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Exam 5: Cost-Volume-Profit Relationships

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Question 131

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Laraia Corporation has provided the following contribution format income statement. All questions concern situations that are within the relevant range. Required: a. What is the contribution margin per unit? b. What is the contribution margin ratio? c. What is the variable expense ratio? d. If sales increase to 3,050 units, what would be the estimated increase in net operating income? e. If sales decline to 2,900 units, what would be the estimated net operating income? f. If the selling price increases by $4 per unit and the sales volume decreases by 200 units, what would be the estimated net operating income? g. If the variable cost per unit increases by $5, spending on advertising increases by $3,000, and unit sales increase by 450 units, what would be the estimated net operating income? h. What is the break-even point in unit sales? i. What is the break-even point in dollar sales? j. Estimate how many units must be sold to achieve a target profit of $54,000. k. What is the margin of safety in dollars? l. What is the margin of safety percentage? m. What is the degree of operating leverage? n. Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 15% increase in sales volume?

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b. CM ratio = Contribution margin ÷ ...

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Question 132

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Hamiel Corporation produces and sells a single product. Data concerning that product appear below: Fixed expenses are $301,000 per month. The company is currently selling 5,000 units per month.Required:The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $16 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $68,000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 200 units. What should be the overall effect on the company's monthly net operating income of this change?

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Question 133

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The least-squares regression method computes the regression line that minimizes the sum of the squared deviations from the plotted points to the line.

Maintenance costs at a Straiton Corporation factory are listed below: Management believes that maintenance cost is a mixed cost that depends on machine-hours. Use the high-low method to estimate the variable and fixed components of this cost. Compute the variable component first and round off to the nearest whole cent. Compute the fixed component second and round off to the nearest whole dollar. These estimates would be closest to: (Round your intermediate calculations to 2 decimal places.)

Hopi Corporation expects the following operating results for next year: What is Hopi expecting total fixed expenses to be next year?

A cement manufacturer has supplied the following data: What is the company's unit contribution margin? (Round your intermediate calculations to 2 decimal places.)

A shift in the sales mix from low-margin items to high-margin items will decrease total profits even though total sales increase.

Mcdale Incorporated produces and sells two products. Data concerning those products for the most recent month appear below: The fixed expenses of the entire company were $18,460. The break-even point for the entire company is closest to:

Rushenberg Corporation's operating leverage is 10.8. If the company's salesvolume increases by 14%, its net operating income should increase by about:

Sabv Corporation's break-even-point in sales is $675,000, and its variable expenses are 75% of sales. If the company lost $24,000 last year, sales must have amounted to:

One of Matthew Corporation's competitors has learned that Matthew has a total expense per unit of $1.50 at the 15,000 unit level of activity and total expense per unit of $1.45 at the 20,000 unit level of activity. Assume that the relevant range includes all of the activity levels mentioned in this problem.What would be the competitor's prediction of total fixed cost per period? (Round your intermediate calculations to 2 decimal places.)

Data concerning Bedwell Enterprises Corporation's single product appear below: The unit sales to attain the company's monthly target profit of $17,000 is closest to: (Round your intermediate calculations to 2 decimal places.)

Serfass Corporation's contribution format income statement for July appears below: The degree of operating leverage is closest to:

The Blaine Corporation is a highly automated manufacturer. At an activity level of 6,000 machine setups, total overhead costs equal $240,000. Of this amount, depreciation totals $80,000 (all fixed) and lubrication totals $72,000 (all variable) . The remaining $88,000 of the total overhead cost consists of utility cost (mixed) . At an activity level of 9,000 setups, utility cost totals $112,000.Assume that the relevant range includes all of the activity levels mentioned in this problem.The variable cost per setup for utilities is most likely closest to:

Gamma Corporation has sales of $120,000, a contribution margin of $48,000, and a net operating income of $12,000. The company's degree of operating leverage is:

Lacourse Incorporated's inspection costs are listed below: Management believes that inspection cost is a mixed cost that depends on units produced.Using the least-squares regression method, the estimate of the variable component of inspection cost per unit produced is closest to:

Souza Incorporated, which produces and sells a single product, has provided its contribution format income statement for October. If the company sells 3,500 units, its net operating income should be closest to:

Haslem Incorporated has provided the following data concerning its only product: Required: Compute the margin of safety in both dollars and as a percentage of sales.

Swofford Inc. has provided the following data concerning its maintenance costs: Management believes that maintenance cost is a mixed cost that depends on machine-hours. Required: Estimate the variable cost per machine-hour and the fixed cost per month using the high-low method.

Naumann Corporation produces and sells a single product. Data concerning that product appear below: Fixed expenses are $180,000 per month. The company is currently selling 1,300 units per month. Required: Management is considering using a new component that would increase the unit variable cost by $54. Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 400 units. What should be the overall effect on the company's monthly net operating income of this change if fixed expenses are unaffected?