Question 1

Junsin Corporation's budget for next year appears below. The budget assumes the company will sell 30,000 units.

-What is the break-even point in annual sales dollars?

Accepted Answer

The answer of Junsin Corporation's budget for next year appears...

Question 2

The margin of safety percentage is equal to the margin of safety in dollars divided by total sales in dollars.

Accepted Answer

The margin of safety percentage is calculated by dividing the margin of safety in dollars by total sales in dollars and then multiplying by 100 to get a percentage.

Question 3

In two companies making the same product and with the same total sales and total expenses,the contribution margin ratio will tend to be lower in the company with a higher proportion of fixed expenses in its cost structure.

Accepted Answer

The contribution margin ratio is calculated as (Sales - Variable Expenses) / Sales, and it is not directly affected by the proportion of fixed expenses in a company's cost structure.

Question 4

The break-even point in units can be obtained by dividing total fixed expenses by the contribution margin ratio.

Accepted Answer

The answer of The break-even point in units can be...

Question 5

Hooper Corporation produces and sells two models of vacuum cleaners, Standard and Deluxe. The company records show the following monthly data relating to these two products:

-If the expected monthly sales in units were divided equally between the two models (900 Standard and 900 Deluxe),where would the break-even level of sales be as compared to the expected sales mix?

Accepted Answer

The break-even level of sales would be higher with an equal sales mix because the Deluxe model has a higher contribution margin per unit than the Standard model. By selling more of the Standard model and less of the Deluxe model, the average contribution margin per unit decreases, requiring a higher volume of sales to cover the fixed costs.

Question 6

Company Y is considering two production technologies,Bronze and Platinum,for producing its new product.The cost structures of the two technologies are as follows:

At what level of sales volume in units (rounded to the nearest whole unit)would Company Y be indifferent in choosing between the Bronze and Platinum technologies?

Accepted Answer

The answer of Company Y is considering two production technologies,Bronze...

Question 7

At the break-even point: Sales - Variable expenses = Fixed expenses.

Accepted Answer

At the break-even point, a company's total revenue equals its total expenses, so the equation Sales - Variable expenses = Fixed expenses holds true.

Question 8

Wright Corporation's contribution format income statement for last month appears below:

There were no beginning or ending inventories. The company produced and sold 3,000 units during the month.
-If sales decrease by 500 units in the next month,by how much would fixed expenses have to be reduced to maintain the current operating income?

Accepted Answer

Fixed expenses would need to be reduced by $3,000 to maintain the current operating income after a decrease in sales by 500 units. The contribution margin per unit is $18,000 / 3,000 units = $6 per unit. A decrease of 500 units would result in a decrease in total contribution margin by 500 units * $6/unit = $3,000. To maintain the same operating income, fixed expenses would need to be reduced by this amount.

Question 9

A company with sales of $80,000 and variable expenses of $40,000 should spend $12,000 on increased advertising,if the increased advertising will increase sales by $22,000.

Accepted Answer

The answer of A company with sales of $80,000 and...

Question 10

The total volume in sales dollars that would be required to attain a given target operating profit is determined by dividing the sum of the fixed expenses and the target operating profit by the contribution margin ratio.

Accepted Answer

This statement accurately describes the calculation of the required sales volume to attain a target operating profit using the contribution margin approach.

Question 11

Once the break-even point has been reached,increases in contribution margin will be reflected dollar for dollar in increased operating income.

Accepted Answer

This is true because at the break-even point, all fixed costs have been covered by the contribution margin. Therefore, any increase in contribution margin will directly increase operating income since there are no more fixed costs to be covered.

Question 12

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

Accepted Answer

Margin of safety is the difference between the actual or expected level of sales and the breakeven point. If fixed expenses increase, the breakeven point increases, which means the level of sales needed to cover all expenses and make a profit increases. This results in a smaller margin of safety, as there is less room for sales to drop before the company starts incurring losses.

Question 13

Junsin Corporation's budget for next year appears below. The budget assumes the company will sell 30,000 units.

-What is the company's margin of safety as a percentage of sales,rounded to the nearest whole percent?

Accepted Answer

The answer of Junsin Corporation's budget for next year appears...

Question 14

Hooper Corporation produces and sells two models of vacuum cleaners, Standard and Deluxe. The company records show the following monthly data relating to these two products:

-The break-even in sales dollars for the expected sales mix is closest to which of the following?

Accepted Answer

The answer of Hooper Corporation produces and sells two models...

Question 15

The company has an opportunity to secure a special order of 800 units if it is willing to drop the selling price on these units to $13.Costs of securing the special order would be $1,000.The special order would not affect the company's regular sales.If the special order is accepted,what will be the impact on the company's overall operating income?

Accepted Answer

To determine the impact on the company's overall operating income, we need to calculate the incremental revenue and incremental costs associated with accepting the special order.

Incremental revenue = (selling price per unit - current selling price per unit) x number of units in the special order 
= ($13 - $15) x 800 
= -$1,600

The negative value indicates a decrease in revenue, as the selling price per unit is lower than the current selling price.

Incremental costs = costs of securing the special order 
= $1,000

The incremental costs are the costs that would not have been incurred if the company had not accepted the special order.

Therefore, the impact on the company's overall operating income can be calculated as:

Overall impact = incremental revenue - incremental costs 
= (-$1,600) - $1,000 
= -$2,600

The negative value indicates a decrease in operating income.

Therefore, the company's overall operating income would increase by $2,200 ($2,600 decrease in operating income + $400 decrease in regular income). The correct answer is B.

Question 16

If fixed expenses increase by $10,000 per year,then the level of sales needed to break even will also increase by $10,000.

Accepted Answer

The answer of If fixed expenses increase by $10,000 per...

Question 17

A shift in the sales mix from products with a low contribution margin ratio toward products with a high contribution margin ratio will lower the break-even point in the company as a whole.

Accepted Answer

This statement is true. The contribution margin ratio is the percentage of each sales dollar that contributes to covering fixed costs and generating profit. Products with a high contribution margin ratio generate more profit per unit sold, therefore if the sales mix shifts towards those products, the overall contribution margin ratio will increase, resulting in a lower overall break-even point.

Question 18

Hurst Co. manufactures and sells a single product. Price and cost data regarding this product are as follows:

-In the current year,the company sold 43,000 units.Due to competition,management will be forced to lower the selling price by 10% next year.How many units must be sold next year to earn the same operating income as was earned in the current year?

Accepted Answer

The answer of Hurst Co. manufactures and sells a single...

Question 19

The formula for the break-even point is the same as the formula to attain a given target operating profit for the special case where the target operating profit is zero.

Accepted Answer

This is because the break-even point is the point where total revenue equals total cost, which means that there is no profit or loss. Thus, the formula to calculate the break-even point is the same as the formula to attain a target operating profit of zero.

Question 20

For a given level of sales,a low contribution margin ratio will produce less operating income than a high contribution margin ratio.

Accepted Answer

This statement is true. Contribution margin is calculated by subtracting variable expenses from sales revenue. A higher contribution margin ratio means that a larger portion of each dollar in sales is available to cover fixed expenses and contribute to operating income. Therefore, for a given level of sales, a low contribution margin ratio will result in less operating income compared to a higher contribution margin ratio.

Quiz 7: Cost-Volume-Profit Relationships

Junsin Corporation's budget for next year appears below. The budget assumes the company will sell 30,000 units. -What is the break-even point in annual sales dollars?