Question 1

A shift from low-margin sales to high-margin sales

Accepted Answer

A shift from low-margin sales to high-margin sales may increase net income, even though there is a decline in total units sold. This is because the contribution margin per unit is higher for high-margin sales, which can offset the decrease in total units sold. However, this is not always guaranteed and depends on various factors such as the level of fixed costs and the extent of the shift in sales mix.

Question 2

Use the following information for questions .
Mercantile Corporation has sales of $2,000,000, variable costs of $800,000, and fixed costs of $900,000.
-Mercantile's degree of operating leverage is

Accepted Answer

The answer of Use the following information for questions .
Mercantile...

Question 3

The margin of safety ratio

Accepted Answer

The margin of safety ratio indicates what percent decline in sales could be sustained before the company would operate at a loss. It is calculated as (actual sales - break-even sales) / actual sales. Option A is the formula for calculating the level of operating leverage. Option C is the cost behavior. Option D refers to the point at which a company breaks even—when its total revenues equal its total expenses.

Question 4

Cost structure

Accepted Answer

Cost structure refers to the composition of a company's costs, specifically the proportion of fixed costs (such as rent, salaries, and insurance) versus variable costs (such as supplies, raw materials, and labor). This is important because it affects a company's profit margin and breakeven point. A higher proportion of fixed costs means that the company must sell more units in order to break even, while a higher proportion of variable costs means that the cost per unit will be higher if fewer units are produced.

Question 5

A cost structure which relies more heavily on fixed costs makes the company

Accepted Answer

A cost structure that relies more heavily on fixed costs means that a significant portion of costs is incurred regardless of sales revenue. As a result, any decrease in sales revenue can have a larger impact on the company's profitability, making it more sensitive to changes in sales revenue.

Question 6

The sales mix percentages for Novotna's Boston and Seattle Divisions are 70% and 30%. The contribution margin ratios are: Boston (40%) and Seattle (30%). Fixed costs are $2,220,000. What is Novotna's break-even point in dollars?

Accepted Answer

The break-even point in dollars can be calculated using the weighted average contribution margin ratio. First, calculate the weighted average contribution margin ratio: (70% * 40%) + (30% * 30%) = 28% + 9% = 37%. Then, divide the total fixed costs by this ratio: $2,220,000 / 37% = $6,000,000 / 0.37 = $6,342,856.

Question 7

What is the key factor in determining sales mix if a company has limited resources?

Accepted Answer

When a company has limited resources, the key factor in determining sales mix is the contribution margin per unit of limited resource. This is because the company needs to maximize its profitability given its limited resources, and focusing on products that have a higher contribution margin per unit of limited resource will help achieve this goal.

Question 8

Use the following information for questions .
Mercantile Corporation has sales of $2,000,000, variable costs of $800,000, and fixed costs of $900,000.
-Mercantile's margin of safety ratio is

Accepted Answer

The margin of safety ratio is calculated as (Sales - Break-even Sales) / Sales. First, find the break-even point: Break-even Sales = Fixed Costs / (1 - Variable Costs/Sales) = $900,000 / (1 - $800,000/$2,000,000) = $900,000 / (1 - 0.4) = $900,000 / 0.6 = $1,500,000. Then, Margin of Safety = ($2,000,000 - $1,500,000) / $2,000,000 = $500,000 / $2,000,000 = 0.25.

Question 9

Use the following information for questions .
MacCloud Industries has two divisions-Standard and Premium. Each division has hundreds of different types of tennis racquets and tennis products. The following information is available: 
-What is the break-even point in dollars?

Accepted Answer

The break-even point in dollars is calculated by dividing the total fixed costs ($1,200,000) by the contribution margin ratio (0.6). $1,200,000 ÷ 0.6 = $2,000,000. Therefore, the break-even point in dollars is $2,000,000.
Since the Premium division has a higher contribution margin percentage (0.75) compared to the Standard division (0.45), MacCloud should focus on selling more products from the Premium division to maximize profit. Therefore, the best choice is to increase the sales of Premium division products.

Question 10

Brooks Corporation can sell all the units it can produce of either Plain or Fancy but not both. Plain has a unit contribution margin of $72 and takes two machine hours to make and Fancy has a unit contribution margin of $90 and takes three machine hours to make. There are 2,400 machine hours available to manufacture a product. What should Brooks do?

Accepted Answer

Plain generates a higher profit per machine hour ($72/2 = $36 per hour) compared to Fancy ($90/3 = $30 per hour), making it the more efficient choice in terms of machine hour utilization.

Question 11

Cost structure refers to the relative proportion of

Accepted Answer

Cost structure refers to the types and relative proportions of fixed and variable costs that a business incures. None of the options A, B, or C accurately describe this concept, as they focus on specific expense categories or ratios rather than the overall composition of costs.

Question 12

Use the following information for questions .
MacCloud Industries has two divisions-Standard and Premium. Each division has hundreds of different types of tennis racquets and tennis products. The following information is available: 
-What is the weighted-average contribution margin ratio?

Accepted Answer

The weighted-average contribution margin ratio is calculated by dividing the total contribution margin by the total sales. The total contribution margin is $120,000 (Standard) + $240,000 (Premium) = $360,000. The total sales are $1,000,000. Thus, the weighted-average contribution margin ratio is $360,000 / $1,000,000 = 0.36, or 36%.

Question 13

Curtis Corporation's contribution margin is $25 per unit for Product A and $30 for Product B. Product A requires 2 machine hours and Product B requires 4 machine hours. How much is the contribution margin per unit of limited resource for each product?

Accepted Answer

The answer of Curtis Corporation's contribution margin is $25 per...

Question 14

Miller Manufacturing's degree of operating leverage is 1.5. Warren Corporation's degree of operating leverage is 3. Warren's earnings would go up (or down) by ________ as much as Miller's with an equal increase (or decrease) in sales.

Accepted Answer

The formula for calculating the effect of operating leverage on earnings is percentage change in earnings = degree of operating leverage x percentage change in sales. Warren Corporation's degree of operating leverage is 3, which is twice as much as Miller Manufacturing's 1.5. Therefore, Warren's earnings would go up (or down) by 2 times as much as Miller's with an equal increase (or decrease) in sales. Therefore, the answer is C, 2 times.

Question 15

Which of the following statements is not true?

Accepted Answer

Statement D is not true. In fact, when a company's sales revenue is decreasing, high operating leverage is bad because it means that profits will decrease at a faster pace than revenues decrease.

Question 16

Outsourcing production will

Accepted Answer

The answer of Outsourcing production will
...

Question 17

A shift from high-margin sales to low-margin sales

Accepted Answer

The shift from high-margin sales to low-margin sales may increase the total units sold, but it may also decrease net income. Low-margin sales generate less profit per unit, which can result in a decrease in net income.

Question 18

Reducing reliance on human workers and instead investing heavily in computers and online technology will

Accepted Answer

Investing heavily in computers and online technology will likely reduce the need for human workers, leading to a decrease in variable costs such as wages and benefits. However, this investment in technology will likely increase fixed costs, such as maintenance and upgrades.

Question 19

A company can sell all the units it can produce of either Product A or Product B but not both. Product A has a unit contribution margin of $16 and takes two machine hours to make and Product B has a unit contribution margin of $30 and takes three machine hours to make. If there are 5,000 machine hours available to manufacture a product, income will be

Accepted Answer

The answer of A company can sell all the units...

Question 20

Greg's Breads can produce and sell only one of the following two products:  The company has oven capacity of 1,500 hours. How much will contribution margin be if it produces only the most profitable product?

Accepted Answer

The answer of Greg's Breads can produce and sell only...

Quiz 19: Cost-Volume-Profit Analysis: Additional Issues

A shift from low-margin sales to high-margin sales

Use the following information for questions . Mercantile Corporation has sales of $2,000,000, variable costs of $800,000, and fixed costs of $900,000. -Mercantile's degree of operating leverage is

The margin of safety ratio

Cost structure

A cost structure which relies more heavily on fixed costs makes the company

The sales mix percentages for Novotna's Boston and Seattle Divisions are 70% and 30%. The contribution margin ratios are: Boston (40%) and Seattle (30%) . Fixed costs are $2,220,000. What is Novotna's break-even point in dollars?

What is the key factor in determining sales mix if a company has limited resources?

Use the following information for questions . Mercantile Corporation has sales of $2,000,000, variable costs of $800,000, and fixed costs of $900,000. -Mercantile's margin of safety ratio is

Use the following information for questions . MacCloud Industries has two divisions-Standard and Premium. Each division has hundreds of different types of tennis racquets and tennis products. The following information is available: -What is the break-even point in dollars?