Question 1

Curvy Confections is considering building a new plant in Europe. It predicts sales at the new plant to be 40,000 units at $9.00/unit. Below is a listing of estimated expenses:  A European firm was contracted to sell the product and will receive a commission of 15% of the sales price. No U.S. home office expenses will be allocated to the new facility.
The unit variable cost for Curvy Confections is

Accepted Answer

To find the unit variable cost, we need to deduct the commission paid to the European firm from the sales price ($9.00 - 15% of $9.00 = $7.65). Then, we subtract the total estimated expenses from the adjusted sales price to find the unit variable cost:

$7.65 - $3.51 = $3.14.

Therefore, the unit variable cost for Curvy Confections is $3.14.

Question 2

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

Accepted Answer

The formula to calculate the anticipated change in operating income is: 
Anticipated % change in volume * Operating leverage factor * Current operating income 
So multiplying the operating leverage factor by the anticipated percentage change in volume will give the anticipated change in operating income.

Question 3

The lowest possible operating leverage factor for a company is

Accepted Answer

The lowest possible operating leverage factor for a company is +1. This indicates that the company's operating income will change by the same percentage as its sales, meaning there is a direct, proportional relationship between sales and operating income without any leverage effect.

Question 4

Total predicted sales (in units)minus total breakeven sales in units divided by total predicted sales (in units)yields

Accepted Answer

This formula calculates the margin of safety percentage, which represents the percentage by which sales can drop before a company starts incurring losses.

Question 5

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

Accepted Answer

Operating leverage factor is calculated by dividing the contribution margin by operating income. This measures how a change in sales volume will affect operating income due to fixed costs.

Question 6

Matthew's Fish Fry has a monthly target operating income of $8300. Variable expenses are 80% of sales and monthly fixed expenses are $800. What is the monthly margin of safety as a percentage of target sales in dollars?

Accepted Answer

Step 1: Calculate the total monthly fixed expenses and target sales in dollars:
Fixed expenses = $800
Target operating income = $8,300
Total expenses = Fixed expenses + Target operating income = $800 + $8,300 = $9,100

Step 2: Calculate the breakeven sales in dollars:

Breakeven sales = Total expenses / contribution margin ratio
Contribution margin ratio = 1 - variable expenses ratio
Variable expenses ratio = 80% = 0.8
Contribution margin ratio = 1 - 0.8 = 0.2

Breakeven sales = $9,100 / 0.2 = $45,500

Step 3: Calculate the margin of safety in dollars:

Margin of safety = Total sales - Breakeven sales
Total sales = Target operating income / contribution margin ratio = $8,300 / 0.2 = $41,500
Margin of safety = $41,500 - $45,500 = -$4,000

Step 4: Calculate the margin of safety percentage:

Margin of safety percentage = Margin of safety / Total sales x 100%
Margin of safety percentage = -$4,000 / $41,500 x 100% = -9.64%

The margin of safety is negative, which means that Matthew's Fish Fry is below the breakeven point and is not making a profit. Therefore, the monthly margin of safety as a percentage of target sales in dollars is not applicable. However, if we take the absolute value of the margin of safety and divide it by the total sales, we get:

Absolute margin of safety = $4,000
Margin of safety percentage = $4,000 / $41,500 x 100% = 9.64%

But the question asks for the margin of safety as a percentage of target sales, so the answer is not applicable.

Question 7

Matthew's Fish Fry has a monthly target operating income of $8400. Variable expenses are 70% of sales and monthly fixed expenses are $1470. What is Matthew's operating leverage factor at the target level of operating income?

Accepted Answer

The answer of Matthew's Fish Fry has a monthly target...

Question 8

The manager at Tom's Taxidermy expects to sell 900 units at $80 each unit. In order for the manager to breakeven, the manager must sell 100 units. What is the margin of safety in dollars?

Accepted Answer

The margin of safety in dollars is calculated as (Actual or Budgeted Sales - Break-even Sales) * Selling Price per Unit. Here, it is (900 units - 100 units) * $80 = 800 units * $80 = $64,000.

Question 9

The higher the operating leverage factor, the

Accepted Answer

Operating leverage factor measures the impact of fixed costs on operating income. A higher operating leverage means that a company has a higher proportion of fixed costs in their cost structure, and as a result, a small change in sales volume can have a significant impact on operating income. Therefore, a higher operating leverage factor means that the impact of volume on operating income is greater.

Question 10

Hyde's Headphones sells deluxe headphones for $70 each. Unit variable expenses total $60. The breakeven sales in units is 1700 and budgeted sales in units is 4177. What is the margin of safety in dollars?

Accepted Answer

The margin of safety in dollars is calculated as (Budgeted Sales in Units - Breakeven Sales in Units) * Selling Price per Unit. Here, it is (4177 - 1700) * $70 = 2477 * $70 = $173,390.

Question 11

Curvy Confections is considering building a new plant in Europe. It predicts sales at the new plant to be 38,000 units at $10.00/unit. Below is a listing of estimated expenses.  A European firm was contracted to sell the product and will receive a commission of 15% of the sales price. No U.S. home office expenses will be allocated to the new facility.
The contribution margin ratio for Curvy Confections is

Accepted Answer

The answer of Curvy Confections is considering building a new...

Question 12

The lowest possible operating leverage factor for a company is 1 and only occurs when

Accepted Answer

The lowest possible operating leverage factor of 1 occurs when a company has no fixed costs (C), meaning all costs are variable. Operating leverage measures how revenue growth translates into growth in operating income, and with no fixed costs, any change in sales directly changes operating income without the magnification effect seen with fixed costs.

Question 13

Matthew's Fish Fry has a monthly target operating income of $6600. Variable expenses are 80% of sales and monthly fixed expenses are $840. What is the monthly margin of safety in dollars if the business achieves its operating income goal?

Accepted Answer

First, we need to calculate the monthly sales needed to achieve the target operating income:

Target Operating Income = Sales - Variable Expenses - Fixed Expenses
$6600 = 0.20 Sales - $840
0.20 Sales = $7440
Sales = $37,200

Now we can calculate the margin of safety:

Margin of Safety = Total Sales - Break-Even Sales
Margin of Safety = $37,200 - ($37,200 / 1.20)
Margin of Safety = $37,200 - $31,000
Margin of Safety = $6,200

Therefore, the monthly margin of safety in dollars is $6,200. Choice B is the correct answer.

Question 14

Curvy Confections is considering building a new plant in Europe. It predicts sales at the new plant to be 38,000 units at $5.00/unit. Below is a listing of estimated expenses:  A European 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. (Round intermediary dollar calculations to the nearest whole dollar and round percentages to one-tenth percent.)
The margin of safety percentage for Curvy Confections is

Accepted Answer

The answer of Curvy Confections is considering building a new...

Question 15

Moe's Pizza Shop sells a large pizza for $12.00. Unit variable expenses total $8.00. The breakeven sales in units is 7000 and budgeted sales in units is 8000. What is the margin of safety in dollars?

Accepted Answer

The margin of safety in dollars is calculated as (Budgeted Sales in Units - Breakeven Sales in Units) * Selling Price per Unit. Here, it is (8000 - 7000) * $12 = 1000 * $12 = $12,000.

Question 16

Light Me Up Lamps has variable expenses of 40% of sales and monthly fixed expenses of $216,000. The monthly target operating income is $24,000. What is the monthly margin of safety in dollars if Light Me Up Lamps achieves its operating income goal?

Accepted Answer

The answer of Light Me Up Lamps has variable expenses...

Question 17

Tom's Taxidermy expects to sell 1200 units of its specialty preservation product. The managerial accountant reported that manager must sell 700 units of specialty product to breakeven. Compute the margin of safety in units.

Accepted Answer

The margin of safety in units is calculated by subtracting the breakeven sales from the expected sales: 1200 units - 700 units = 500 units.

Question 18

All of the following would be considered a company with high operating leverage, except

Accepted Answer

High operating leverage is characteristic of businesses with high fixed costs relative to their variable costs. Retailers typically have lower fixed costs and higher variable costs compared to golf courses, theme parks, and hotels, making them less reliant on operating leverage.

Question 19

Tom's Taxidermy has a monthly target operating income of $29,000. Variable expenses are 75% of sales and monthly fixed expenses are $15,000. What is Tom's operating leverage factor at the target level of operating income?

Accepted Answer

Operating leverage factor = Contribution Margin / Operating Income. First, find the sales needed to meet the target operating income. Let sales = x. Then, 0.25x (since variable expenses are 75% of sales, contribution margin is 25% of sales) - $15,000 (fixed expenses) = $29,000 (target operating income). Solving for x gives x = $176,000 in sales. Contribution margin at this level is 0.25 * $176,000 = $44,000. Therefore, the operating leverage factor = $44,000 / $29,000 = 1.52.

Question 20

Curvy Confections is considering building a new plant in Europe. It predicts sales at the new plant to be 39,000 units at $10.00/unit. Below is a listing of estimated expenses:  A European firm was contracted to sell the product and will receive a commission of 45% 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 answer of Curvy Confections is considering building a new...

Quiz 7: Cost-Volume-Profit Analysis

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

The lowest possible operating leverage factor for a company is

Total predicted sales (in units) minus total breakeven sales in units divided by total predicted sales (in units) yields

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

Matthew's Fish Fry has a monthly target operating income of $8300. Variable expenses are 80% of sales and monthly fixed expenses are $800. What is the monthly margin of safety as a percentage of target sales in dollars?

Matthew's Fish Fry has a monthly target operating income of $8400. Variable expenses are 70% of sales and monthly fixed expenses are $1470. What is Matthew's operating leverage factor at the target level of operating income?

The manager at Tom's Taxidermy expects to sell 900 units at $80 each unit. In order for the manager to breakeven, the manager must sell 100 units. What is the margin of safety in dollars?

The higher the operating leverage factor, the

Hyde's Headphones sells deluxe headphones for $70 each. Unit variable expenses total $60. The breakeven sales in units is 1700 and budgeted sales in units is 4177. What is the margin of safety in dollars?

The lowest possible operating leverage factor for a company is 1 and only occurs when

Matthew's Fish Fry has a monthly target operating income of $6600. Variable expenses are 80% of sales and monthly fixed expenses are $840. What is the monthly margin of safety in dollars if the business achieves its operating income goal?

Moe's Pizza Shop sells a large pizza for $12.00. Unit variable expenses total $8.00. The breakeven sales in units is 7000 and budgeted sales in units is 8000. What is the margin of safety in dollars?

Light Me Up Lamps has variable expenses of 40% of sales and monthly fixed expenses of $216,000. The monthly target operating income is $24,000. What is the monthly margin of safety in dollars if Light Me Up Lamps achieves its operating income goal?

Tom's Taxidermy expects to sell 1200 units of its specialty preservation product. The managerial accountant reported that manager must sell 700 units of specialty product to breakeven. Compute the margin of safety in units.

All of the following would be considered a company with high operating leverage, except

Tom's Taxidermy has a monthly target operating income of $29,000. Variable expenses are 75% of sales and monthly fixed expenses are $15,000. What is Tom's operating leverage factor at the target level of operating income?