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202. The following monthly data in contribution format are available for the MN Company
and its only product, Product SD:
The company produced and sold 300 units during the month and had no beginning or ending
inventories.
Required:
a. Without resorting to calculations, what is the total contribution margin at the break-even
point?
b. Management is contemplating the use of plastic gearing rather than metal gearing in
Product SD. This change would reduce variable expenses by $18 per unit. The company’s
sales manager predicts that this would reduce the overall quality of the product and thus
would result in a decline in sales to a level of 250 units per month. Should this change be
made?
c. Assume that MN Company is currently selling 300 units of Product SD per month.
Management wants to increase sales and feels this can be done by cutting the selling price by
$22 per unit and increasing the advertising budget by $20,000 per month. Management
believes that these actions will increase unit sales by 50 percent. Should these changes be
made?
d. Assume that MN Company is currently selling 300 units of Product SD. Management
wants to automate a portion of the production process for Product SD. The new equipment
would reduce direct labor costs by $20 per unit but would result in a monthly rental cost for
the new robotic equipment of $10,000. Management believes that the new equipment will
increase the reliability of Product SD thus resulting in an increase in monthly sales of 12%.
Should these changes be made?
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Chapter 05 – Cost-Volume-Profit Relationships
203. Guitian Corporation produces and sells a single product. The company’s contribution
format income statement for June appears below:
Required:
Redo the company’s contribution format income statement assuming that the company sells
5,700 units.
Chapter 05 – Cost-Volume-Profit Relationships
204. Jalonen Inc., which produces and sells a single product, has provided the following
contribution format income statement for October:
Required:
Redo the company’s contribution format income statement assuming that the company sells
4,500 units.
Chapter 05 – Cost-Volume-Profit Relationships
205. Colen Corporation produces and sells a single product. In January, the company sold
1,700 units. Its total sales were $153,000, its total variable expenses were $79,900, and its
total fixed expenses were $56,800.
Required:
a. Construct the company’s contribution format income statement for January in good form.
b. Redo the company’s contribution format income statement assuming that the company sells
1,600 units.
Chapter 05 – Cost-Volume-Profit Relationships
206. In September, Pino Corporation sold 2,100 units of its only product. Its total sales were
$195,300, its total variable expenses were $84,000, and its total fixed expenses were $98,700.
Required:
a. Construct the company’s contribution format income statement for September in good form.
b. Redo the company’s contribution format income statement assuming that the company sells
2,300 units.
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207. Iron Decor manufactures decorative iron railings. In preparing for next year’s operations,
management has developed the following estimates:
Required:
Compute the following items:
a. Unit contribution margin.
b. Contribution margin ratio.
c. Break-even in dollar sales.
d. Margin of safety percentage.
e. If the sales volume increases by 20% with no change in total fixed expenses, what will be
the change in net operating income?
f. If the per unit variable production costs increase by 15%, and if fixed selling and
administrative expenses increase by 12%, what will be the new break-even point in dollar
sales?
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Chapter 05 – Cost-Volume-Profit Relationships
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Chapter 05 – Cost-Volume-Profit Relationships
208. Bumpass Corporation’s contribution margin ratio is 74% and its fixed monthly expenses
are $43,000. Assume that the company’s sales for July are expected to be $102,000.
Required:
Estimate the company’s net operating income for July, assuming that the fixed monthly
expenses do not change. Show your work!
Chapter 05 – Cost-Volume-Profit Relationships
209. The management of Paye Corporation expects sales in April to be $130,000. The
company’s contribution margin ratio is 65% and its fixed monthly expenses are $54,000.
Required:
Estimate the company’s net operating income for April, assuming that the fixed monthly
expenses do not change. Show your work!
210. Schlag Inc. expects its sales in January to be $111,000. The company’s contribution
margin ratio is 65% and its fixed monthly expenses are $64,000.
Required:
Estimate the company’s net operating income for January, assuming that the fixed monthly
expenses do not change. Show your work!
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211. Parkins Company produces and sells a single product. The company’s income statement
for the most recent month is given below:
There are no beginning or ending inventories.
Required:
a. Compute the company’s monthly break-even point in units of product.
b. What would the company’s monthly net operating income be if sales increased by 25% and
there is no change in total fixed expenses?
c. What dollar sales must the company achieve in order to earn a net operating income of
$50,000 per month?
d. The company has decided to automate a portion of its operations. The change will reduce
direct labor costs per unit by 40 percent, but it will double the costs for fixed factory
overhead. Compute the new break-even point in units.
Chapter 05 – Cost-Volume-Profit Relationships
Chapter 05 – Cost-Volume-Profit Relationships
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212. Almo company manufactures and sells adjustable canopies that attach to motor homes
and trailers. Almo developed its budget for the current year assuming that the canopies would
sell at a price of $400 each. The variable expenses for each canopy were forecasted to be $200
and the annual fixed expenses were forecasted to be $100,000. Almo had targeted a profit of
$400,000.
While Almo’s sales usually rise during the second quarter, the May financial statements
reported that sales were not meeting expectations. For the first five months of the year, only
350 units had been sold at the established price, with variable expense as planned, and it was
clear that the target profit for the year would not be reached unless some actions were taken.
Almo’s president assigned a management committee to analyze the situation and develop
several alternative courses of action. The following three alternatives were presented to the
president, only one of which can be selected.
1. Reduce the selling price by $40. The marketing department forecasts that with the lower
price, 2,700 units could be sold during the remainder of the year.
2. Lower variable expenses per unit by $25 through the use of less expensive materials.
Because of the difference in materials, the selling price would have to be lowered by $30 and
sales of 2,200 units for the remainder of the year are forecast.
3. Cut fixed expenses by $10,000 and lower the selling price by 5 percent. Sales of 2,000 units
would be expected for the remainder of the year.
Required:
a. If no changes are made to the selling price or cost structure, estimate the number of units
that must be sold during the year to break even.
b. If no changes are made to the selling price or cost structure, estimate the number of units
that must be sold during the year to attain the target profit of $400,000.
c. Determine which of the alternatives Almo’s president should select to maximize profit.
Chapter 05 – Cost-Volume-Profit Relationships
Chapter 05 – Cost-Volume-Profit Relationships
213. Zeeb Corporation produces and sells a single product. Data concerning that product
appear below:
Fixed expenses are $355,000 per month. The company is currently selling 5,000 units per
month.
Required:
The marketing manager believes that a $12,000 increase in the monthly advertising budget
would result in a 160 unit increase in monthly sales. What should be the overall effect on the
company’s monthly net operating income of this change? Show your work!
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214. Data concerning Lantieri Corporation’s single product appear below:
Fixed expenses are $162,000 per month. The company is currently selling 3,000 units per
month.
Required:
The marketing manager believes that a $10,000 increase in the monthly advertising budget
would result in a 180 unit increase in monthly sales. What should be the overall effect on the
company’s monthly net operating income of this change? Show your work!
Chapter 05 – Cost-Volume-Profit Relationships
215. Calderon Corporation produces and sells a single product. Data concerning that product
appear below:
Fixed expenses are $110,000 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 $56. 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? Show your work!
Chapter 05 – Cost-Volume-Profit Relationships
216. Data concerning Goulbourne Corporation’s single product appear below:
Fixed expenses are $444,000 per month. The company is currently selling 7,000 units per
month.
Required:
Management is considering using a new component that would increase the unit variable cost
by $2. 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? Show your work!
Chapter 05 – Cost-Volume-Profit Relationships
217. Tapp Corporation produces and sells a single product. Data concerning that product
appear below:
Fixed expenses are $226,000 per month. The company is currently selling 2,000 units per
month.
Required:
The marketing manager would like to cut the selling price by $12 and increase the advertising
budget by $13,000 per month. The marketing manager predicts that these two changes would
increase monthly sales by 200 units. What should be the overall effect on the company’s
monthly net operating income of this change? Show your work!