Question 1

Fletcher Company has three products with the following characteristics:
$\begin{array} { | l | r | r | r | } 
\hline & \text { Product A } & \text { Product B } & \text { Product C } \
\hline \begin{array} { l } 
\text { Monthly sales in } \
\text { dollars }
\end{array} & \$ 60,000 & \$ 80,000 & \$ 100,000 \
\hline \begin{array} { l } 
\text { Contribution margin } \
\text { ratio }
\end{array} & 20 \% & 40 \% & 16 \% \
\hline
\end{array}$Fixed Costs = $30,000 per month.

-Assume sales next year total $240,000; product A $70,000,product B $90,000 and C $80,000.Total Contribution Margin for Fletcher will be closest to:

Accepted Answer

To calculate the total contribution margin for Fletcher, we multiply the sales of each product by its contribution margin ratio:- Product A: $70,000 * 20% = $14,000- Product B: $90,000 * 40% = $36,000- Product C: $80,000 * 16% = $12,800Adding these together gives us the total contribution margin: $14,000 + $36,000 + $12,800 = $62,800.

Question 2

Fletcher Company has three products with the following characteristics:
$\begin{array} { | l | r | r | r | } 
\hline & \text { Product A } & \text { Product B } & \text { Product C } \
\hline \begin{array} { l } 
\text { Monthly sales in } \
\text { dollars }
\end{array} & \$ 60,000 & \$ 80,000 & \$ 100,000 \
\hline \begin{array} { l } 
\text { Contribution margin } \
\text { ratio }
\end{array} & 20 \% & 40 \% & 16 \% \
\hline
\end{array}$Fixed Costs = $30,000 per month.

-What is the overall contribution margin ratio for the company as a whole,rounded to the nearest tenth of a percent?

Accepted Answer

To find the overall contribution margin ratio for the company, first calculate the total contribution margin in dollars and then divide by the total sales in dollars. The contribution margin for each product is: Product A: $60,000 * 20% = $12,000 Product B: $80,000 * 40% = $32,000 Product C: $100,000 * 16% = $16,000 Total contribution margin = $12,000 + $32,000 + $16,000 = $60,000 Total sales = $60,000 + $80,000 + $100,000 = $240,000 Overall contribution margin ratio = ($60,000 / $240,000) * 100 = 25%

Question 3

Paxton Corp has provided the following data concerning its operations last month:
$\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 400,000 \
\hline \text { Variable expenses } & \$ 250,000 \
\hline \text { Fixed expenses } & \$ 100,000 \
\hline
\end{array}$Paxton Corp is a retailing organization.

-What is the contribution margin ratio?

Accepted Answer

The contribution margin ratio is calculated as (Sales - Variable Expenses) / Sales. For Paxton Corp, this is (\$400,000 - \$250,000) / \$400,000 = \$150,000 / \$400,000 = 0.375 or 37.5%.

Question 4

Paxton Corp has provided the following data concerning its operations last month:
$\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 400,000 \
\hline \text { Variable expenses } & \$ 250,000 \
\hline \text { Fixed expenses } & \$ 100,000 \
\hline
\end{array}$Paxton Corp is a retailing organization.

-What is the break-even point in sales dollars,rounded to the nearest dollar?

Accepted Answer

The break-even point in sales dollars can be calculated using the formula: Break-even Point = Fixed Expenses / (1 - Variable Expense Ratio). The Variable Expense Ratio is Variable Expenses / Sales = $250,000 / $400,000 = 0.625. Therefore, the Break-even Point = $100,000 / (1 - 0.625) = $100,000 / 0.375 = $266,667.

Question 5

Dorian Company produces and sells a single product. The product sells for $60 per unit and has a contribution margin ratio of 40%. The company's monthly fixed expenses are $28,800.

-If the selling price is reduced by 5%,variable expenses reduced by $1.00,and fixed expenses increased to a total of $38,400,how many units would need to be sold to earn an operating income of $21,000?

Accepted Answer

First, we need to calculate the new contribution margin per unit after the changes. Let's assume the original selling price was $10, and the original variable expenses were $6 per unit. 
New selling price = 10 - 0.05(10) = $9.50 
New variable expenses = 6 - 1 = $5 
New contribution margin per unit = 9.50 - 5 = $4.50

Next, we need to calculate the breakeven point with the new information. Let's assume the original fixed expenses were $36,000. 
Breakeven point = Fixed expenses / Contribution margin per unit 
Breakeven point = 38,400 / 4.50 = 8,533.33 units

Finally, we can calculate the number of units needed to earn an operating income of $21,000. 
Operating income = (Unit contribution margin x Number of units sold) - Fixed expenses 
21,000 = (4.50 x N) - 38,400 
59,400 = 4.50N 
N = 13,200 
Therefore, the number of units needed to earn an operating income of $21,000 is 2,700 units (rounded up to the nearest unit).

Question 6

Hurst Co. manufactures and sells a single product. Price and cost data regarding this product are as follows:$\begin{array}{|l|r|}
\hline \text { Selling price } & \$ 40 \text { per unit } \
\hline \text { Variable manufacturing cost } & \$ 20 \text { per unit } \
\hline \text { Variable selling \& administrative expenses } & \$ 6 \text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 208,000 \text { per year } \
\hline \text { Fixed selling \& administrative expenses } & \$ 324,000 \text { per year } \
\hline
\end{array}$

-How many units need to be sold to earn an annual operating income equal to 10% of sales?

Accepted Answer

To find the number of units needed to earn an annual operating income equal to 10% of sales, we first calculate the contribution margin per unit, which is the selling price per unit minus the variable costs per unit. The variable costs per unit include both the variable manufacturing cost and the variable selling & administrative expenses, so the contribution margin per unit is $40 - ($20 + $6) = $14.Next, we determine the total fixed costs, which are the sum of fixed manufacturing overhead and fixed selling & administrative expenses, totaling $208,000 + $324,000 = $532,000.To achieve an operating income equal to 10% of sales, we set up the equation where the desired profit is 10% of total sales (price per unit times the number of units), and solve for the number of units (X):$$0.10 \times 40X = 532,000 + 14X$$Solving for X gives us the number of units needed to achieve the target operating income. Rearranging the equation:$$4X = 532,000 + 14X$$Subtract 14X from both sides:$$-10X = 532,000$$Divide by -10:$$X = 53,200$$Therefore, 53,200 units need to be sold to earn an annual operating income equal to 10% of sales.

Question 7

Dorian Company produces and sells a single product. The product sells for $60 per unit and has a contribution margin ratio of 40%. The company's monthly fixed expenses are $28,800.

-If Dorian Company desires a monthly operating income equal to 10% of sales,what will its monthly sales have to be?

Accepted Answer

The answer of  Dorian Company produces and sells a...

Question 8

Fletcher Company has three products with the following characteristics:
$\begin{array} { | l | r | r | r | } 
\hline & \text { Product A } & \text { Product B } & \text { Product C } \
\hline \begin{array} { l } 
\text { Monthly sales in } \
\text { dollars }
\end{array} & \$ 60,000 & \$ 80,000 & \$ 100,000 \
\hline \begin{array} { l } 
\text { Contribution margin } \
\text { ratio }
\end{array} & 20 \% & 40 \% & 16 \% \
\hline
\end{array}$Fixed Costs = $30,000 per month.

-The breakeven point in sales dollars is closest to:

Accepted Answer

The answer of  Fletcher Company has three products with...

Question 9

Arthur Company had the following data for the year just ended:
$\begin{array}{|l|r|}
\hline \text { Sales } & 4,000 \text { units } \
\hline \text { Sales price } & \$ 60 \text { per unit } \
\hline \text { Variable cost } & \$ 18 \text { per unit } \
\hline \text { Fixed costs } & \$ 42,000 \
\hline
\end{array}$

-If the company's fixed costs decrease by 20% next year,all other factors remaining the same,by how much will the break-even level change compared to that of the current year,rounded to the nearest whole unit?

Accepted Answer

The original break-even point is 1,000 units. With a 20% decrease in fixed costs, the new break-even point is 800 units, resulting in a 200-unit decrease.

Question 10

Hurst Co. manufactures and sells a single product. Price and cost data regarding this product are as follows:$\begin{array}{|l|r|}
\hline \text { Selling price } & \$ 40 \text { per unit } \
\hline \text { Variable manufacturing cost } & \$ 20 \text { per unit } \
\hline \text { Variable selling \& administrative expenses } & \$ 6 \text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 208,000 \text { per year } \
\hline \text { Fixed selling \& administrative expenses } & \$ 324,000 \text { per year } \
\hline
\end{array}$

-What is the break-even point in units per year?

Accepted Answer

The break-even point in units is calculated by dividing the total fixed costs by the contribution margin per unit. The contribution margin per unit is the selling price minus the variable costs (both manufacturing and selling & administrative). Here, it is $40 - ($20 + $6) = $14. The total fixed costs are $208,000 + $324,000 = $532,000. Thus, the break-even point is $532,000 / $14 = 38,000 units.

Question 11

Dorian Company produces and sells a single product. The product sells for $60 per unit and has a contribution margin ratio of 40%. The company's monthly fixed expenses are $28,800.

-What is the variable expense per unit?

Accepted Answer

The answer of  Dorian Company produces and sells a...

Question 12

Fletcher Company has three products with the following characteristics:
$\begin{array} { | l | r | r | r | } 
\hline & \text { Product A } & \text { Product B } & \text { Product C } \
\hline \begin{array} { l } 
\text { Monthly sales in } \
\text { dollars }
\end{array} & \$ 60,000 & \$ 80,000 & \$ 100,000 \
\hline \begin{array} { l } 
\text { Contribution margin } \
\text { ratio }
\end{array} & 20 \% & 40 \% & 16 \% \
\hline
\end{array}$Fixed Costs = $30,000 per month.

-If Total sales next month are $330,000 and Fletchers sales mix remains unchanged,the total sales for product C will be closest to:

Accepted Answer

To find the total sales for Product C when total sales are $330,000 with the sales mix remaining unchanged, we first determine the current total sales and the proportion of each product in the total sales. The current total sales are $60,000 (Product A) + $80,000 (Product B) + $100,000 (Product C) = $240,000. Product C's proportion of total sales is $100,000 / $240,000 = 41.67%. Applying this proportion to the new total sales of $330,000, Product C's sales would be 41.67% of $330,000, which is approximately $137,500.

Question 13

Dorian Company produces and sells a single product. The product sells for $60 per unit and has a contribution margin ratio of 40%. The company's monthly fixed expenses are $28,800.

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

Accepted Answer

The break-even point in sales dollars can be calculated using the formula: Break-even point in sales dollars = Fixed expenses / Contribution margin ratio. Given that the fixed expenses are $28,800 and the contribution margin ratio is 40% (or 0.40 when used in calculations), the break-even point is $28,800 / 0.40 = $72,000.

Question 14

Arthur Company had the following data for the year just ended:
$\begin{array}{|l|r|}
\hline \text { Sales } & 4,000 \text { units } \
\hline \text { Sales price } & \$ 60 \text { per unit } \
\hline \text { Variable cost } & \$ 18 \text { per unit } \
\hline \text { Fixed costs } & \$ 42,000 \
\hline
\end{array}$

-If the company's sales volume increases by 30% next year,all other factors remaining the same,by how much will its operating income increase?

Accepted Answer

The answer of Arthur Company had the following data for...

Question 15

Paxton Corp has provided the following data concerning its operations last month:
$\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 400,000 \
\hline \text { Variable expenses } & \$ 250,000 \
\hline \text { Fixed expenses } & \$ 100,000 \
\hline
\end{array}$Paxton Corp is a retailing organization.

-What is the degree of operating leverage?

Accepted Answer

The answer of Paxton Corp has provided the following data...

Question 16

Janet Company produces a game that sells for $17 per game. Variable expenses are $9 per game, and fixed expenses total $172,000 annually.
-The break-even point is closest to which of the following?

Accepted Answer

The answer of  Janet Company produces a game that...

Question 17

Arthur Company had the following data for the year just ended:
$\begin{array}{|l|r|}
\hline \text { Sales } & 4,000 \text { units } \
\hline \text { Sales price } & \$ 60 \text { per unit } \
\hline \text { Variable cost } & \$ 18 \text { per unit } \
\hline \text { Fixed costs } & \$ 42,000 \
\hline
\end{array}$

-If the company wants to increase its total contribution margin by 40% in the next year,all other factors remaining the same,by how much will it need to increase its sales?

Accepted Answer

The contribution margin is the difference between the sales price and the variable cost. The total contribution margin is the contribution margin per unit multiplied by the number of units sold. To increase the total contribution margin by 40%, the company needs to increase its sales by 40% / (100% - 40%) = 66.67%. Therefore, the company needs to increase its sales by 66.67% * 4,000 units = 2,666.67 units. The increase in sales will be 2,666.67 units * $60 per unit = $160,000. However, the company's fixed costs will also increase by 40%, so the increase in total contribution margin will be $160,000 - 40% * $42,000 = $96,000.

Question 18

Arthur Company had the following data for the year just ended:
$\begin{array}{|l|r|}
\hline \text { Sales } & 4,000 \text { units } \
\hline \text { Sales price } & \$ 60 \text { per unit } \
\hline \text { Variable cost } & \$ 18 \text { per unit } \
\hline \text { Fixed costs } & \$ 42,000 \
\hline
\end{array}$

-If the company wants its margin of safety to equal $35,000 next year,all other factors remaining the same,how many units will it need to sell?

Accepted Answer

The answer of Arthur Company had the following data for...

Question 19

Janet Company produces a game that sells for $17 per game. Variable expenses are $9 per game, and fixed expenses total $172,000 annually.
-The contribution margin ratio is closest to which of the following?

Accepted Answer

The contribution margin is the difference between the selling price and the variable expenses. In this case, the contribution margin is $17 - $9 = $8. The contribution margin ratio is the contribution margin divided by the selling price. In this case, the contribution margin ratio is $8 / $17 = 47.1%.

Question 20

Fletcher Company has three products with the following characteristics:
$\begin{array} { | l | r | r | r | } 
\hline & \text { Product A } & \text { Product B } & \text { Product C } \
\hline \begin{array} { l } 
\text { Monthly sales in } \
\text { dollars }
\end{array} & \$ 60,000 & \$ 80,000 & \$ 100,000 \
\hline \begin{array} { l } 
\text { Contribution margin } \
\text { ratio }
\end{array} & 20 \% & 40 \% & 16 \% \
\hline
\end{array}$Fixed Costs = $30,000 per month.

-If total units sold remain unchanged,but the sales mix shifts more heavily toward Product C,what would the overall contribution margin ratio be expected to do?

Accepted Answer

Shifting sales more heavily toward Product C, which has the lowest contribution margin ratio (16%), would decrease the overall contribution margin ratio when compared to Products A (20%) and B (40%).

Quiz 4: Cost-Volume-Profit Relationships

Dorian Company produces and sells a single product. The product sells for $60 per unit and has a contribution margin ratio of 40%. The company's monthly fixed expenses are $28,800. -If Dorian Company desires a monthly operating income equal to 10% of sales,what will its monthly sales have to be?

Dorian Company produces and sells a single product. The product sells for $60 per unit and has a contribution margin ratio of 40%. The company's monthly fixed expenses are $28,800. -What is the variable expense per unit?

Dorian Company produces and sells a single product. The product sells for $60 per unit and has a contribution margin ratio of 40%. The company's monthly fixed expenses are $28,800. -What is the break-even point in sales dollars?

Janet Company produces a game that sells for $17 per game. Variable expenses are $9 per game, and fixed expenses total $172,000 annually. -The break-even point is closest to which of the following?

Janet Company produces a game that sells for $17 per game. Variable expenses are $9 per game, and fixed expenses total $172,000 annually. -The contribution margin ratio is closest to which of the following?