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Exam 6: Cost-Volume-Profit Relationships

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Question 131

True/False

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

A) True
B) False

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Question 132

Multiple Choice

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The variable expense ratio is closest to:

A) 33%
B) 67%
C) 25%
D) 75%

E) A) and B)
F) A) and C)

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Question 133

Multiple Choice

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

The break-even point in dollar sales is closest to:

Break-even analysis assumes that:

If the selling price increases by $3 per unit and the sales volume decreases by 400 units, the net operating income would be closest to:

Sales at East Corporation declined from $100,000 to $80,000, while net operating income declined by 300%.Given these data, the company must have had an operating leverage of:

Kelchner Corporation has provided the following contribution format income statement.All questions concern situations that are within the relevant range. The contribution margin ratio is closest to:

Creswell Corporation's fixed monthly expenses are $29,000 and its contribution margin ratio is 56%.Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $95,000?

Data concerning Neuner Corporation's single product appear below: Fixed expenses are $425,000 per month.The company is currently selling 4,000 units per month. Required: The marketing manager would like to cut the selling price by $11 and increase the advertising budget by $23,700 per month.The marketing manager predicts that these two changes would increase monthly sales by 400 units.What should be the overall effect on the company's monthly net operating income of this change? Show your work!

This question is to be considered independently of all other questions relating to Lemelin Corporation.Refer to the original data when answering this question. The marketing manager would like to cut the selling price by $18 and increase the advertising budget by $37,000 per month.The marketing manager predicts that these two changes would increase monthly sales by 1,600 units.What should be the overall effect on the company's monthly net operating income of this change?

Mio Canoe Livery rents canoes and transports canoes and customers to and from their canoe trip on a local river.The trip is priced at $20 per person and has a CM ratio of 30%.Mio's fixed expenses are $84,000.Last year, sales were $400,000 and profit was $36,000.How many units need to be sold to break-even, and how many need to be sold to earn a profit of $42,000?

A decrease in the number of units sold will decrease the break-even point.

For a capital intensive, automated company the break-even point will tend to be higher and the margin of safety will be lower than for a less capital intensive company with the same sales.

Black Corporation's sales are $600,000, its fixed expenses are $150,000, and its variable expenses are 60% of sales.The margin of safety is:

Lofft Corporation has provided the following contribution format income statement.All questions concern situations that are within the relevant range. Using the degree of operating leverage, the estimated percent increase in net operating income as the result of a 10% increase in sales is closest to:

Nocum Corporation has provided the following contribution format income statement.All questions concern situations that are within the relevant range. If sales decline to 2,900 units, the net operating income would be closest to:

Which of the following is true regarding the contribution margin ratio of a company that produces only a single product?

The break-even in monthly unit sales is closest to:

Derst Inc.sells a particular textbook for $140.Variable expenses are $25 per book.At the current volume of 6,000 books sold per year the company is just breaking even.Given these data, the annual fixed expenses associated with the textbook total: