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87.
Raymond & Sons generates an average contribution margin ratio of 45% on its sales.
Management estimates that by spending $3,500 more per month to rent additional
facilities, the business will be able to increase operating income by $10,000 per month.
Management must feel that the additional facilities will increase monthly sales volume (in
dollars) by:
88.
The Davidson Company's breakeven point in units is 40,000. Assuming that variable costs
are 60% and fixed costs are $300,000, what is the company's projected operating income if
sales are $1,000,000?
89.
The Gillett Company's breakeven point in units is 25,000. Assuming that variable costs are
50% and fixed costs are $500,000, what is the company's projected operating income if
sales are $1,250,000?
90.
The Parry Company's breakeven point in units is 20,000. Assuming that variable costs are
30% and fixed costs are $100,000, what is the company's projected operating income if
sales are $750,000?
Grayson Enterprises manufactures springs and shock absorbers. Springs account for 40%
of the company's total sales revenue, whereas shocks account for about 60%. The
contribution margin ratios for springs and shocks are 45% and 35%, respectively. Grayson's
fixed costs average $450,000 per month.
91.
Refer to the information above. Grayson's monthly break-even point expressed in sales
dollars is (Rounded):
92.
Refer to the information above. In order to earn an operating income of $252,000, Grayson's
monthly sales must be:
93.
Nanu Corporation manufactures two products; data are shown below:
If Nanu's monthly fixed costs average $425,000, what is its break-even point expressed in
sales dollars?
94.
Unique Corporation manufactures two products; data are shown below:
If Unique's monthly fixed costs average $400,000, what is its break-even point expressed in
sales dollars? (Rounded)
20-47
95.
Stupper Corporation manufactures two products; data are shown below:
If Stupper's monthly fixed costs average $200,000, what is its break-even point expressed
in sales dollars (rounded)?
The following information is available regarding the total manufacturing overhead of Olsen
Company for a recent four-month period.
96.
Refer to the information above. Using the high-low method, compute the variable element
of manufacturing overhead cost per machine hour.
97.
Refer to the information above. Using the high-low method, compute the fixed element of
Olsen's monthly overhead cost.
20-49
98.
Refer to the information above. Olsen's projected August operations will require
approximately 120,000 machine hours. Using the high-low method, compute total
manufacturing overhead estimated for August.
The levels of production and of manufacturing overhead for the first five months of 2015 for
Duke & Duchess Products are shown below:
99.
Refer to the information above. Using the high-low method, compute the variable element
of manufacturing overhead per unit of production closest to.
100.
Refer to the information above. Using the high-low method, Duke & Duchess's monthly
overhead cost is closest to which of the following? (Round your intermediate computations
to two decimal places.)
20-51
101.
Refer to the information above. In June, Duke & Duchess expects to manufacture 18,000
units. Using the high-low method, compute the total estimated manufacturing overhead for
June. (Round your intermediate computations to two decimal places.)
The monthly high and low levels of direct labor hours and of total manufacturing overhead
for Onyx Company are as shown:
102.
Refer to the information above. On the basis of the above data, the cost formula for Onyx's
monthly manufacturing overhead can be expressed as:
103.
Refer to the information above. In a month in which 6,500 direct labor hours are worked,
Onyx's manufacturing overhead should be approximately:
Essay Questions
104.
Cost-volume relationships
(a) What is the effect of an increase or decrease in activity upon variable costs per unit of
activity?
(b) What is the effect of an increase or decrease in activity upon total fixed costs?
105.
Accounting terminology
Listed below are nine technical accounting terms introduced or emphasized in this chapter:
Each of the following statements may (or may not) describe one of these technical terms.
In the space provided beside each statement, indicate the accounting term described, or
answer "None" if the statement does not correctly describe any of the terms.
____ (a) The amount by which sales revenue exceeds total variable cost expressed as a
percentage of sales.
____ (b) The amount by which sales volume exceeds the break-even point.
____ (c) The study of financial statements by a potential investor or creditor as a means of
evaluating the profitability and solvency of a business.
____ (d) A type of activity that has a causal effect in the occurrence of a particular cost.
____ (e) The level of sales at which revenue equals operating expenses.
____ (f) A cost that responds to changes in sales volume by less than a proportionate
amount.
____ (g) A mathematical technique used to determine the fixed and variable elements of a
mixed or semi-variable cost.
106.
Relevant range
What is meant by the phrase relevant range of activity?
107.
Cost-volume-profit graph
Describe the important relationships shown on a cost-volume-profit graph.
108.
Cost-volume-profit relationships
The following data are available for a product manufactured and sold by Logan Company:
Compute the following:
(a) Contribution margin per unit: $_______________
(b) Number of units that must be sold to break-even: _______________ units
(c) Dollar sales volume to produce income of $864,000 before taxes (round units to the
next highest full unit): $_______________
109.
Cost-volume-profit relationships
Spotless, Inc., sells only one product. The sales price per unit is $50, with variable cost per
unit of $40. Fixed costs are $60,000 per month. Maximum capacity is 34,000 units per
month. Answer the following questions:
(a) To break-even, how many units must Spotless, sell per month? _______________ units
(b) If Spotless, Inc., sold 25,000 units, what would be its operating income for the month?
$________________
(c) At present capacity, what is the maximum operating income Spotless, can expect to
earn per month? $________________
(d) Assuming that direct labor cost can be reduced by $2 per unit, what would the
maximum operating income be per month? $_______________
