31. At a break-even point of 400 units, variable costs were $400 and fixed costs were $200.
What will the 401st unit sold contribute to operating profits before income taxes?
32. Barnes Corporation manufactures skateboards and is in the process of preparing next
year’s budget. The pro forma income statement for the current year is presented below.
The break-even point (rounded to the nearest dollar) for Barnes Corporation for the current year
is:
33. Barnes Corporation manufactures skateboards and is in the process of preparing next
year’s budget. The pro forma income statement for the current year is presented below.
For the coming year, the management of Barnes Corporation anticipates a 10 percent increase in
sales, a 12 percent increase in variable costs, and a $45,000 increase in fixed costs.
The break-even point for next year would be:
34. You have been provided with the following information:
If sales decrease by 500 units, how much will fixed costs have to be reduced by to maintain the
current operating profit of $6,000?
35. XYZ Company’s sales are $750,000 with operating profits of $130,000. If the contribution
margin ratio is 40%, what did the fixed costs amount to?
36. The following costs have been estimated based on sales of 30,000 units:
What selling price will yield a contribution margin of 40%?
37. Fowler Manufacturing Company has a fixed cost of $225,000 for the production of tubes.
Estimated sales are 150,000 units. A before tax profit of $125,000 is desired by the controller. If
the tubes sell for $5 each, what unit contribution margin is required to attain the profit target?
38. JJ Motors Inc. employs 45 sales personnel to market its line of luxury automobiles. The
average car sells for $23,000, and a 6 percent commission is paid to the salesperson. JJ Motors is
considering a change to the commission arrangement where the company would pay each
salesperson a salary of $2,000 per month plus a commission of 2 percent of the sales made by
that salesperson. The amount of total monthly car sales at which JJ Motors would be indifferent
as to which plan to select is:
39. Given the following information:
What would expected net income be if the company experienced a 10 percent increase in fixed
costs and a 10 percent increase in sales volume?
40. Given the following data:
If sales decrease by 500 units, by what percent would fixed costs have to be reduced by to
maintain current net income?
41. The Dooley Co. manufactures two products, Baubles and Trinkets. The following are
projections for the coming year:
How many Baubles will be sold at the break-even point, assuming that the facilities are jointly
used with the sales mix remaining constant?
42. Break-even analysis assumes that over the relevant range: (CPA adapted)
43. At the break-even point, the total contribution margin equals total: (CPA adapted)
44. On January 1, 2013, Lake Co. increased its direct labor wage rates. All other budgeted
costs and revenues were unchanged. How did this increase affect Lake’s budgeted break-even
point and budgeted margin of safety? (CPA adapted)
45. During 2012, Thor Lab supplied hospitals with a comprehensive diagnostic kit for $120. At
a volume of 80,000 kits, Thor had fixed costs of $1,000,000 and a profit before income taxes of
$200,000. Due to an adverse legal decision, Thor’s 2013 liability insurance increased by
$1,200,000 over 2012. Assuming the volume and other costs are unchanged, what should the
2013 price be if Thor is to make the same $200,000 profit before income taxes? (CPA adapted)
46. The following information pertains to Syl Co.:
What is Syl’s break-even point in sales dollars? (CPA adapted)
47. The following pertains to Clove Co. for the year ending December 31, 2012:
Clove’s margin of safety is: (CPA adapted)
48. Kator Inc. manufactures industrial components. One of its products used as a
subcomponent in auto manufacturing is KB-96. The selling price and cost per unit data for 9,000
units of KB-96 are as follows.
During the next year, sales of KB-96 are expected to be 10,000 units. All costs will remain the
same except for fixed manufacturing overhead, which will increase by 20%, and material, which
will increase by 10%. The selling price per unit for next year will be $160. Based on these data,
Kator Inc.’s total contribution margin for next year will be: (CMA adapted)
49. Donnelly Corporation manufactures and sells T-shirts imprinted with college names and
slogans. Last year, the shirts sold for $7.50 each, and the variable cost to manufacture them was
$2.25 per unit. The company needed to sell 20,000 shirts to break even. The after tax net income
last year was $5,040. Donnelly’s expectations for the coming year include the following: (CMA
adapted)
• The sales price of the T-shirts will be $9.
• Variable cost to manufacture will increase by one-third.
• Fixed costs will increase by 10%.
• The income tax rate of 40% will be unchanged.
The selling price that would maintain the same contribution margin ratio as last year is:
50. Donnelly Corporation manufactures and sells T-shirts imprinted with college names and
slogans. Last year, the shirts sold for $7.50 each, and the variable cost to manufacture them was
$2.25 per unit. The company needed to sell 20,000 shirts to break even. The after tax net income
last year was $5,040. Donnelly’s expectations for the coming year include the following: (CMA
adapted)
• The sales price of the T-shirts will be $9.
• Variable cost to manufacture will increase by one-third.
• Fixed costs will increase by 10%.
• The income tax rate of 40% will be unchanged.
Based on a $10 selling price per unit, the number of T-shirts Donnelly Corporation must sell to
break even in the coming year is:
51. Donnelly Corporation manufactures and sells T-shirts imprinted with college names and
slogans. Last year, the shirts sold for $7.50 each, and the variable cost to manufacture them was
$2.25 per unit. The company needed to sell 20,000 shirts to break even. The after tax net income
last year was $5,040. Donnelly’s expectations for the coming year include the following: (CMA
adapted)
• The sales price of the T-shirts will be $9.
• Variable cost to manufacture will increase by one-third.
• Fixed costs will increase by 10%.
• The income tax rate of 40% will be unchanged.
Sales for the coming year are expected to exceed last year’s by 1,000 units. If this occurs,
Donnelly’s sales volume in the coming year will be: