Chapter 11
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112. The point where the profit line intersects the horizontal axis on the profit-volume graph represents:
a.
b.
c.
d.
Easy
Multiple Choice
False
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113. Clinton Co. has an operating leverage of 4. Sales are expected to increase by 8% next year. Operating income is:
a.
unaffected.
b.
expected to increase by 2%.
c.
expected to increase by 32%.
d.
expected to increase by 4 times.
c
Moderate
Multiple Choice
Chapter 11
114. Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units of Arks and 18,000 units of
Bins. Related data are:
Unit
Selling
Unit
Variable
Unit
Contribution
Product
Price
Cost
Margin
Arks
$ 80
$20
$60
Bins
120
40
80
What was Kennedy’s sales mix last year?
a.
40% Arks, 60% Bins
b.
43% Arks, 57% Bins
c.
54% Arks, 46% Bins
d.
64% Arks, 36% Bins
Chapter 11
115. Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units of Arks and 18,000 units of
Bins. Related data are:
Unit
Selling
Unit
Variable
Unit
Contribution
Product
Price
Cost
Margin
Arks
$ 80
$20
$60
Bins
120
40
80
What was Kennedy’s overall product’s unit selling price?
a.
$97.60
b.
$104.00
c.
$102.40
d.
$94.40
Moderate
False
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116. Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units of Arks and 18,000 units of
Bins. Related data are:
Unit
Selling
Unit
Variable
Unit
Contribution
Product
Price
Cost
Margin
Arks
$ 80
$20
$60
Bins
120
40
80
What was Kennedy’s overall product’s unit variable cost?
a.
$32.00
b.
$30.00
c.
$28.80
d.
$27.20
Chapter 11
117. Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units of Arks and 18,000 units of
Bins. Related data are:
Unit
Selling
Unit
Variable
Unit
Contribution
Product
Price
Cost
Margin
Arks
$ 80
$20
$60
Bins
120
40
80
What was Kennedy’s overall product’s unit contribution margin?
a.
$67.20
b.
$70.00
c.
$72.00
d.
$100.00
a
Moderate
False
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Moderate
False
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Chapter 11
118. Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units of Arks and 18,000 units of
Bins. Related data are:
Unit
Selling
Unit
Variable
Unit
Contribution
Product
Price
Cost
Margin
Arks
$ 80
$20
$60
Bins
120
40
80
Assuming that last year’s fixed costs totaled $910,000, what was Kennedy’s break-even point in units?
a.
9,100 units
b.
13,000 units
c.
13,227 units
d.
13,542 units
Multiple Choice
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119. Assume that Bisque Co. sold 12,000 units of Product A and 18,000 units of Product B in the last year. The unit
contribution margins for Products A and B are $10 and $20 respectively. Bisque has fixed costs of $420,000. The break-
even point in units is:
a.
26,250 units.
b.
25,000 units.
c.
18,500 units.
d.
16,750 units.
Multiple Choice
Chapter 11
120. The relative distribution of sales among the various products sold by a business is termed as:
a.
business’s basket of goods.
b.
contribution margin mix.
c.
sales mix.
d.
product portfolio.
c
Easy
Multiple Choice
False
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121. Calculate operating leverage if sales are $342,000, variable costs are 58% of sales, and operating income is $42,000.
a.
6.24
b.
4.27
c.
5.25
d.
3.42
False
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Chapter 11
122. When a business sells more than one product at varying selling prices, the business’s break-even point can be
determined as long as the number of products does not exceed:
a.
two.
b.
three.
c.
fifteen.
d.
there is no limit.
Easy
Multiple Choice
False
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123. Cost-volume-profit analysis cannot be used if which of the following occurs?
a.
Costs cannot be properly classified into fixed and variable costs
b.
The total fixed costs change
Moderate
Multiple Choice
False
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Chapter 11
c.
The per-unit variable costs change
d.
Per-unit sales prices change
Multiple Choice
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124. With the aid of computer software, managers can vary assumptions regarding selling prices, costs, and volume and
can immediately see the effects of each change on the break-even point and profit. Such an analysis is called:
a.
“what if” or sensitivity analysis.
b.
vary the data analysis.
c.
computer-aided analysis.
d.
data gathering.
Multiple Choice
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7/19/2016 10:17 AM
Chapter 11
125. What is the margin of safety (in sales) when a business has sales of $485,000, sales of $225,000 at break-even point,
and unit selling price of $55?
a.
$710,000
b.
$280,000
c.
$260,000
d.
$510,000
c
Moderate
False
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126. Calculate the break-even sales when a business has sales of $824,000 and a margin of safety of 21%.
a.
$584,000
b.
$650,960
c.
$672,100
d.
$710,000
Moderate
False
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Chapter 11
127. A business has a capacity of $4,000,000 of sales, actual sales of $1,500,000, break-even sales of $900,000, fixed
costs of $540,000, and variable costs that are 40% of sales. What is the margin of safety expressed as a percentage of
sales?
a.
40%
b.
42%
c.
33%
d.
35%
Multiple Choice
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128. The difference between the current sales revenue and the sales at the break-even point is called the:
a.
contribution margin.
b.
margin of safety.
c.
price factor.
d.
operating leverage.
Multiple Choice
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Chapter 11
129. The following is a list of various costs of producing sweatshirts. Classify each cost as either a variable, fixed, or
mixed cost for units produced and sold.
(a)
Electricity costs of $0.025 per kilowatt-hour
(b)
Warehouse rent of $6,000 per month plus $0.50 per square foot of storage used
(c)
Thread
(d)
Zip used in sweatshirts
(e)
Janitorial costs of $2,000 per month
(f)
Advertising costs of $10,000 per month
(g)
Plant manager salary
(h)
Color dyes for producing different colors of sweatshirts
(i)
Salary of the production supervisor
(j)
Straight-line depreciation on sewing machines
(k)
Patterns for different designs. Patterns typically last many years before being replaced
(l)
Maintenance costs for the company’s sewing machine. The cost is $2,000 per year plus
$0.001 for each machine hour of use
(m)
Property taxes on factory, building, and equipment
(n)
Cotton and polyester cloth
(o)
Hourly wages of sewing machine operators
(a)
variable
(b)
mixed
(c)
variable
(d)
variable
(e)
fixed
(f)
fixed
(g)
fixed
(h)
variable
(i)
fixed
(j)
fixed
(k)
fixed
(l)
mixed
(m)
fixed
(n)
variable
(o)
variable
Moderate
Subjective Short Answer
False
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Chapter 11
130. The following cost graphs illustrate various types of cost behaviors.
For each of the following costs, identify the cost graph that best describes its cost behavior as the number of units
produced and sold increases.
(a)
Per-unit cost of direct labor
(b)
Rent on warehouse of $10,000 per month
(c)
Insurance costs of $2,500 per month
(d)
Sales commissions of $5,000 plus $0.05 for each item sold
(e)
Total salaries of quality control supervisors. One supervisor must be added for each
additional work shift
(f)
Total employer pension costs of $0.30 per direct labor hour
(g)
Per-unit straight-line depreciation costs
(h)
Per-unit cost of direct materials
(i)
Total direct materials cost
(j)
Electricity costs of $5,000 per month plus $0.0004 per kilowatt-hour
(k)
Per-unit cost of plant superintendent’s salary
(l)
Straight-line depreciation on factory equipment
(m)
Repairs and maintenance costs of $3,000 for each 2,000 hours of factory machine usage
(n)
Total direct labor cost
Graph
(b)
(c)
(d)
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Chapter 11
131. Given below are two independent scenarios.
(a)
Dream Co. has budgeted sales of $500,000, fixed costs are $240,000, and variable costs
are $375,000. What is its contribution margin ratio?
(b)
Pearl Company has sales of $825,000, variable costs are 30% of sales, and fixed costs are
$360,000? What is its operating profit?
(a)
Contribution margin ratio = ($500,000 − $375,000) / $500,000 = 25%
Variable costs = 30% × $825,000 = $247,500
Chapter 11
132. For the current year ending January 31, Ringo Company expects fixed costs of $178,500 and a unit variable cost of
$41.50. For the coming year, a new wage contract will increase the unit variable cost to $45. The selling price of $50 per
unit is expected to remain the same.
(a)
Compute the break-even sales (in units) for the current year.
(b)
Compute the anticipated break-even sales (in units) for the coming year, assuming the
new wage contract is signed.
(a)
Break-even sales (units) = $178,500 ÷ ($50 – $41.50) = 21,000 units
(b)
Break-even sales (units) = $178,500 ÷ ($50 – $45) = 35,700 units
Moderate
Subjective Short Answer
False
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133. For the current year ending April 30, Philip Company expects fixed costs of $70,000, a unit variable cost of $45, and
a unit selling price of $95.
(a)
Compute the anticipated break-even sales (in units).
(b)
Compute the sales (in units) required to realize an operating profit of $8,000.
(a)
Break-even sales (units) = $70,000/($95 – $45) = 1,400 units
(b)
Break-even sales (units) = ($70,000 + $8,000)/($95 – $45) = 1,560 units
Moderate
False
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Chapter 11
134. Currently, Unicy Company’s unit selling price is $25, the variable cost is $17, and the total fixed costs are $85,000. A
proposal is being evaluated to increase the selling price to $27.
(a)
Compute the current break-even sales (in units).
(b)
Compute the anticipated break-even sales (in units), assuming that the unit selling price is
increased and all costs remain constant.
(a)
Break-even sales (units) = $85,000 ÷ ($25– $17) = 10,625 units
(b)
Break-even sales (units) = $85,000 ÷ ($27 – $17) = 8,500 units
Moderate
Subjective Short Answer
False
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135. For the past year, Cline Company had fixed costs of $6,552,000, a unit variable cost of $444, and a unit selling price
of $600. For the coming year, no changes are expected in revenues and costs except that a new wage contract will increase
variable costs by $6 per unit. Determine the break-even sales (in units) for (a) the past year and (b) the coming year.
(a)
Break-even sales (units) = $6,552,000 ÷ ($600 – $444) = 42,000 units
(b)
Subjective Short Answer
False
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Chapter 11
136. For the coming year, Belton Company estimates fixed costs of $60,000, the unit variable cost of $25, and the unit
selling price of $50. Determine (a) the break-even point in units of sales, (b) the unit sales required to realize operating
income of $100,000, and (c) the probable operating income if sales total $400,000.
137. For the past year, LaPrade Company had fixed costs of $70,000, a unit variable costs of $32, and a unit selling price
of $40. For the coming year, no changes are expected in revenues and costs except that property taxes are expected to
increase by $10,000. Determine the break-even sales (in units) for (a) the past year and (b) the coming year.
Chapter 11
138. Tops Company sells Products D and E and has made the following estimates for the coming year:
Product
Unit Selling
Price
Unit Variable
Cost
Sales Mix
D
$30
$24
60%
E
70
56
40
Fixed costs are estimated at $202,400. Determine (a) the estimated sales in units of the overall product necessary to reach
the break-even point for the coming year, (b) the estimated number of units of each product necessary to be sold to reach
the break-even point for the coming year, and (c) the estimated sales in units of the overall product necessary to realize an
operating income of $119,600 for the coming year.
Chapter 11
139. Lauder Company had fixed costs of $282,500, variable costs of $645,000, and actual sales amounted to $1,100,000.
If the company has a break-even point at $750,000 in sales revenue, determine (a) the margin of safety expressed in
dollars, (b) the margin of safety expressed as a percentage of sales, (c) the contribution margin ratio, and (d) the operating
income.
(a)
Margin of safety (dollars) = $1,100,000 − $750,000 = $350,000
(d)
Operating income = $1,100,000 − $645,000 − $282,500 = $172,500
Moderate
Subjective Short Answer
False
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140. A company has a margin of safety of 25%, a contribution margin ratio of 30%, and sales of $1,000,000.
(a)
What was the break-even point?
(b)
What was the operating income?
(c)
If neither the relationship between variable costs and sales nor the amount of fixed costs
is expected to change in the next year, how much additional operating income can be
earned by increasing sales by $110,000?
(a)
Break-even point = $1,000,000 − $250,000 = $750,000
Alternate computation:
Sales
Less Variable costs ($1,000,000 × 70%**)
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Chapter 11