Question 1

By multiplying the operating leverage factor by the anticipated percentage change in volume,one can find the anticipated change:

Accepted Answer

The operating leverage factor measures how sensitive operating income is to a change in sales volume. Multiplying it by the percentage change in volume gives the anticipated change in operating income.

Question 2

Julia's Catering has a monthly target operating income of $6,000.Variable expenses are 40% of sales and monthly fixed expenses are $3,600.What is the monthly margin of safety as a percentage of target sales in dollars?

Accepted Answer

The formula for margin of safety as a percentage of target sales in dollars is:

(Monthly sales - break-even sales) / monthly sales x 100%

To find the break-even sales, we need to first calculate the contribution margin:

Contribution margin = total sales - variable expenses
Contribution margin = 100% - 40%
Contribution margin = 60%

To find the break-even sales, we can use the formula:

Break-even sales = fixed expenses / contribution margin
Break-even sales = $3,600 / 60%
Break-even sales = $6,000

So, the monthly target sales are $6,000. Using the formula for margin of safety, we get:

Margin of safety = (Monthly sales - break-even sales) / monthly sales x 100%
Margin of safety = ($6,000 - $6,000) / $6,000 x 100%
Margin of safety = 0%

Therefore, the monthly margin of safety as a percentage of target sales in dollars is 0%.

To convert this into the requested format (percentage of target sales in dollars), we can simply remove the "%" sign and add a ".":

Answer: 0.00

Question 3

Duncan Enterprises is considering building a new plant in Canada.They predict sales at the new plant to be 50,000 units at $10.00/unit.Below is a listing of estimated expenses: $$\begin{array} { | l | c | c | } 
\hline \text { Category } & \begin{array} { c } 
\text { Total Annual } \
\text { Expenses }
\end{array} & \begin{array} { c } 
\text { \% of Annual Expense } \
\text { that are Fixed }
\end{array} \
\hline \text { Materials } & \$ 50,000 & 10 \% \
\hline \text { Labor } & \$ 90,000 & 20 \% \
\hline \text { Overhead } & \$ 40,000 & 30 \% \
\hline \text { Marketing/Admin } & \$ 20,000 & 50 \% \
\hline
\end{array}$$ A Canadian firm was contracted to sell the product and will receive a commission of 20% of the sales price.No U.S.home office expenses will be allocated to the new facility.
How much does the Canadian contractor expect to make in commissions?

Accepted Answer

The commission rate is 20% of the sales price, which is $10.00/unit. Therefore, the Canadian contractor will make 20% * $10.00 = $2.00 per unit sold. With predicted sales of 50,000 units, the contractor can expect to make $2.00 * 50,000 = $100,000 in commissions. However, the question only asks for the commission amount, which is $100,000, so the best choice is B.

Question 4

Julia's Catering has a monthly target operating income of $6,000.Variable expenses are 40% of sales and monthly fixed expenses are $3,600.What is the monthly margin of safety in dollars if the business achieves its operating income goal?

Accepted Answer

The answer of  Julia's Catering has a monthly target...

Question 5

Hartville Kitchens has a monthly target operating income of $18,000.Variable expenses are 25% of sales and monthly fixed expenses are $12,000.What is Hartville Kitchens' operating leverage factor at the target level of operating income?

Accepted Answer

Operating leverage factor is calculated as follows:

Operating Leverage Factor = Contribution Margin / Operating Income

Given:

Monthly Target Operating Income = $18,000
Variable Expenses = 25% of Sales
Fixed Expenses = $12,000

Let the Sales be S, then

Contribution Margin = Sales - Variable Expenses = S - 0.25S = 0.75S

Operating Income = Sales - Variable Expenses - Fixed Expenses = S - 0.25S - $12,000 = 0.75S - $12,000

At the target level of operating income,

Operating Income = $18,000

0.75S - $12,000 = $18,000

0.75S = $30,000

S = $40,000

Contribution Margin = 0.75S = $30,000

Therefore,

Operating Leverage Factor = Contribution Margin / Operating Income = $30,000 / $18,000 = 1.67

Question 6

To find a firm's operating leverage factor at a given level of sales,you:

Accepted Answer

The operating leverage factor is calculated by dividing the contribution margin by operating income, which measures how a percentage change in sales will affect operating income.

Question 7

Hartville Kitchens has a monthly target operating income of $18,000.Variable expenses are 25% of sales and monthly fixed expenses are $12,000.What is the monthly margin of safety as a percentage of target sales in dollars?

Accepted Answer

The answer of  Hartville Kitchens has a monthly target...

Question 8

The lowest possible operating leverage factor for a company is:

Accepted Answer

Operating leverage cannot be zero or negative; the lowest possible value is +1, indicating no fixed costs.

Question 9

Veron Corporation is considering building a new plant in Europe.They predict sales at the new plant to be 100,000 units at $4.00/unit.Below is a listing of estimated expenses: $$\begin{array} { | l | c | c | } 
\hline \text { Category } & \begin{array} { c } 
\text { Total Annural } \
\text { Expenses }
\end{array} & \begin{array} { c } 
\text { \% of Annual Expense that } \
\text { are Fixed }
\end{array} \
\hline \text { Materials } & \$ 20,000 & 10 \% \
\hline \text { Labar } & \$ 30,000 & 20 \% \
\hline \text { Overhead } & \$ 50,000 & 40 \% \
\hline \text { Marketing/Admin } & \$ 10,000 & 60 \% \
\hline
\end{array}$$ A European firm was contracted to sell the product and will receive a commission of 13% of the sales price.No U.S.home office expenses will be allocated to the new facility.
-
The margin of safety percentage for Veron Corporation is:

Accepted Answer

The margin of safety percentage is calculated as follows:Margin of safety percentage = (Actual sales - Break-even sales) / Actual salesActual sales = 100,000 units * $4.00/unit = $400,000Break-even sales = Fixed costs / Contribution margin ratioFixed costs = $20,000 * 10% + $30,000 * 20% + $50,000 * 40% + $10,000 * 60% = $40,000Contribution margin ratio = (Sales price - Variable costs) / Sales priceVariable costs = $20,000 + $30,000 - $20,000 * 10% - $30,000 * 20% = $50,000Contribution margin ratio = ($4.00 - $0.50) / $4.00 = 75%Break-even sales = $40,000 / 75% = $53,333Margin of safety percentage = ($400,000 - $53,333) / $400,000 = 93.56%

Question 10

Wynn Technology USB drives sell for $15 per drive.Unit variable expenses total $9.The breakeven sales in units is 2,000 and budgeted sales in units is 4,200.What is the margin of safety in dollars?

Accepted Answer

First, let's calculate the contribution margin per unit:

Selling price per unit - Unit variable expense = $15 - $9 = $6

Now, we can calculate the breakeven sales in dollars:

Breakeven sales in units * Selling price per unit = 2,000 * $15 = $30,000

Next, we can calculate the budgeted sales in dollars:

Budgeted sales in units * Selling price per unit = 4,200 * $15 = $63,000

To calculate the margin of safety in dollars, we need to subtract the breakeven sales from the budgeted sales:

Margin of safety = Budgeted sales - Breakeven sales 
Margin of safety = $63,000 - $30,000 
Margin of safety = $33,000

Therefore, the best choice is C, as this is the margin of safety in dollars.

Question 11

Total predicted sales (in units)minus total break-even sales in units divided by total predicted sales (in units)yields:

Accepted Answer

The formula describes the margin of safety percentage, which measures how much sales can decline before reaching the break-even point.

Question 12

Julia's Catering has a monthly target operating income of $6,000.Variable expenses are 40% of sales and monthly fixed expenses are $3,600.What is Julia's operating leverage factor at the target level of operating income?

Accepted Answer

Operating leverage factor = Contribution margin / Operating income

Contribution margin = Sales - Variable expenses 
Given that variable expenses are 40% of sales, contribution margin is 60% of sales.

To find the sales needed to achieve the target operating income of $6,000:

Target operating income = Sales - Variable expenses - Fixed expenses 
$6,000 = 0.6S - 3,600 
0.6S = $9,600 
S = $16,000

Now, we can calculate the contribution margin:

Contribution margin = 0.6S 
Contribution margin = 0.6 x $16,000 
Contribution margin = $9,600

Finally, we can calculate the operating leverage factor:

Operating leverage factor = Contribution margin / Operating income 
Operating leverage factor = $9,600 / $6,000 
Operating leverage factor = 1.6

Therefore, the answer is C.

Question 13

Southwest Electric Co-op has variable expenses of 20% of sales and monthly fixed expenses of $150,000.The monthly target operating income is $50,000.What is the monthly margin of safety in dollars if Southwest Electric Co-op achieves its operating income goal?

Accepted Answer

The answer of  Southwest Electric Co-op has variable expenses...

Question 14

Which of the following would not be considered a company with high operating leverage?

Accepted Answer

Retailers typically have lower operating leverage because they have a higher proportion of variable costs (such as inventory and sales commissions) compared to fixed costs.

Question 15

Veron Corporation is considering building a new plant in Europe.They predict sales at the new plant to be 100,000 units at $4.00/unit.Below is a listing of estimated expenses: $$\begin{array} { | l | c | c | } 
\hline \text { Category } & \text { Total Annual Expenses } & \begin{array} { c } 
\text { \% of Annual Expense } \
\text { that are Fixed }
\end{array} \
\hline \text { Materials } & \$ 20,000 & 10 \% \
\hline \text { Labor } & \$ 30,000 & 20 \% \
\hline \text { Overhead } & \$ 50,000 & 40 \% \
\hline \text { Marketing/Admin } & \$ 10,000 & 60 \% \
\hline
\end{array}$$ A European firm was contracted to sell the product and will receive a commission of 13% of the sales price.No U.S.home office expenses will be allocated to the new facility.
-
How much does the European contractor expect to make in commissions?

Accepted Answer

The European contractor will receive 13% of the sales price, which is $4.00/unit. Therefore, the contractor will make:
100,000 units x $4.00/unit x 0.13 = $52,000
So, the correct answer is B.

Question 16

The higher the operating leverage factor,the:

Accepted Answer

The higher the operating leverage factor, the more fixed costs a company has in its cost structure. This means that changes in volume (sales) will have a greater impact on operating income. As sales increase, the contribution margin per unit will increase, and the company will generate more operating income due to the higher operating leverage. On the other hand, a decrease in sales will have a greater negative impact on operating income due to the higher fixed costs. Therefore, option A is correct.

Question 17

Southwest Electric Co-op has variable expenses of 20% of sales and monthly fixed expenses of $150,000.The monthly target operating income is $50,000.What is Southwest Electric Co-op's operating leverage factor at the target level of operating income?

Accepted Answer

Operating leverage factor is calculated as Contribution Margin / Operating Income. Contribution Margin is Sales - Variable Expenses. At target income, Sales = Fixed Expenses + Target Income + Variable Expenses. Solving gives Contribution Margin = $200,000 and Operating Income = $50,000. Thus, Operating Leverage Factor = $200,000 / $50,000 = 4.00.

Question 18

Hartville Kitchens has a monthly target operating income of $18,000.Variable expenses are 25% of sales and monthly fixed expenses are $12,000.What is the monthly margin of safety in dollars if the business achieves its operating income goal?

Accepted Answer

The margin of safety is the difference between actual sales and the sales needed to break even. To calculate the margin of safety, we first need to calculate the break-even point. The break-even point is the sales level at which the business has no profit or loss. To calculate the break-even point, we use the following formula:Break-even point = Fixed expenses / (1 - Variable expense ratio)In this case, the fixed expenses are $12,000 and the variable expense ratio is 25%. Therefore, the break-even point is:Break-even point = $12,000 / (1 - 0.25) = $16,000The margin of safety is the difference between the actual sales and the break-even point. In this case, the actual sales are $18,000. Therefore, the margin of safety is:Margin of safety = Actual sales - Break-even point = $18,000 - $16,000 = $2,000

Question 19

Veron Corporation is considering building a new plant in Europe.They predict sales at the new plant to be 100,000 units at $4.00/unit.Below is a listing of estimated expenses: $$\begin{array} { | l | c | c | } 
\hline \text { Category } & \begin{array} { c } 
\text { Total Annual } \
\text { Expenses }
\end{array} & \begin{array} { c } 
\text { \% of Annural Expense } \
\text { thrat are Fixed }
\end{array} \
\hline \text { Materials } & \$ 20,000 & 10 \% \
\hline \text { Labar } & \$ 30,000 & 20 \% \
\hline \text { Overhead } & \$ 50,000 & 40 \% \
\hline \text { Marketing/Admin } & \$ 10,000 & 60 \% \
\hline
\end{array}$$ A European firm was contracted to sell the product and will receive a commission of 13% of the sales price.No U.S.home office expenses will be allocated to the new facility.
-
The unit variable cost for Veron Corporation is:

Accepted Answer

Unit variable cost = Materials + Labor = $20,000 + $30,000 = $50,000. Unit variable cost per unit = $50,000 / 100,000 units = $0.50. Unit sales price = $4.00. Commission = 13% of $4.00 = $0.52. Unit variable cost including commission = $0.50 + $0.52 = $1.02. Unit fixed cost = Overhead + Marketing/Admin = $50,000 + $10,000 = $60,000. Unit fixed cost per unit = $60,000 / 100,000 units = $0.60. Unit total cost = Unit variable cost + Unit fixed cost = $1.02 + $0.60 = $1.62.

Question 20

Southwest Electric Co-op has variable expenses of 20% of sales and monthly fixed expenses of $150,000.The monthly target operating income is $50,000.What is the monthly margin of safety as a percentage of target sales in dollars?

Accepted Answer