g.
225) Zaccaria Corporation has provided the following contribution format income statement. All
questions concern situations that are within the relevant range.
Sales (5,000 units)
$300,000
Variable expenses
240,000
Contribution margin
60,000
Fixed expenses
58,800
Net operating income
$1,200
Required:
a. What is the contribution margin ratio?
b. If sales increase to 5,040 units, what would be the estimated increase in net operating income?
c. If the selling price increases by $4 per unit and the sales volume decreases by 400 units, what
would be the estimated net operating income?
d. What is the break-even point in unit sales?
e. What is the margin of safety in dollars?
f. What is the degree of operating leverage?
Selling price per unit ($300,000 ÷ 5,000 units)
Variable cost per unit ($240,000 ÷ 5,000 units)
Unit contribution margin
Unit contribution margin (a)
Increased unit sales (b)
Increase in net operating income (a) × (b)
226) Stonebraker Corporation has provided the following contribution format income statement.
All questions concern situations that are within the relevant range.
Sales (9,000 units)
$270,000
Variable expenses
189,000
Contribution margin
81,000
Fixed expenses
77,400
Net operating income
$3,600
Required:
a. If sales increase to 9,040 units, what would be the estimated increase in net operating income?
b. If the variable cost per unit increases by $6, spending on advertising increases by $3,000, and
unit sales increase by 19,200 units, what would be the estimated net operating income?
c. Estimate how many units must be sold to achieve a target profit of $26,100.
Selling price per unit ($270,000 ÷ 9,000 units)
Variable cost per unit ($189,000 ÷ 9,000 units)
Unit contribution margin
Unit contribution margin (a)
Increased unit sales (b)
Increase in net operating income (a) × (b)
227) Mancine Corporation has provided the following contribution format income statement. All
questions concern situations that are within the relevant range.
Sales (3,000 units)
$150,000
Variable expenses
90,000
Contribution margin
60,000
Fixed expenses
42,000
Net operating income
$18,000
Required:
a. What is the break-even point in unit sales?
b. Estimate how many units must be sold to achieve a target profit of $50,000.
Selling price per unit ($150,000 ÷ 3,000 units)
Variable cost per unit ($90,000 ÷ 3,000 units)
Unit contribution margin
228) Sun Corporation has provided the following contribution format income statement. All
questions concern situations that are within the relevant range.
Sales (5,000 units)
$250,000
Variable expenses
162,500
Contribution margin
87,500
Fixed expenses
71,750
Net operating income
$15,750
Required:
a. What is the margin of safety in dollars?
b. What is the degree of operating leverage?
229) Langin Corporation has provided the following contribution format income statement. All
questions concern situations that are within the relevant range.
Sales (9,000 units)
$540,000
Variable expenses
324,000
Contribution margin
216,000
Fixed expenses
204,000
Net operating income
$12,000
Required:
a. What is the margin of safety percentage?
b. Using the degree of operating leverage, what is the estimated percent increase in net operating
income of a 15% increase in sales?
230) The management of Merklin Corporation expects sales in May to be $105,000. The
company’s contribution margin ratio is 70% and its fixed monthly expenses are $48,000.
Required:
Estimate the company’s net operating income for May, assuming that the fixed monthly expenses
do not change.
231) Sarratt Corporation’s contribution margin ratio is 62% and its fixed monthly expenses are
$91,000. Assume that the company’s sales for May are expected to be $193,000.
Required:
Estimate the company’s net operating income for May, assuming that the fixed monthly expenses
do not change.
232) Huitron Inc. expects its sales in September to be $143,000. The company’s contribution
margin ratio is 65% and its fixed monthly expenses are $62,000.
Required:
Estimate the company’s net operating income for September, assuming that the fixed monthly
expenses do not change.
233) Hamiel Corporation produces and sells a single product. Data concerning that product
appear below:
Per Unit
Percent of Sales
Selling price
$
240
100
%
Variable expenses
168
30
%
Contribution margin
$
72
70
%
Fixed expenses are $301,000 per month. The company is currently selling 5,000 units per month.
Required:
The marketing manager would like to introduce sales commissions as an incentive for the sales
staff. The marketing manager has proposed a commission of $16 per unit. In exchange, the sales
staff would accept an overall decrease in their salaries of $68,000 per month. The marketing
manager predicts that introducing this sales incentive would increase monthly sales by 200 units.
What should be the overall effect on the company’s monthly net operating income of this
change?
New contribution margin ($72 per unit – $16 per unit)
$
New unit monthly sales (5,000 units + 200 units)
5,200
5,200 units × $56 per unit
$
291,200
5,000 units × $72 per unit
360,000
Change in total contribution margin
)
Plus savings in salespersons’ salaries
68,000
Change in net operating income
$
)
234) Data concerning Wislocki Corporation’s single product appear below:
Per Unit
Percent of Sales
Selling price
$
130
100
%
Variable expenses
26
20
%
Contribution margin
$
104
80
%
Fixed expenses are $466,000 per month. The company is currently selling 6,000 units per month.
Required:
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 an overall decrease in their salaries of $55,000 per month. 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?
New contribution margin ($104 per unit – $11 per unit)
New unit monthly sales (6,000 units + 100 units)
6,100
567,300
6,000 units × $104 per unit
624,000
Change in total contribution margin
)
Plus savings in salespersons’ salaries
55,000
Change in net operating income
)
235) Naumann Corporation produces and sells a single product. Data concerning that product
appear below:
Per Unit
Percent of Sales
Selling price
$
100
100
%
Variable expenses
30
30
%
Contribution margin
$
70
70
%
Fixed expenses are $234,000 per month. The company is currently selling 4,000 units per month.
Required:
Management is considering using a new component that would increase the unit variable cost by
$7. Since the new component would improve the company’s product, the marketing manager
predicts that monthly sales would increase by 500 units. What should be the overall effect on the
company’s monthly net operating income of this change if fixed expenses are unaffected?
New variable cost per unit ($30 per unit + $7 per unit)
$
New contribution margin per unit ($100 per unit – $37 per unit)
$
New unit monthly sales (4,000 units + 500 units)
4,500
$
283,500
4,000 units × $70 per unit
280,000
Change in total contribution margin and in net operating income
$
3,500
236) Data concerning Neuner Corporation’s single product appear below:
Per Unit
Percent of Sales
Selling price
$
220
100
%
Variable expenses
88
40
%
Contribution margin
$
132
60
%
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?
New selling price ($220 per unit – $11 per unit)
New contribution margin ($209 per unit – $88 per unit)
New unit monthly sales (4,000 units + 400 units)
4,400
4,400 units × $121 per unit
$
532,400
4,000 units × $132 per unit
528,000
Change in total contribution margin
4,400
Less increase in advertising budget
23,700
Change in net operating income
)
237) Bethard Corporation produces and sells a single product. Data concerning that product
appear below:
Per Unit
Percent of Sales
Selling price
$
120
100
%
Variable expenses
24
20
%
Contribution margin
$
96
80
%
Fixed expenses are $354,000 per month. The company is currently selling 5,000 units per month.
Required:
The marketing manager would like to cut the selling price by $8 and increase the advertising
budget by $23,000 per month. The marketing manager predicts that these two changes would
increase monthly sales by 600 units. What should be the overall effect on the company’s monthly
net operating income of this change?
New selling price ($120 per unit – $8 per unit)
$
New contribution margin ($112 per unit – $24 per unit)
$
New unit monthly sales (5,000 units + 600 units)
$
492,800
5,000 units × $96 per unit
480,000
Change in total contribution margin
12,800
Less increase in advertising budget
23,000
Change in net operating income
$
)
238) Data concerning Cavaluzzi Corporation’s single product appear below:
Per Unit
Percent of Sales
Selling price
$
110
100
%
Variable expenses
44
40
%
Contribution margin
$
66
60
%
Fixed expenses are $440,000 per month. The company is currently selling 8,000 units per month.
Required:
The marketing manager believes that an $8,000 increase in the monthly advertising budget
would result in a 150 unit increase in monthly sales. What should be the overall effect on the
company’s monthly net operating income of this change?
Increase in total contribution margin ($66 per unit × 150 units)
Less incremental fixed expenses
Change in net operating income
239) Shelhorse Corporation produces and sells a single product. Data concerning that product
appear below:
Per Unit
Percent of Sales
Selling price
$
140
100
%
Variable expenses
56
40
%
Contribution margin
$
84
60
%
Fixed expenses are $275,000 per month. The company is currently selling 4,000 units per month.
Required:
The marketing manager believes that a $13,000 increase in the monthly advertising budget
would result in a 150 unit increase in monthly sales. What should be the overall effect on the
company’s monthly net operating income of this change?
Increase in total contribution margin ($84 per unit × 150 units)
$
12,600
Less incremental fixed expenses
13,000
Change in net operating income
$
)
240) Data concerning Milian Corporation’s single product appear below:
Per Unit
Percent of Sales
Selling price
$
130
100
%
Variable expenses
39
30
%
Contribution margin
$
91
70
%
Fixed expenses are $66,000 per month. The company is currently selling 1,000 units per month.
Required:
Management is considering using a new component that would increase the unit variable cost by
$15. Since the new component would improve the company’s product, the marketing manager
predicts that monthly sales would increase by 200 units. What should be the overall effect on the
company’s monthly net operating income of this change if fixed expenses are unaffected?
New variable cost per unit ($39 per unit + $15 per unit)
New contribution margin per unit ($130 per unit – $54 per unit)
New unit monthly sales (1,000 units + 200 units)
1,200
1,200 units × $76 per unit
$
91,200
1,000 units × $91 per unit
Change in total contribution margin and in net operating income
200
241) Cleghorn Corporation produces and sells a single product. Data concerning that product
appear below:
Selling price per unit
$
160.00
Variable expense per unit
$
70.40
Fixed expense per month
$
153,216
Required:
Determine the monthly break-even in total dollar sales.
Selling price per unit
160.00
%
Variable expense per unit
%
ratio
%