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Exam 5: Cost-Volume-Profit Relationships

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Question 181

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The degree of operating leverage is computed by dividing sales by the contribution margin.

A) True
B) False

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Question 182

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If a company increases its selling price by $2 per unit due to an increase in its variable labor cost of $2 per unit, the break-even point in units will:

A) decrease.
B) increase.
C) not change.
D) change but direction cannot be determined.

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

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Question 183

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Houpe Corporation produces and sells a single product. Data concerning that product appear below: Fixed expenses are $490,000 per month. The company is currently selling 6,000 units per month.The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $11 per unit. In exchange, the sales staff would accept a decrease in their salaries of $58,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 100 units. What should be the overall effect on the company's monthly net operating income of this change?

The accounting department of Archer Company, a merchandising company, has prepared the following analysis: The accounting department feels that billing expense is a mixed cost, containing both fixed and variable cost elements. The billing expenses and sales in units over the last several months follow: The accounting department now plans to develop a cost formula for billing expense so that a contribution format income statement can be prepared for management's use. Required: a. Using the least-squares method, estimate the cost formula for billing expense. Round off both the fixed cost and the variable cost per thousand units sold to the nearest whole dollar. b. Assume that the company plans to sell 30,000 units during July at a selling price of $100 per unit. Prepare a budgeted income statement for the month, using the contribution format.

Electrical costs at one of Rome Corporation's factories are listed below: Management believes that electrical cost is a mixed cost that depends on machine-hours.Using the high-low method, the estimate of the variable component of electrical cost per machine-hour is closest to:

Schister Systems uses the following data in its Cost-Volume-Profit analyses: What is total contribution margin if sales volume increases by 20%?

The highest and lowest costs are always used to analyze a mixed cost under the high-low method.

Farac Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. The best estimate of the total cost to manufacture 4,300 units is closest to: (Round your intermediate calculations to 2 decimal places.)

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.

Last year Easton Corporation reported sales of $480,000, a contribution margin ratio of 25% and a net loss of $16,000. Based on this information, the break-even point was:

Lubke Corporation's contribution format income statement for the most recent month follows: Required: a. Compute the degree of operating leverage to two decimal places.b. Using the degree of operating leverage, estimate the percentage change in net operating income that should result from a 3% increase in sales volume.

Babuca Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. The best estimate of the total variable manufacturing cost per unit is: (Round your intermediate calculations to 2 decimal places.)

Cassius Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. The number of units that must be sold to achieve a target profit of $31,500 is closest to:

Majid Corporation sells a product for $120 per unit. The product's current sales are 40,800 units and its break-even sales are 31,350 units. What is the margin of safety in dollars?

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:

Bendel Incorporated has an operating leverage of 7.3. If the company's salesvolume increases by 3%, its net operating income should increase by about:

Which of the following is an assumption underlying standard CVP analysis?

Inspection costs at one of Ratulowski Corporation's factories are listed below: Management believes that inspection cost is a mixed cost that depends on units produced.Using the high-low method, the estimate of the fixed component of inspection cost per month is closest to: (Round your intermediate calculations to 2 decimal places.)

Derst Incorporated sells a particular textbook for $25. Variable expenses are $13 per book. At the current volume of 42,000 books sold per year the company is just breaking even. Given these data, the annual fixed expenses associated with the textbook total:

Data concerning Lemelin Corporation's single product appear below: The company is currently selling 7,000 units per month. Fixed expenses are $581,000 per month.The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $20 per unit. In exchange, the sales staff would accept a decrease in their salaries of $113,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 300 units. What should be the overall effect on the company's monthly net operating income of this change?