitsdecreasesby30%,andifitdesiresatargetednetoperating
incomeof$29,000,thenthesellingpriceshouldbe:
A)$58.85
B)$60.75
C)$64.50
D)$75.00
Giventhefollowingdata:
156.Ifsalesdecreaseby500units,byhowmuchwouldfixedexpenseshavetobereducedtomaintain
currentnetoperatingincome?
A)$5,000
B)$3,000
C)$1,500
D)$2,000
Level:EasyLO:4Ans:D
157.Thecompanyhasanopportunitytosecureaspecialorderof800unitsifitiswillingtodropthe
sellingpriceontheseunitsto$9.Inadditiontotheusualvariableexpenses,thecostsofsecuringthe
specialorderwouldbe$1,000.Thecompanysregularsaleswouldnotbeaffectedbythespecialorder.If
thespecialorderisaccepted,thecompanysoverallnetoperatingincomewill:
A)increase$2,400
B)increase$1,400
C)increase$2,200
D)decrease$2,200
Level:EasyLO:4Ans:B
JuniorBodway,Inc.,hasprovidedthefollowingbudgeteddata:
80
81
158.Whatisthecompanysbreakevenpointinsalesdollars?
A)$450,000
B)$180,000
C)$300,000
D)$500,000
Level:EasyLO:5Ans:A
159.Howmanyunitswouldthecompanyhavetosellinordertohaveanetoperatingincomeof$40,000?
A)20,000units
B)9,000units
C)11,000units
D)7,333units
Level:EasyLO:6Ans:C
160.Atthebudgetedsaleslevelof10,000units,whatisthecompanysdegreeofoperatingleverage?
A)10.0
B)6.0
C)22.5
D)5.0
Level:EasyLO:8Ans:A
PricherCorporationsincomestatementforlastyearappearsbelow:
161.Thebreakevenpointlastyearwas:
A)$1,500,000
B)$2,571,429
C)$1,250,000
D)$900,000
82
83
162.Thedegreeofoperatingleveragelastyearwas:
A)0.33
B)2.33
C)4.00
D)3.33
Level:EasyLO:8Ans:C
163.Iffixedsellingandadministrativeexpensesincreaseby$60,000andsalesremainatthe$2,000,000
level,whatisthemarginofsafetyinsalesdollars:
A)$300,000
B)$200,000
C)$500,000
D)$400,000
HighjinksInc.hasprovidedthefollowingbudgeteddata:
164.Whatisthecompanysmarginofsafetyasapercentageofsales?
A)50%
B)25%
C)75%
D)100%
165.Howmanyunitswouldthecompanyhavetosellinordertohaveanetoperatingincomeequalto5%
oftotalsalesdollars?
A)18,000units
B)20,000units
C)15,333units
D)14,286units
Level:HardLO:7Ans:A
84
DouglasCorporationproducesandsellstwomodelsofvacuumcleaners,StandardandDeluxe.Company
recordsshowthefollowingdatarelatingtothesetwoproducts:
Thecompanystotalmonthlyfixedexpenseis$15,000.
166.Thebreakeveninsalesdollarsfortheexpectedsalesmixisclosestto:
A)$140,000
B)$85,000
C)$107,000
D)$98,000
167.Iftheexpectedmonthlysalesinunitsweredividedequallybetweenthetwomodels(900Standard
and900Deluxe),thebreakevenlevelofsaleswouldbe:
A)thesameaswiththeexpectedsalesmix.
B)higherthanwiththeexpectedsalesmix.
C)lowerthanwiththeexpectedsalesmix.
D)cannotbedeterminedwiththeavailabledata.
GrishamCorporationproducesandsellsasingleproduct.Thecompanyhasprovideditscontribution
formatincomestatementforFebruary.
168.Ifthecompanysells5,900units,itstotalcontributionmarginshouldbeclosestto:
A)$148,000
B)$128,800
C)$135,700
D)$21,493
Level:EasyLO:1Ans:C
85
86
169.Ifthecompanysells5,700units,itsnetoperatingincomeshouldbeclosestto:
A)$20,400
B)$22,700
C)$20,764
D)$26,800
Level:EasyLO:1Ans:B
SammisInc,whichproducesandsellsasingleproduct,hasprovideditscontributionformatincome
statementforJanuary.
A)$107,100
B)$117,000
C)$31,290
D)$130,500
Level:EasyLO:1Ans:B
A)$34,900
B)$16,900
C)$3,700
D)$30,086
Level:EasyLO:1Ans:B
LasseterCorporationhasprovideditscontributionformatincomestatementforAugust.Thecompany
producesandsellsasingleproduct.
87
A)$16,227
B)$59,200
C)$60,800
D)$62,100
Level:EasyLO:1Ans:C
A)$15,800
B)$21,600
C)$19,000
D)$16,654
Level:EasyLO:1Ans:C
BohlenCorporationproducesandsellsasingleproduct.Dataconcerningthatproductappearbelow:
174.ThisquestionistobeconsideredindependentlyofallotherquestionsrelatingtoBohlenCorporation.
Refertotheoriginaldatawhenansweringthisquestion.Themarketingmanagerbelievesthata$20,000
increaseinthemonthlyadvertisingbudgetwouldresultina180unitincreaseinmonthlysales.What
shouldbetheoveralleffectonthecompanysmonthlynetoperatingincomeofthischange?
A)decreaseof$5,920
B)increaseof$5,920
C)decreaseof$20,000
D)increaseof$25,920
Level:EasyLO:4Ans:B
Refertotheoriginaldatawhenansweringthisquestion.Managementisconsideringusinganew
componentthatwouldincreasetheunitvariablecostby$8.Sincethenewcomponentwouldincreasethe
featuresofthecompanysproduct,themarketingmanagerpredictsthatmonthlysaleswouldincreaseby
400units.Whatshouldbetheoveralleffectonthecompanysmonthlynetoperatingincomeofthis
change?
A)increaseof$54,400
B)decreaseof$54,400
C)decreaseof$6,400
88
D)increaseof$6,400
Level:EasyLO:4Ans:D
89
Refertotheoriginaldatawhenansweringthisquestion.Themarketingmanagerwouldliketocutthe
sellingpriceby$17andincreasetheadvertisingbudgetby $42,000permonth.Themarketingmanager
predictsthatthesetwochangeswouldincreasemonthlysalesby1,000units.Whatshouldbetheoverall
effectonthecompanysmonthlynetoperatingincomeofthischange?
A)increaseof$85,000
C)decreaseof$85,000
D)decreaseof$17,000
Refertotheoriginaldatawhenansweringthisquestion.Themarketingmanagerwouldliketointroduce
salescommissionsasanincentiveforthesalesstaff.Themarketingmanagerhasproposedacommission
of$16perunit.Inexchange,thesalesstaffwouldacceptadecreaseintheirsalariesof$84,000per
month.(Thisisthecompanyssavingsfortheentiresalesstaff.)Themarketingmanagerpredictsthat
introducingthissalesincentivewouldincreasemonthlysalesby600units.Whatshouldbetheoverall
effectonthecompanysmonthlynetoperatingincomeofthischange?
A)increaseof$74,400
B)increaseof$64,800
C)decreaseof$103,200
D)increaseof$928,800
DataconcerningMarchmanCorporationssingleproductappearbelow:
Thecompanyiscurrentlyselling4,000unitspermonth.Fixedexpensesare$166,000permonth.
178.ThisquestionistobeconsideredindependentlyofallotherquestionsrelatingtoMarchman
Corporation.Refertotheoriginaldatawhenansweringthisquestion.Managementisconsideringusinga
newcomponentthatwouldincreasetheunitvariablecostby$2.Sincethenewcomponentwould
increasethefeaturesofthecompanysproduct,themarketingmanagerpredictsthatmonthlysaleswould
increaseby200units.Whatshouldbetheoveralleffectonthecompanysmonthlynetoperatingincome
ofthischange?
A)decreaseof$9,200
B)increaseof$1,200
C)decreaseof$1,200
D)increaseof$9,200
90
Level:EasyLO:4Ans:B
91
Corporation.Refertotheoriginaldatawhenansweringthisquestion.Themarketingmanagerbelievesthat
a$6,000increaseinthemonthlyadvertisingbudgetwouldresultina130unitincreaseinmonthlysales.
Whatshouldbetheoveralleffectonthecompanysmonthlynetoperatingincomeofthischange?
A)decreaseof$240
B)decreaseof$6,000
C)increaseof$240
D)increaseof$6,240
Level:EasyLO:4Ans:C
Corporation.Refertotheoriginaldatawhenansweringthisquestion.Themarketingmanagerwouldlike
tointroducesalescommissionsasanincentiveforthesalesstaff.Themarketingmanagerhasproposeda
commissionof$8perunit.Inexchange,thesalesstaffwouldacceptadecreaseintheirsalariesof
$27,000permonth.(Thisisthecompanyssavingsfortheentiresalesstaff.)Themarketingmanager
predictsthatintroducingthissalesincentivewouldincreasemonthlysalesby100units.Whatshouldbe
theoveralleffectonthecompanysmonthlynetoperatingincomeofthischange?
A)decreaseof$1,000
B)decreaseof$55,000
C)increaseof$26,200
D)increaseof$191,000
tocutthesellingpriceby$7andincreasetheadvertisingbudgetby $11,000permonth.Themarketing
managerpredictsthatthesetwochangeswouldincreasemonthlysalesby800units.Whatshouldbethe
overalleffectonthecompanysmonthlynetoperatingincomeofthischange?
A)increaseof$21,800
B)decreaseof$21,800
C)increaseof$79,400
D)decreaseof$6,200
BoenischCorporationproducesandsellssingleproductwiththefollowingcharacteristics:
Thecompanyiscurrentlyselling8,000unitspermonth.Fixedexpensesare$406,000permonth.
92
93
182.ThisquestionistobeconsideredindependentlyofallotherquestionsrelatingtoBoenisch
Corporation.Refertotheoriginaldatawhenansweringthisquestion.Managementisconsideringusinga
newcomponentthatwouldincreasetheunitvariablecostby$3.Sincethenewcomponentwould
increasethefeaturesofthecompanysproduct,themarketingmanagerpredictsthatmonthlysaleswould
increaseby400units.Whatshouldbetheoveralleffectonthecompanysmonthlynetoperatingincome
ofthischange?
A)decreaseof$2,000
B)increaseof$26,000
C)increaseof$2,000
D)decreaseof$26,000
Level:EasyLO:4Ans:C
Corporation.Refertotheoriginaldatawhenansweringthisquestion.Themarketingmanagerbelieves
thata$10,000increaseinthemonthlyadvertisingbudgetwouldresultina170unitincreaseinmonthly
sales.Whatshouldbetheoveralleffectonthecompanysmonthlynetoperatingincomeofthischange?
A)increaseof$1,560
B)increaseof$11,560
C)decreaseof$1,560
D)decreaseof$10,000
Level:EasyLO:4Ans:A
tocutthesellingpriceby$12andincreasetheadvertisingbudgetby $30,000permonth.Themarketing
managerpredictsthatthesetwochangeswouldincreasemonthlysalesby1,800units.Whatshouldbethe
overalleffectonthecompanysmonthlynetoperatingincomeofthischange?
A)decreaseof$25,200
C)increaseof$70,800
D)decreaseof$70,800
tointroducesalescommissionsasanincentiveforthesalesstaff.Themarketingmanagerhasproposeda
commissionof$16perunit.Inexchange,thesalesstaffwouldacceptadecreaseintheirsalariesof
$102,000permonth.(Thisisthecompanyssavingsfortheentiresalesstaff.)Themarketingmanager
predictsthatintroducingthissalesincentivewouldincreasemonthlysalesby700units.Whatshouldbe
theoveralleffectonthecompanysmonthlynetoperatingincomeofthischange?
A)decreaseof$193,600
C)increaseof$90,800
D)increaseof$10,400
94
95
BlacknerCorporationproducesandsellsasingleproduct.Dataconcerningthatproductappearbelow:
186.Thebreakeveninmonthlyunitsalesisclosestto:
A)3,290
B)6,991
C)4,173
D)2,237
Level:EasyLO:5Ans:A
187.Thebreakeveninmonthlydollarsalesisclosestto:
A)$723,800
B)$918,060
C)$1,538,020
D)$492,140
Level:EasyLO:5Ans:A
DataconcerningKuraltCorporationssingleproductappearbelow:
A)1,413
B)2,920
C)5,436
D)1,910
Level:EasyLO:5Ans:D
A)$310,860
B)$1,195,920
C)$420,200
D)$642,400
Level:EasyLO:5Ans:C
96
97
SmeeInc.producesandsellsasingleproduct.Thesellingpriceoftheproductis$130.00perunitandits
variablecostis$52.00perunit.Thefixedexpenseis$281,580permonth.
A)3,730
B)5,415
C)2,166
D)3,610
Level:EasyLO:5Ans:D
A)$281,580
B)$484,943
C)$703,950
D)$469,300
Level:EasyLO:5Ans:D
UpchurchCorporationproducesandsellsasingleproduct.Dataconcerningthatproductappearbelow:
192.Assumethecompanysmonthlytargetprofitis$12,000.Theunitsalestoattainthattargetprofitis
closestto:
A)3,242
B)4,912
C)9,535
D)5,896
Level:EasyLO:6Ans:B
193.Assumethecompanysmonthlytargetprofitis$14,000.Thedollarsalestoattainthattargetprofitis
closestto:
A)$326,180
B)$593,248
C)$494,212
D)$959,353
Level:EasyLO:6Ans:C
98
DataconcerningMatsumotoCorporationssingleproductappearbelow:
closestto:
A)5,496
B)2,198
C)3,786
D)3,664
Level:EasyLO:6Ans:D
closestto:
A)$288,800
B)$497,378
C)$481,333
D)$722,000
Level:EasyLO:6Ans:C
MoccioEnterprises,Inc.,producesandsellsasingleproductwhosesellingpriceis$120.00perunitand
whosevariableexpenseis$37.20perunit.Thecompanysmonthlyfixedexpenseis$356,040.
closestto:
A)3,084
B)4,469
C)5,833
D)9,947
Level:EasyLO:6Ans:B
closestto:
A)$371,040
B)$537,739
C)$701,894
D)$1,196,903
Level:EasyLO:6Ans:B
99
100
CallicottCorporationproducesaproductthatsellsfor$120perunit.Theproductscurrentsalesare
25,400unitsanditsbreakevensalesare18,542units.
198.Whatisthemarginofsafetyindollars?
A)$822,960
B)$2,032,000
C)$3,048,000
D)$2,225,040
Level:EasyLO:7Ans:A
199.Themarginofsafetyasapercentageofsalesisclosestto:
A)27%
B)37%
C)63%
D)73%
Level:EasyLO:7Ans:A
McallisterCorporationhasprovidedthefollowingdataconcerningitsonlyproduct:
200.Whatisthemarginofsafetyindollars?
A)$1,256,850
B)$4,728,150
C)$3,990,000
D)$5,985,000
Level:EasyLO:7Ans:A
201.Themarginofsafetyasapercentageofsalesisclosestto:
A)73%
B)79%
C)21%
D)27%
Level:EasyLO:7Ans:C
101
StoppkotteCorporationhasprovideditscontributionformatincomestatementforApril.
202.Thedegreeofoperatingleverageisclosestto:
A)3.46
B)0.11
C)0.29
D)9.40
Level:EasyLO:8Ans:A
203.Ifthecompanyssalesincreaseby10%,itsnetoperatingincomeshouldincreasebyabout:
A)10.00%
B)10.64%
C)34.60%
D)93.98%
Level:EasyLO:8Ans:CLO:8
TheJulycontributionformatincomestatementofRaicheCorporationappearsbelow:
204.Thedegreeofoperatingleverageisclosestto:
A)6.72
B)13.44
C)0.15
D)0.07
Level:EasyLO:8Ans:A
102
205.Ifthecompanyssalesincreaseby5%,itsnetoperatingincomeshouldincreasebyabout:
A)34%
B)67%
C)5%
D)7%
Level:EasyLO:8Ans:A
FroioCorporationproducesandsellstwoproducts.Dataconcerningthoseproductsforthemostrecent
monthappearbelow:
Fixedexpensesfortheentirecompanywere$26,570.
206.Thebreakevenpointfortheentirecompanyisclosestto:
A)$43,557
B)$26,570
C)$22,430
D)$45,680
Level:EasyLO:9Ans:A
207.IfthesalesmixweretoshifttowardProductM06Mwithtotalsalesremainingconstant,theoverall
breakevenpointfortheentirecompany:
A)wouldincrease.
B)couldincreaseordecrease.
C)wouldnotchange.
D)woulddecrease.
GilpatricCorporationproducesandsellstwoproducts.Inthemostrecentmonth,ProductQ71Mhadsales
of$28,000andvariableexpensesof$7,840.ProductV04Phadsalesof$49,000andvariableexpensesof
$27,580.Andthefixedexpensesoftheentirecompanywere$34,630.
208.Thebreakevenpointfortheentirecompanyisclosestto:
A)$70,050
B)$64,130
C)$34,630
D)$42,370
Level:EasyLO:9Ans:B
103
104
209.IfthesalesmixweretoshifttowardProductQ71Mwithtotalsalesremainingconstant,theoverall
breakevenpointfortheentirecompany:
A)wouldincrease.
B)couldincreaseordecrease.
C)wouldnotchange.
D)woulddecrease.
Essay
210.BakerCompanyhasaproductthatsellsfor$20perunit.Thevariableexpensesare$12perunit,and
fixedexpensestotal$30,000peryear.
Required:
(a.)Whatisthetotalcontributionmarginatthebreakevenpoint?
(b.)Whatisthecontributionmarginratiofortheproduct?
(c.)Iftotalsalesincreaseby$20,000andfixedexpensesremainunchanged,byhowmuchwouldnet
operatingincomebeexpectedtoincrease?
(d.)Themarketingmanagerwantstoincreaseadvertisingby$6,000peryear.Howmanyadditionalunits
wouldhavetobesoldtoincreaseoverallnetoperatingincomeby$2,000?
Level:MediumLO:1,3,4
Ans:
(a.)Atthebreakeven,thetotalcontributionmarginequalstotalfixedexpenses.Therefore,thetotal
contributionmarginwouldbe$30,000.
105
211.CandiceCorporationhasdecidedtointroduceanewproduct.Theproductcanbemanufactured
usingeitheracapitalintensiveorlaborintensivemethod.Themanufacturingmethodwillnotaffectthe
qualityorsalesoftheproduct.Theestimatedmanufacturingcostsofthetwomethodsareasfollows:
Thecompanysmarketresearchdepartmenthasrecommendedanintroductorysellingpriceof$30per
unitforthenewproduct.Theannualfixedsellingandadministrativeexpensesofthenewproductare
$500,000.Thevariablesellingandadministrativeexpensesare$2perunitregardlessofhowthenew
productismanufactured.
Required:
(a.)CalculatethebreakevenpointinunitsifCandiceCorporationusesthe:
(1.)capitalintensivemanufacturingmethod.
(2.)laborintensivemanufacturingmethod.
(b.)Determinetheunitsalesvolumeatwhichthenetoperatingincomeisthesameforthetwo
manufacturingmethods.
(c.)Assumingsalesof250,000units,whatisthedegreeofoperatingleverageifthecompanyusesthe:
(1.)capitalintensivemanufacturingmethod.
(2.)laborintensivemanufacturingmethod.
(d.)Whatisyourrecommendationtomanagementconcerningwhichmanufacturingmethodshouldbe
used?
Level:HardLO:1,4,5,8
Ans:a.
(1.)Capitalintensive:
(2.)Laborintensive:
(b)Profit=SalesVariableexpensesFixedexpenses
Capitalintensive:
Laborintensive:
106
107
Theprofitsareequalwhen:
(c.)
(1.)Capitalintensive:
(2.)Laborintensive:
(d.)Thedecisionhingesupontheexpectedsalesofthenewproduct.Ifmanagementisconfidentthat
saleswillbeinexcessof311,111units,thenthecapitalintensivemethodshouldbeused.Ifsalesare
likelytofallbelowthisnumber,thenthelaborintensivemethodshouldbeused.Managementshouldalso
beawarethatnetoperatingincomewillbemorevolatilewiththecapitalintensivemethodsinceithas
higheroperatingleverage.
212.DelphiCompanyhasdevelopedanewproductthatwillbemarketedforthefirsttimeduringthenext
fiscalyear.AlthoughtheMarketingDepartmentestimatesthat35,000unitscouldbesoldat$36perunit,
Delphismanagementhasallocatedonlyenoughmanufacturingcapacitytoproduceamaximumof
25,000unitsofthenewproductannually.Thefixedexpensesassociatedwiththenewproductare
budgetedat$450,000fortheyear.Thevariableexpensesofthenewproductare$16perunit.
Required:
(a.)HowmanyunitsofthenewproductmustDelphisellduringthenextfiscalyearinordertobreakeven
ontheproduct?
108
(b.)WhatistheprofitDelphiwouldearnonthenewproductifallofthemanufacturingcapacityallocated
bymanagementisusedandtheproductissoldfor$36perunit?
109
(c.)Whatisthedegreeofoperatingleverageforthenewproductif25,000unitsaresoldfor$36perunit?
d.TheMarketingDepartmentwouldlikemoremanufacturingcapacitytobedevotedtothenewproduct.
Whatwouldbethepercentageincreaseinnetoperatingincomeforthenewproductifitsunitsalescould
beexpandedby10%withoutanyincreaseinfixedexpensesandwithoutanychangeintheunitselling
priceandunitvariableexpense?
(e.)Delphismanagementhasstipulatedthatthenewproductmustearnaprofitofatleast$125,000in
thenextfiscalyear.Whatunitsellingpricewouldachievethistargetprofitifallofthemanufacturing
capacityallocatedbymanagementisusedandalloftheoutputcanbesoldatthatsellingprice?
Source:CMA,adapted
Level:HardLO:4,5,6,8
Ans:
(b.)
Or,
110
213.ParkinsCompanyproducesandsellsasingleproduct.Thecompanysincomestatementforthemost
recentmonthisgivenbelow:
Therearenobeginningorendinginventories.
Required:
(a.)Computethecompanysmonthlybreakevenpointinunitsofproduct.
(b.)Whatwouldthecompanysmonthlynetoperatingincomebeifsalesincreasedby25%andthereis
nochangeintotalfixedexpenses?
(c.)Whatdollarsalesmustthecompanyachieveinordertoearnanetoperatingincomeof$50,000per
month?
(d.)Thecompanyhasdecidedtoautomateaportionofitsoperations.Thechangewillreducedirectlabor
costsperunitby40percent,butitwilldoublethecostsforfixedfactoryoverhead.Computethenew
breakevenpointinunits.
Ans:(a.)Thecompanysincomestatementincontributionformatwouldbe:
Thebreakevenpointinunitswouldbe:
111
$72,000$16=4,500units.
112
(b.)6,000125%=7,500units
(c.)($72,000+$50,000) 0.40=$305,000
(d.)Directlaborcostsarepresently$10perunit($60,000 6,000units)andwilldecreaseby$4perunit
($10x40%).Therefore,thecompanysnewcoststructurewillbe:
(2x$30,000+$42,000) $20perunit=5,100units
214.ZoranCorporationmanufacturesandsellsasingleproduct;cordlesstelephones.Zoranisconsidering
upgradingitscurrentmanufacturingfacilitieswithmoremodernequipment.Relevantcostdataunderthe
currentfacilityandtheupgradedfacilityisprovidedbelow:
Undereithersystem,Zoranwillsellthecordlessphonesfor$125perphone.
Required:
(a.)Whatisthebreakevenpoint(innumberofphones)ofeachoption?
(b.)Atwhatlevelofsales(innumberofphones)willitstartbeingmoreprofitableforZorantohavethe
upgradedfacilities?
Level:HardLO:4,5
Ans:
(a.)
Current:
($43,000+$12,000) ($125$20$18$34$5)=1,146phones(rounded)
Upgraded:
($160,000+$12,000) ($125$20$10$24$5)=2,606phones(rounded)
113
(b.)CMperphoneoncurrentsystem:$125$20$18$34$5=$48
CMperphoneonupgradedsystem:$125$20$10$24$5=$66
215.PenuryCompanyofferstwoproducts.Atpresent,thefollowingrepresentstheusualresultsofa
monthsoperations:
Required:
(a.)Findthebreakevenpointintermsofdollars.
(b.)Findthemarginofsafetyintermsofdollars.
(c.)ThecompanyisconsideringdecreasingproductKsunitsalesto80,000andincreasingproductLs
unitsalesto180,000,leavingunchangedthesellingpriceperunit,variableexpenseperunit,andtotal
fixedexpenses.Wouldyouadviseadoptingthisplan?
(d.)Referto(c)above.Underthenewplan,findthebreakevenpointintermsofdollars.
(e.)Underthenewplanin(c)above,findthemarginofsafetyintermsofdollars.
Ans:
114
Yes,thenewarrangementismoreprofitable.
216.Lobo,Internationalhastwodivisions,ManufacturingandRetailwhichhadthefollowingoperating
resultsoverthelasttwoyears:
Assumethatthecoststructureineachdivisionabovedidnotchangeoverthetwoyears.Usethehighlow
methodasneededtoestimatevariableandfixedexpenses.
Required:
(a.)Calculatethebreakevenpointinsalesdollarsforeachdivision.
(b.)CalculatethedegreeofoperatingleveragefortheManufacturingDivisionforeachyear.
Level:HardLO:5,8
115
Ans:(a.)Totalexpenses,Year1,Manuf.=$290,000+$50,000=$340,000
Totalexpenses,Year2,Manuf.=$353,000+$59,000=$412,000
Totalexpenses,Year1,Retail=$160,000+$52,000=$212,000
Totalexpenses,Year2,Retail=$192,000+$56,000=$248,000
Manufacturing:
Variableexpensesperunitusingthehighlowmethod:
($412,000$340,000) (6,5005,000)=$48perunit
Variableexpenses=$48x5,000=$240,000
Fixedexpenses=$340,000$240,000=$100,000
CMratio=($400,000$240,000) $400,000=40%
Breakevensales=$100,000 0.40=$250,000
Retail:
Variableexpensesperunitusingthehighlowmethod:
($248,000$212,000) (2,4002,000)=$90perunit;
Variableexpenses=$90x2,000=$180,000
Fixedexpenses=$212,000$180,000=$32,000
CMratio=($250,000$180,000) $250,000=28%
Breakevensales=$32,000 0.28=$114,286
b.Year1:($400,000($48x5,000)) $60,000=2.67(rounded)
Year2:($520,000($486,500)) $108,000=1.93(rounded)
217.BuentelloCorporationproducesandsellsasingleproduct.Thecompanyscontributionformat
incomestatementforJanuaryappearsbelow:
Required:
Redothecompanyscontributionformatincomestatementassumingthatthecompanysells1,600units.
Level:EasyLO:1Ans:
116
218.GonyoInc.,whichproducesandsellsasingleproduct,hasprovidedthefollowingcontribution
formatincomestatementforDecember:
Required:
Redothecompanyscontributionformatincomestatementassumingthatthecompanysells3,400units.
Level:EasyLO:1
Ans:
219.MaranoCorporationproducesandsellsasingleproduct.InOctober,thecompanysold6,200units.
Itstotalsaleswere$223,200,itstotalvariableexpenseswere$105,400,anditstotalfixedexpenseswere
$100,400.
Required:
(a.)ConstructthecompanyscontributionformatincomestatementforOctoberingoodform.
(b.)Redothecompanyscontributionformatincomestatementassumingthatthecompanysells6,400
units.
Level:EasyLO:1
Ans:
117
220.InDecember,MccullumCorporationsold2,900unitsofitsonlyproduct.Itstotalsaleswere
$281,300,itstotalvariableexpenseswere$130,500,anditstotalfixedexpenseswere$122,600.
Required:
(a.)ConstructthecompanyscontributionformatincomestatementforDecemberingoodform.
(b.)Redothecompanyscontributionformatincomestatementassumingthatthecompanysells3,100
units.
Level:EasyLO:1
Ans:
221.BianchiniCorporationscontributionmarginratiois58%anditsfixedmonthlyexpensesare
$94,000.AssumethatthecompanyssalesforMayareexpectedtobe$178,000.
Required:
EstimatethecompanysnetoperatingincomeforMay.Assumethatthefixedmonthlyexpensesdonot
change.Showyourwork!
Level:EasyLO:3
Ans:
222.ThemanagementofPacubasCorporationexpectssalesinJulytobe$121,000.Thecompanys
contributionmarginratiois64%anditsfixedmonthlyexpensesare$40,000.
Required:
EstimatethecompanysnetoperatingincomeforJuly.Assumethatthefixedmonthlyexpensesdonot
change.Showyourwork!
Level:EasyLO:3
118
Ans:
223.GaskeyInc.expectsitssalesinFebruarytobe$173,000.Thecompanyscontributionmarginratiois
58%anditsfixedmonthlyexpensesare$94,000.
Required:
EstimatethecompanysnetoperatingincomeforFebruary.Assumethatthefixedmonthlyexpensesdo
notchange.Showyourwork!
Level:EasyLO:3
Ans:
224.LaritaCorporationproducesandsellsasingleproduct.Dataconcerningthatproductappearbelow:
Required:
Themarketingmanagerbelievesthata$28,000increaseinthemonthlyadvertisingbudgetwouldresult
ina180unitincreaseinmonthlysales.Whatshouldbetheoveralleffectonthecompanysmonthlynet
operatingincomeofthischange?Showyourwork!
Level:EasyLO:4
Ans:
119
225.DataconcerningPhungCorporationssingleproductappearbelow:
Required:
Themarketingmanagerbelievesthata$23,000increaseinthemonthlyadvertisingbudgetwouldresult
ina190unitincreaseinmonthlysales.Whatshouldbetheoveralleffectonthecompanysmonthlynet
operatingincomeofthischange?Showyourwork!
Level:EasyLO:4
Ans:
226.WrobbelCorporationproducesandsellsasingleproduct.Dataconcerningthatproductappear
below:
Required:
Sincethenewcomponentwouldimprovethecompanysproduct,themarketingmanagerpredictsthat
monthlysaleswouldincreaseby200units.Whatshouldbetheoveralleffectonthecompanysmonthly
netoperatingincomeofthischangeiffixedexpensesareunaffected?Showyourwork!
Level:EasyLO:4
Ans:
120
Sincefixedexpensesarenotaffectedbythischange,thechangeinnetoperatingincomewillbeequalto
thechangeintotalcontributionmargin.
121
227.DataconcerningSumterCorporationssingleproductappearbelow:
Required:
Sincethenewcomponentwouldimprovethecompanysproduct,themarketingmanagerpredictsthat
monthlysaleswouldincreaseby300units.Whatshouldbetheoveralleffectonthecompanysmonthly
netoperatingincomeofthischangeiffixedexpensesareunaffected?Showyourwork!
Level:EasyLO:4
Ans:
Sincefixedexpensesarenotaffectedbythischange,thechangeinnetoperatingincomewillbeequalto
thechangeintotalcontributionmargin.
228.GrableCorporationproducesandsellsasingleproduct.Dataconcerningthatproductappearbelow:
Required:
Themarketingmanagerwouldliketocutthesellingpriceby$18andincreasetheadvertisingbudgetby
change?Showyourwork!
Level:EasyLO:4
122
Ans:
229.DataconcerningKurekCorporationssingleproductappearbelow:
Required:
Themarketingmanagerwouldliketocutthesellingpriceby$12andincreasetheadvertisingbudgetby
by1,500units.Whatshouldbetheoveralleffectonthecompanysmonthlynetoperatingincomeofthis
change?Showyourwork!
Level:EasyLO:4
Ans:
123
230.MoallankampCorporationproducesandsellsasingleproduct.Dataconcerningthatproductappear
below:
Required:
Themarketingmanagerwouldliketointroducesalescommissionsasanincentiveforthesalesstaff.The
anoveralldecreaseintheirsalariesof$117,000permonth.Themarketingmanagerpredictsthat
effectonthecompanysmonthlynetoperatingincomeofthischange?Showyourwork!
Level:EasyLO:4
Ans:
231.DataconcerningUlwellingCorporationssingleproductappearbelow:
Required:
Themarketingmanagerwouldliketointroducesalescommissionsasanincentiveforthesalesstaff.The
anoveralldecreaseintheirsalariesof$73,000permonth.Themarketingmanagerpredictsthat
effectonthecompanysmonthlynetoperatingincomeofthischange?Showyourwork!
Level:EasyLO:4
124
Ans:
232.HirzCorporationproducesandsellsasingleproduct.Dataconcerningthatproductappearbelow:
Required:
Determinethemonthlybreakevenineitherunitortotaldollarsales.Showyourwork!
Level:EasyLO:5
Ans:
Breakeveninunitsales=Fixedexpenses/Unitcontributionmargin
=$102,714/$100.70=1,020
Breakevenintotalsalesdollars=Fixedexpenses/CMratio
=$102,714/0.53=$193,800
233.Shauer,Inc.,producesandsellsasingleproductwhosesellingpriceis$150.00perunitandwhose
variableexpenseis$33.00perunit.Thecompanysfixedexpenseis$436,410permonth.
Required:
Determinethemonthlybreakevenineitherunitortotaldollarsales.Showyourwork!
Level:EasyLO:5
Ans:
125
=$436,410/$117=3,730
Breakevenintotalsalesdollars=Fixedexpenses/CMratio
=$436,410/0.78=$559,500
234.BuccheriCorporationproducesandsellsasingleproduct.Dataconcerningthatproductappear
below:
Required:
Determinethemonthlybreakeveninunitsales.Showyourwork!
Level:EasyLO:5
Ans:
=$293,706/$132.30=2,220
235.Torbert,Inc.,producesandsellsasingleproduct.Theproductsellsfor$190.00perunitandits
variableexpenseis$72.20perunit.Thecompanysmonthlyfixedexpenseis$353,400.
Required:
Determinethemonthlybreakeveninunitsales.Showyourwork!
Level:EasyLO:5
Ans:
Breakeveninunitsales=Fixedexpenses/Unitcontributionmargin=$353,400/$117.80=3,000
236.PultzCorporationproducesandsellsasingleproduct.Dataconcerningthatproductappearbelow:
Required:
Determinethemonthlybreakevenintotaldollarsales.Showyourwork!
126
Level:EasyLO:5
127
Ans:
Breakevenintotalsalesdollars=Fixedexpenses/CMratio=$249,480/0.66=$378,000
237.MaddaloniInternational,Inc.,producesandsellsasingleproduct.Theproductsellsfor$160.00per
unitanditsvariableexpenseis$46.40perunit.Thecompanysmonthlyfixedexpenseis$219,248.
Required:
Determinethemonthlybreakevenintotaldollarsales.Showyourwork!
Level:EasyLO:5
Ans:
Breakevenintotalsalesdollars=Fixedexpenses/CMratio=$219,248/0.71=$308,800
238.GauaniCorporationproducesandsellsasingleproduct.Dataconcerningthatproductappearbelow:
Required:
(a.)Assumethecompanysmonthlytargetprofitis$21,600.Determinetheunitsalestoattainthattarget
profit.Showyourwork!
(b.)Assumethecompanysmonthlytargetprofitis$54,000.Determinethedollarsalestoattainthat
targetprofit.Showyourwork!
Level:EasyLO:6
Ans:
128
129
(a.)Unitsalestoattaintargetprofit=(Fixedexpenses+Targetprofit)/Unitcontributionmargin=
($421,200+$21,600)/$108.00=4,100
(b.)Totalsalesdollarstoattaintargetprofit=(Fixedexpenses+Targetprofit)/CMratio=($421,200+
$54,000)/0.72=$660,000
239.LiestCorporationproducesandsellsasingleproductwhosesellingpriceis$100.00perunitand
whosevariableexpenseis$48.00perunit.Thecompanysmonthlyfixedexpenseis$244,400.
Required:
(a.)Assumethecompanysmonthlytargetprofitis$5,200.Determinetheunitsalestoattainthattarget
(b.)Assumethecompanysmonthlytargetprofitis$26,000.Determinethedollarsalestoattainthat
targetprofit.Showyourwork!
Level:EasyLO:6
Ans:
(a.)Unitsalestoattaintargetprofit=(Fixedexpenses+Targetprofit)/Unitcontributionmargin=
($244,400+$5,200)/$52.00=4,800
(b.)Totalsalesdollarstoattaintargetprofit=(Fixedexpenses+Targetprofit)/CMratio=($244,400+
$26,000)/0.52=$520,000
240.LoppCorporationproducesandsellsasingleproduct.Dataconcerningthatproductappearbelow:
Required:
Assumethecompanysmonthlytargetprofitis$38,280.Determinetheunitsalestoattainthattarget
Level:EasyLO:6
Ans:
Unitsalestoattaintargetprofit=(Fixedexpenses+Targetprofit)/Unitcontributionmargin=($612,480
+$38,280)/$127.60=5,100
130
241.ThesellingpriceofRoscioliCorporationsonlyproductis$210.00perunitanditsvariableexpense
is$75.60perunit.Thecompanysmonthlyfixedexpenseis$537,600.
Required:
Assumethecompanysmonthlytargetprofitis$13,440.Determinetheunitsalestoattainthattarget
Level:EasyLO:6
Ans:
Unitsalestoattaintargetprofit=(Fixedexpenses+Targetprofit)/Unitcontributionmargin=($537,600
+$13,440)/$134.40=4,100
242.AlcinaCorporationproducesandsellsasingleproductwhosecontributionmarginratiois80%.The
companysmonthlyfixedexpenseis$576,000andthecompanysmonthlytargetprofitis$43,200.
Required:
Determinethedollarsalestoattainthecompanystargetprofit.Showyourwork!
Level:EasyLO:6
Ans:
Totalsalesdollarstoattaintargetprofit=(Fixedexpenses+Targetprofit)/CMratio=($576,000+
$43,200)/0.80=$774,000
243.ThecontributionmarginratioofDonathCorporationsonlyproductis65%.Thecompanys
monthlyfixedexpenseis$573,300andthecompanysmonthlytargetprofitis$9,100.
Required:
Determinethedollarsalestoattainthecompanystargetprofit.Showyourwork!
Level:EasyLO:6
Ans:
Totalsalesdollarstoattaintargetprofit=(Fixedexpenses+Targetprofit)/CMratio=($573,300+
$9,100)/0.65=$896,000
244.XiongCorporationmakesaproductthatsellsfor$130perunit.Theproductscurrentsalesare
14,000unitsanditsbreakevensalesare10,220units.
Required:
Computethemarginofsafetyinbothdollarsandasapercentageofsales.
Level:EasyLO:7
Ans:
131
132
245.KoelschCorporationsonlyproductsellsfor$170perunit.Itscurrentsalesare43,600unitsandits
breakevensalesare39,240units.
Required:
Level:EasyLO:7
Ans:
246.BrowerInc.hasprovidedthefollowingdataconcerningitsonlyproduct:
Required:
Level:EasyLO:7
Ans:
247.MahaxayCorporationhasprovideditscontributionformatincomestatementforApril.
Required:
(a.)Computethedegreeofoperatingleveragetotwodecimalplaces.
(b.)Usingthedegreeofoperatingleverage,estimatethepercentagechangeinnetoperatingincomethat
shouldresultfroma9%increaseinsales.
Level:EasyLO:8
Ans:
(a.)Degreeofoperatingleverage=Contributionmargin/Netoperatingincome=$72,000/$8,400=8.57
(b.)Percentincreaseinnetoperatingincome=PercentincreaseinsalesxDegreeofoperatingleverage=
9%x8.57=77.13%
133
134
248.EickhoffCorporationscontributionformatincomestatementforthemostrecentmonthfollows:
Required:
Level:EasyLO:8
Ans:
1%x4.43=4.43%
249.Inthemostrecentmonth,ShoemakerCorporationstotalcontributionmarginwas$29,600andits
netoperatingincome$3,000.
Required:
Level:EasyLO:8
Ans:
10%x9.87=98.70%
250.CrumbleyInc.producesandsellstwoproducts.Dataconcerningthoseproductsforthemostrecent
monthappearbelow:
Fixedexpensesfortheentirecompanywere$42,760.
Required:
(a.)Determinetheoverallbreakevenpointforthecompany.Showyourwork!
(b.)IfthesalesmixshiftstowardProductW43Jwithnochangeintotalsales,whatwillhappentothe
breakevenpointforthecompany?Explain.
Level:EasyLO:9
135
Ans:
OverallCMratio=Totalcontributionmargin/Totalsales=$50,560/$64,000=0.79
Breakevenpointintotalsalesdollars=Fixedexpenses/OverallCMratio=$42,760/0.79=$54,127
SinceProductW43JsCMratioislessthanProductP24Rs,ashiftinthesalesmixtowardProductW43J
willresultinanincreaseinthecompanysoverallbreakevenpoint.
251.HargenraderInc.producesandsellstwoproducts.Duringthemostrecentmonth,ProductP02Ss
saleswere$24,000anditsvariableexpenseswere$7,920.ProductO50Ussaleswere$41,000andits
variableexpenseswere$14,180.Thecompanysfixedexpenseswere$40,350.
Required:
(a.)Determinetheoverallbreakevenpointforthecompany.Showyourwork!
(b.)IfthesalesmixshiftstowardProductP02Swithnochangeintotalsales,whatwillhappentothe
breakevenpointforthecompany?Explain.
Level:EasyLO:9
Ans:
OverallCMratio=Totalcontributionmargin/Totalsales=$42,900/$65,000=0.66
Breakevenpointintotalsalesdollars=Fixedexpenses/OverallCMratio=$40,350/0.66=$61,136
136
SinceProductP02SsCMratioisgreaterthanProductO50Us,ashiftinthesalesmixtowardProduct
P02Swillresultinadecreaseinthecompanysoverallbreakevenpoint.
137

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