Question 1

If sales are $400,000, variable costs are 80% of sales, and operating income is $40,000, what is the operating leverage?

Accepted Answer

Operating leverage is the percentage change in operating income for a given percentage change in sales. Operating leverage is calculated as follows:
Operating Leverage = Contribution Margin / Operating Income

Contribution Margin = Sales - Variable Costs = $400,000 - 0.80($400,000) = $80,000
Operating Leverage = $80,000 / $40,000 = 2.0

Therefore, the operating leverage is 2.0.

Question 2

Carter Co. sells two products, Arks and Bins. Last year, Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are:  What was Carter Co.'s unit selling price of E, with E representing one overall "enterprise" product?

Accepted Answer

To calculate the unit selling price of the enterprise product, we need to find the total revenue generated by Carter Co. from both Arks and Bins. Using the information given, we can calculate the revenue as follows:

Revenue from Arks = 14,000 units x $120 per unit = $1,680,000
Revenue from Bins = 56,000 units x $40 per unit = $2,240,000
Total revenue = $1,680,000 + $2,240,000 = $3,920,000

Now, we can calculate the unit selling price of the enterprise product by dividing the total revenue by the total number of units sold:

Unit selling price of the enterprise product = Total revenue / Total units sold
= $3,920,000 / (14,000 + 56,000)
= $3,920,000 / 70,000
= $56 per unit

However, the question asks for the unit selling price of the enterprise product as a whole, not per unit. Therefore, we need to multiply the unit selling price by the number of units sold:

Unit selling price of the enterprise product = $56 x (14,000 + 56,000)
= $56 x 70,000
= $3,920,000

Therefore, the unit selling price of the enterprise product was $3,920,000, which corresponds to option D.

Question 3

Carter Co. sells two products, Arks and Bins. Last year, Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are:  Assuming that last year's fixed costs totaled $960,000, what was Carter Co.'s break-even point in units?

Accepted Answer

The answer of Carter Co. sells two products, Arks and...

Question 4

If a business had sales of $4,000,000 and a margin of safety of 25%, the break-even point was

Accepted Answer

Margin of Safety = (Actual or Expected Sales - Break-even Sales) / Actual or Expected Sales

25% = (4,000,000 - Break-even Sales) / 4,000,000

0.25 x 4,000,000 = 4,000,000 - Break-even Sales

1,000,000 = 4,000,000 - Break-even Sales

Break-even Sales = 4,000,000 - 1,000,000 = 3,000,000

Therefore, the break-even point is $3,000,000, which is Option B.

Question 5

Carter Co. sells two products, Arks and Bins. Last year, Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are:  What was Carter Co.'s unit contribution margin of E?

Accepted Answer

The answer of Carter Co. sells two products, Arks and...

Question 6

The difference between the current sales revenue and the sales at the break-even point is called the

Accepted Answer

The difference between the current sales revenue and the sales at the break-even point is called the margin of safety. It represents the amount by which sales can decrease before the company starts to incur a loss. The contribution margin is the difference between sales revenue and variable expenses and is used to cover fixed expenses and provide profits. The price factor is a component of pricing strategies and refers to how much customers are willing to pay for a product or service. Operating leverage is a measure of a company's fixed costs compared to its variable costs, and how changes in sales volume can affect profits.

Question 7

Which of the following is not an assumption underlying cost-volume-profit analysis?

Accepted Answer

The assumption that the break-even point will be passed during the period is not an underlying assumption of cost-volume-profit (CVP) analysis. CVP analysis focuses on how profits are affected by various factors without assuming that the break-even point will necessarily be passed.

Question 8

When a business sells more than one product at varying selling prices, the business's break-even point can be determined as long as the number of products does not exceed

Accepted Answer

The answer of When a business sells more than one...

Question 9

With the aid of computer software, managers can vary assumptions regarding selling prices, costs, and volume, and can immediately see the effects of each change on the break-even point and profit. This is called

Accepted Answer

This process of varying assumptions and analyzing the effects on break-even point and profit is commonly known as "what if" or sensitivity analysis.

Question 10

In a cost-volume-profit chart, the

Accepted Answer

The total cost line in a cost-volume-profit chart begins at the total fixed cost value on the vertical axis, representing the total fixed costs incurred even if there are no sales. The slope of the total cost line is dependent on the variable cost per unit, while the total revenue line starts at zero and ends at the highest sales value.

Question 11

Harley Company has sales of $500,000, variable costs are 75% of sales, and operating income is $40,000. What is Harley's operating leverage?

Accepted Answer

The answer of Harley Company has sales of $500,000, variable...

Question 12

The point where the profit line intersects the horizontal axis on the profit-volume chart represents

Accepted Answer

The point where the profit line intersects the horizontal axis on the profit-volume chart represents the break-even point. This is the point where the company neither earns a profit nor incurs a loss. Therefore, D) the break-even point is the best choice.

Question 13

Assume that Corn Co. sold 8,000 units of Product A and 2,000 units of Product B during the past year. The unit contribution margins for Products A and B are $30 and $60, respectively. Corn has fixed costs of $378,000. The break-even point in units is

Accepted Answer

The answer of Assume that Corn Co. sold 8,000 units...

Question 14

The Rocky Company reports the following data: 
Rocky Company's operating leverage is

Accepted Answer

The answer of The Rocky Company reports the following data:...

Question 15

Cost-volume-profit analysis cannot be used if which of the following occurs?

Accepted Answer

Cost-volume-profit analysis relies heavily on the ability to properly classify costs into fixed and variable categories. If this cannot be done accurately, the analysis will not provide meaningful or useful information for decision-making.

Question 16

The relative distribution of sales among the various products sold by a business is the

Accepted Answer

Sales mix refers to the distribution of sales among a company's different products or services. This is essential information for understanding which products are contributing the most to a company's revenue and profits, and can help inform decisions about pricing, product development, and marketing strategies. Options A, B, and D are not accurate descriptions of sales mix.

Question 17

Forde Co. has an operating leverage of 4. Sales are expected to increase by 12% next year. Operating income is

Accepted Answer

Operating leverage measures the sensitivity of operating income to changes in sales. A higher operating leverage means that a small change in sales can have a larger effect on operating income. In this scenario, a 12% increase in sales is expected, and since the operating leverage is 4, the operating income is expected to increase by 4 times 12%, which is 48% (Option C).

Question 18

The point where the sales line and the total costs line intersect on the cost-volume-profit chart represents

Accepted Answer

The point where the sales line and the total costs line intersect on the cost-volume-profit chart represents the break-even point. It is the level of sales at which a company's revenue equals its total costs, and it is neither making a profit nor incurring a loss.

Question 19

Carter Co. sells two products, Arks and Bins. Last year, Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are:  What was Carter Co.'s variable cost of E?

Accepted Answer

Based on the chart, the variable cost per unit for Arks is $4 and for Bins is $1. Therefore, the total variable cost for Arks is 14,000 units x $4 = $56,000 and the total variable cost for Bins is 56,000 units x $1 = $56,000. Adding both together, we get a total variable cost of $112,000. Dividing this by the total units sold (70,000) gives us a variable cost per unit of $1.60. Multiplying this by the E units sold (40) gives us a variable cost of $64. Therefore, the correct answer is C.

Question 20

Carter Co. sells two products, Arks and Bins. Last year, Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are:  What was Carter Co.'s sales mix last year?

Accepted Answer

The answer of Carter Co. sells two products, Arks and...

Quiz 5: Cost Volume Profit Analysis

If sales are $400,000, variable costs are 80% of sales, and operating income is $40,000, what is the operating leverage?

Carter Co. sells two products, Arks and Bins. Last year, Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are: What was Carter Co.'s unit selling price of E, with E representing one overall "enterprise" product?

Carter Co. sells two products, Arks and Bins. Last year, Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are: Assuming that last year's fixed costs totaled $960,000, what was Carter Co.'s break-even point in units?

If a business had sales of $4,000,000 and a margin of safety of 25%, the break-even point was

Carter Co. sells two products, Arks and Bins. Last year, Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are: What was Carter Co.'s unit contribution margin of E?

The difference between the current sales revenue and the sales at the break-even point is called the

Which of the following is not an assumption underlying cost-volume-profit analysis?

When a business sells more than one product at varying selling prices, the business's break-even point can be determined as long as the number of products does not exceed

With the aid of computer software, managers can vary assumptions regarding selling prices, costs, and volume, and can immediately see the effects of each change on the break-even point and profit. This is called

In a cost-volume-profit chart, the

Harley Company has sales of $500,000, variable costs are 75% of sales, and operating income is $40,000. What is Harley's operating leverage?

The point where the profit line intersects the horizontal axis on the profit-volume chart represents

Assume that Corn Co. sold 8,000 units of Product A and 2,000 units of Product B during the past year. The unit contribution margins for Products A and B are $30 and $60, respectively. Corn has fixed costs of $378,000. The break-even point in units is

The Rocky Company reports the following data: Rocky Company's operating leverage is

Cost-volume-profit analysis cannot be used if which of the following occurs?

The relative distribution of sales among the various products sold by a business is the

Forde Co. has an operating leverage of 4. Sales are expected to increase by 12% next year. Operating income is

The point where the sales line and the total costs line intersect on the cost-volume-profit chart represents

Carter Co. sells two products, Arks and Bins. Last year, Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are: What was Carter Co.'s variable cost of E?

Carter Co. sells two products, Arks and Bins. Last year, Carter sold 14,000 units of Arks and 56,000 units of Bins. Related data are: What was Carter Co.'s sales mix last year?