Review of Chapter 6 1. Finnefrock Inc. produces and sells a single product. The company has provided its contribution format income statement for December.
If the company sells 9,200 units, its net operating income should be closest to: $95,800
2. Last year, Black Company reported sales of $640,000, a contribution margin of $160,000, and a net loss of $40,000. Based on this information, the break-even sales point was: $800,000
3. The break-even point in dollar sales for Rice Company is $360,000 and the company's contribution margin ratio is 30%. If Rice Company desires a profit of $84,000, sales would have to total: $640,000
4. North Company sells a single product. The product has a selling price of $30 per unit and variable expenses of 70% of sales. If the company's fixed expenses total $60,000 per year, then it will have a break-even sales of: $200,000
5. Fenestre Corporation's contribution margin ratio is 25%. The company's break-even is 80,000 units and the selling price of its only product is $4.00 a unit. What are the company's fixed expenses? $80,000
6. Jatry Corporation's budgeted sales are $300,000, its budgeted variable expenses are $210,000, and its budgeted fixed expenses are $60,000. The company's break-even in dollar sales is: $200,000
7. Mardist Corporation has sales of $100,000, variable expenses of $75,000, fixed expenses of $30,000, and a net loss of $5,000. How much would Mardist have to sell to achieve a profit of 10% of sales? $200,000
8. Green Company's variable expenses are 75% of sales. At a sales level of $400,000, the company's degree of operating leverage is 8. At this sales level, fixed expenses are: $87,500 9. Forest Corporation has prepared the following budgeted data based on a sales forecast of $3,000,000:
What would be the amount of dollar sales at the break-even point? $2,000,000 10. Slosh Cleaning Corporation services both residential and commercial customers. Slosh expects the following operating results next year for each type of customer:
Slosh expects to have $18,000 in fixed expenses next year. What would Slosh's total dollar sales have to be next year in order to generate a profit of $90,000? $300,000 11. Scott Company's variable expenses are 72% of sales. The company's break-even point in dollar sales is $2,450,000. If sales are $60,000 below the break-even point, the company would report a: $16,800 loss. 12. Mitch Corporation's contribution margin ratio is 14% and its fixed monthly expenses are $87,000. If the company's sales for a month are $678,000, what is the best estimate of the company's net operating income? Assume that the fixed monthly expenses do not change. $7,920
Questions 13 -16 relate to original data for Hinsey Corporation. Hinsey Corporation produces and sells a single product. Data concerning the product appear below:
Fixed expenses are $300,000 per month. The company is currently selling 4,000 units per month. Consider each of the following questions independently. 13. This question is to be considered independently of all other questions relating to Hinsey Corporation. Refer to the original data when answering this question. The marketing manager believes that an $18,000 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? decrease of $2,160
14. This question is to be considered independently of all other questions relating to Hinsey Corporation. Refer to the original data when answering this question. Management is considering using a new component that would increase the unit variable cost by $11. Since the new component would increase the features of 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? decrease of $5,500
15. This question is to be considered independently of all other questions relating to Hinsey Corporation. Refer to the original data when answering this question. The marketing manager would like to cut the selling price by $13 and increase the advertising budget by $21,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 900 units. What should be the overall effect on the company's monthly net operating income of this change? decrease of $5,500 16. This question is to be considered independently of all other questions relating to Hinsey Corporation. Refer to the original data when answering this question. 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 a decrease in their salaries of $37,000 per month. (This is the company's savings for the entire sales staff.) 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? increase of $8,400
For questions 17-18 use the following data concerning two products sold by Redding Corporation.
17. If fixed expenses for the company as a whole are $120,000, the break-even point would be: $200,000
18. If the sales mix shifts toward Product X, and product contribution margin ratios remain unchanged, one would expect the break-even point for the company as a whole to: decrease.
Questions 19-20 relate to Hooper Corporation. Hooper Corporation produces and sells two models of vacuum cleaners, Standard and Deluxe. The company records show the following monthly data relating to these two products:
The company's total monthly fixed cost is $15,000. 19. The break-even in sales dollars for the expected sales mix is closest to: $109,091
20. If the expected monthly sales in units were divided equally between the two models (900 Standard and 900 Deluxe), the break-even level of sales would be: higher than with the expected sales mix.
21. Tanner Company's most recent contribution format income statement is presented below:
The company sells its only product for $15 per unit. There were no beginning or ending inventories. Required: a. Compute the company's break-even point in units sold. 6,000 units b. Compute the total variable expenses at the break-even point. $54,000 c. How many units would have to be sold to earn a target profit of $9,000? 7,500 units d. The sales manager is convinced that a $6,000 increase in the advertising budget would increase total sales by $25,000. Would you advise the increased advertising outlay? Yes, the advertising budget should be increased
22. Rawlings Company prepared the following budget information for the coming year:
The budget assumes the sale of 20,000 units of A, 100,000 units of B, and 80,000 units of C. Required: a. What is the company's break-even point given the sales mix above? Unit sales to break even = $944,444 b. If the budgeted sales mix is maintained, what is the total contribution margin and net operating income if 300,000 units are sold? Total contribution margin = $510,000 and net income = $255,000 23. Speir Corporation's contribution format income statement for the most recent month follows:
Required: a. Compute the degree of operating leverage to two decimal places. 5.97 b. Using the degree of operating leverage, estimate the percentage change in net operating income that should result from a 3% increase in sales. 17.91%
Chapter 7 1. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
What is the absorption costing unit product cost for the month? $107
2. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
What is the total period cost for the month under variable costing? $151,800
3. Yoshihara Corporation produces a single product and has the following cost structure:
The absorption costing unit product cost is: $197
4. Sharko Corporation produces a single product and has the following cost structure:
The variable costing unit product cost is: $86
5. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
The total contribution margin for the month under variable costing is: $221,400
6. Atlantic Company produces a single product. For the most recent year, the company's net operating income computed by the absorption costing method was $7,400, and its net operating income computed by the variable costing method was $10,100. The company's unit product cost was $17 under variable costing and $22 under absorption costing. If the ending inventory consisted of 1,460 units, the beginning inventory must have been: 2,000 units
7. Roberts Company produces a single product. During the year just ended, the company's net operating income under absorption costing was $3,000 lower than under variable costing. The company sold 9,000 units during the year, and its variable costs were $9 per unit, of which $3 was variable selling expense. If production cost is $11 per unit under absorption costing every year, then how many units did the company produce during the year? 8,400 Use the following information for questions 8-15. Abdol Company, which has only one product, has provided the following data concerning its most recent month of operations:
8. What is the unit product cost for the month under variable costing? $38 9. What is the unit product cost for the month under absorption costing? $73 10. The total contribution margin for the month under the variable costing approach is: $273,000 11. The total gross margin for the month under the absorption costing approach is: $84,500
12. What is the total period cost for the month under the variable costing approach? $302,500
13. What is the total period cost for the month under the absorption costing approach? $71,500
14. What is the net operating income for the month under variable costing? $9,500
15. What is the net operating income for the month under absorption costing? $13,000 Use the following information for questions 16-17. Dearman Company, which has only one product, has provided the following data concerning its most recent month of operations:
16. What is the total period cost for the month under the variable costing approach? $129,500 17. What is the total period cost for the month under the absorption costing approach? $64,400
Chapter 5 Use the following information for questions 1-4. Buffo Company fabricates metal folding chairs. Data concerning the company's revenue and cost structure follow:
1. If Buffo plans to produce and sell 3,000 units next month, the expected contribution margin would be: $30,750
2. If Buffo plans to produce and sell 4,000 units next month, the expected gross margin would be: $68,000 3. If Buffo expects to produce and sell 2,000 units next month, the total expected manufacturing cost would be: $38,000 4. If Buffo expects to produce and sell 5,000 units next month, the expected net operating income would be: $42,750
Use the following information for questions 5-6. Porter Company has provided the following data for the second quarter of the most recent year:
Assume that direct labor is a variable cost and that there were no beginning or ending inventories.
5. The total contribution margin of Porter Company for the second quarter was: $37,250
6. The gross margin for Porter Company for the second quarter was: $80,000
