....................-.................................................... 2 (ac314 2/56)1.Dimitrov Corporation, a company that produces and sells a single product, has provided its contribution format income statement for July.If the company sells 6,900 units, its net operating income should be closest to:A.$35,979B.$34,500C.$36,500D.$32,000

Variable expenses per unit = Variable expenses ( Quantity sold= $175,000 ( 7,000 units = $25 per unitSelling price per unit = Sales ( Quantity sold= $315,000 ( 7,000 units = $45 per unitUnit CM = Selling price per unit - Variable expenses per unit= $45 per unit - $25 per unit = $20 per unitProfit = Unit CM ( Q - Fixed expenses= ($20 per unit ( 6,900 units) - $103,500 = $138,000 - $103,500 = $34,5002.Street Company's fixed expenses total $150,000, its variable expense ratio is 60% and its variable expenses are $4.50 per unit. Based on this information, the break-even point in units is:A.50,000 unitsB.37,500 unitsC.33,333 unitsD.100,000 units

CM ratio = 1 - Variable expense ratio = 1 - 0.60 = 0.40Dollar sales to break even = Fixed expenses ( CM ratio= $150,000 ( 0.40 = $375,000Variable expense ratio = Total variable expenses ( Total dollar sales0.60 = Total variable expenses ( Total dollar sales0.60 = $4.50 per unit ( Unit sales ( Selling price per unit ( Unit sales0.60 = $4.50 per unit ( Selling price per unitSelling price = $4.50 per unit ( 0.60 = $7.50 per unitDollar sales = Unit selling price ( Unit sales$375,000 = $7.50 per unit ( Unit salesUnit sales = $375,000 ( $7.50 per unit = 50,000 units3.Rider Company sells a single product. The product has a selling price of $40 per unit and variable expenses of $15 per unit. The company's fixed expenses total $30,000 per year. The company's break-even point in terms of total dollar sales is:A.$100,000B.$80,000C.$60,000D.$48,000

CM ratio = Unit contribution margin ( Unit selling price= ($40 per unit - $15 per unit) ( $40 per unit= 0.625Dollar sales to break even = Fixed expenses ( CM ratio= $30,000 ( 0.625= $48,000

4.James Company has a margin of safety percentage of 20% based on its actual sales. The break-even point is $200,000 and the variable expenses are 45% of sales. Given this information, the actual profit is:A.$27,500B.$18,000C.$22,500D.$22,000

CM ratio = 1 - Variable expense ratio= 1 - 0.45 = 0.55Dollar sales to break even = Fixed expenses ( CM ratio$200,000 = Fixed expenses ( 0.55Fixed expenses = $200,000 ( 0.55 = $110,000Margin of safety in dollars = Total actual sales - Break-even salesMargin of safety percentage = Margin of safety in dollars ( Total actual salesMargin of safety percentage = (Total actual sales - Break-even sales) ( Total actual salesMargin of safety percentage = 1 - Break-even sales ( Total actual salesBreak-even sales ( Total actual sales = 1 - Margin of safety percentageTotal actual sales = Break-even sales ( (1 - Margin of safety percentage)= $200,000 ( (1 - 0.20) = $250,000Profit = CM ratio ( Sales - Fixed expenses= 0.55 ( $250,000 - $110,000 = $27,500

5.The contribution margin ratio is 25% for Grain Company and the break-even point in sales is $200,000. To obtain a target net operating income of $60,000, sales would have to be:A.$260,000B.$440,000C.$280,000D.$240,000

Dollar sales to break even = Fixed expenses ( CM ratio$200,000 = Fixed expenses ( 0.25Fixed expenses = $200,000 ( 0.25 = $50,000Dollar sales to attain a target profit = (Target profit + Fixed expenses) ( CM ratio= ($60,000 + $50,000) ( 0.25 = $440,0006.Patterson Company's variable expenses are 55% of sales. At a $400,000 sales level, the degree of operating leverage is 5. If sales increase by $30,000, the new degree of operating leverage will be (rounded):A.5.00B.3.18C.2.91

D.3.91

CM ratio = 1 - Variable expense ratioCM ratio = 1 - 0.55 = 0.45CM ratio = Contribution margin ( SalesContribution margin = CM ratio ( Sales= 0.45 ( $400,000 = $180,000At sales of $400,000:Degree of operating leverage = Contribution margin ( Net operating income5 = $180,000 ( Net operating incomeNet operating income = $180,000 ( 5 = $36,000Net operating income = Contribution margin - Fixed expenses$36,000 = $180,000 - Fixed expensesFixed expenses = $180,000 - $36,000 = $144,000At sales of $430,000:Contribution margin = CM ratio ( Sales = 0.45( $430,000 = $193,500Net operating income = Contribution margin - Fixed expenses= $193,500 - $144,000 = $49,500Degree of operating leverage = Contribution margin ( Net operating income= $193,500 ( $49,500 = 3.91

7.Cindy, Inc. sells a product for $10 per unit. The variable expenses are $6 per unit, and the fixed expenses total $35,000 per period. By how much will net operating income change if sales are expected to increase by $40,000?A.$16,000 increaseB.$5,000 increaseC.$24,000 increaseD.$11,000 decrease

CM ratio = Unit contribution margin ( Unit selling price= ($10 per unit - $6 per unit) ( $10 per unit= $4 per unit ( $10 per unit= 0.40Increase in net operating income = CM ratio ( Increase in sales= 0.40 ( $40,000 = $16,000

8.Sinclair Company's single product has a selling price of $25 per unit. Last year the company reported a profit of $20,000 and variable expenses totaling $180,000. The product has a 40% contribution margin ratio. Because of competition, Sinclair Company will be forced in the current year to reduce its selling price by $2 per unit. How many units must be sold in the current year to earn the same profit as was earned last year?A.15,000 unitsB.12,000 unitsC.16,500 unitsD.12,960 units

CM ratio = 1 - Variable expense ratioCM ratio = 1 - Variable expenses ( Sales0.40 = 1 - ($180,000 ( Sales)$180,000 ( Sales = 1 - 0.40

Sales = $180,000 ( (1 - 0.40) = $180,000 ( 0.60 = $300,000Sales = Selling price per unit ( Quantity sold$300,000 = $25 per unit ( Quantity soldQuantity sold = $300,000 ( $25 per unit = 12,000 unitsVariable expense per unit = Variable expenses ( Quantity sold= $180,000 ( 12,000 units = $15 per unitProfit = (Sales - Variable expenses) - Fixed expenses$20,000 = ($300,000 - $180,000) - Fixed expensesFixed expenses = ($300,000 - $180,000) - $20,000 = $120,000 - $20,000 = $100,000New unit selling price = $25 per unit - $2 per unit = $23 per unitNew unit contribution margin = $23 per unit - $15 per unit = $8 per unitUnit sales to attain a target profit = (Target profit + Fixed expenses) ( Unit CM= ($20,000 + $100,000) ( $8 per unit = 15,000 units

9.Rickers Inc. produces and sells two products. Data concerning those products for the most recent month appear below:The fixed expenses of the entire company were $38,940. The break-even point for the entire company is closest to:A.$80,590B.$76,353C.$38,940D.$46,060

CM ratio = Contribution margin ( Sales = $43,350 ( $85,000 = 0.51Dollar sales to break even = Fixed expenses ( CM ratio = $38,940 ( 0.51 = $76,353

10.Balbuena Corporation produces and sells two products. Data concerning those products for the most recent month appear below:The fixed expenses of the entire company were $15,630. If the sales mix were to shift toward Product K87W with total sales dollars remaining constant, the overall break-even point for the entire company:A.would not change.B.would increase.C.would decrease.D.could increase or decrease.

Since Product K87W has a higher contribution margin ratio, a shift in sales to that product would decrease the break-even point of the entire company.