Question 1

When a company has ________________, management must decide which products to make and sell in order to maximize net income.

Accepted Answer

The answer of When a company has ________________, management must...

Question 2

Hewitt Co. has 4,000 machine hours available to produce either Product 22 or Product 44. The cost accounting department developed the following unit information for each product:  
Instructions
Management wants to know which product to produce in order to maximize the company's income. Taking into consideration the constraints under which the company operates, prepare a report to show which product should be produced and sold.

Accepted Answer

The answer of Hewitt Co. has 4,000 machine hours available...

Question 3

Shanahan Co. of Dublin, Ireland is contemplating a major change in its cost structure. Currently, all of its drafting work is performed by skilled draftsmen. Mike Shanahan the owner, is considering replacing the draftsmen with a computerized drafting system.
However, before making the change, Mike would like to know the consequences of the change, since the volume of business varies significantly from year to year. Shown below are CVP income statements for each alternative.
Instructions
(a) Determine the degree of operating leverage for each alternative.
(b) Which alternative would produce the higher net income if sales increased by $300,000?

Accepted Answer

The answer of Shanahan Co. of Dublin, Ireland is contemplating...

Question 4

___________________ refers to the relative proportion of fixed versus variable costs that a company incurs.

Accepted Answer

The answer of ___________________ refers to the relative proportion of...

Question 5

The degree of operating leverage
A) does not provide a reliable measure of a company's earnings volatility.
B) cannot be used to compare companies.
C) is computed by dividing total contribution margin by net income.
D) measures how much of each sales dollar is available to cover fixed expenses.

Accepted Answer

The degree of operating leverage is computed by dividing total contribution margin by net income. This metric helps in understanding how a company's operating income changes with a change in its sales volume, highlighting the impact of fixed and variable costs on profitability.

Question 6

When more than one product is sold, the break-even point can be determined by dividing fixed expenses by _______________________.

Accepted Answer

The answer of When more than one product is sold,...

Question 7

Kindle, Inc. manufactures cosmetic products that are sold through a network of sales agents. The agents are paid a commission of 12.5% of sales. The income statement for the year ending December 31, 2016, is as follow.  
The company is considering hiring its own sales staff to replace the network of agents. It will pay its salespeople a commission of 10% and incur additional fixed costs of $13 million.
Instructions
(a) Under the current policy of using a network of sales agents, calculate Kindle, Inc.'s break-even point in sales dollars for the year 2016.
(b) Calculate the company's break-even point in sales dollars for the year 2016 if it hires its own sales force to replace the network of agents.
(c) Calculate the degree of operating leverage at sales of $130 million if (1) Kindle, Inc. uses sales agents, and (2) Kindle, Inc. employs its own sales staff.

Accepted Answer

The answer of Kindle, Inc. manufactures cosmetic products that are...

Question 8

Reynolds, Inc. manufactures and sells two products. Relevant per unit data concerning each product are given below:  
Instructions
(a) Compute the contribution margin per unit of limited resource for each product.
(b) If 1,000 additional machine hours are available, which product should be manufactured?

Accepted Answer

The answer of Reynolds, Inc. manufactures and sells two products....

Question 9

A company with a higher contribution margin ratio is
A) more sensitive to changes in sales revenue.
B) less sensitive to changes in sales revenue.
C) either more or less sensitive to changes in sales revenue, depending on other factors.
D) likely to have a lower breakeven point.

Accepted Answer

A higher contribution margin ratio means that a larger proportion of each sale goes towards covering fixed costs and generating profit. As a result, the company's profitability is more impacted by changes in sales revenue, making it more sensitive to those changes.

Question 10

DeMont Tax Services provides primarily two lines of service: accounting and tax. Accounting-related services represent 60% of its revenue and provide a contribution margin ratio of 30%. Tax services represent 40% of its revenue and provide a 40% contribution margin ratio. The company's fixed costs are $4,590,000.
Instructions
(a) Calculate the revenue from each type of service that the company must achieve to break even.
(b) The company has a desired net income of $1,700,000. What amount of revenue would DeMont earn from tax services if it achieves this goal with the current sales mix?

Accepted Answer

The answer of DeMont Tax Services provides primarily two lines...

Question 11

Blue Chance Co. sells computers and video game systems. The business is divided into two divisions along product lines. Variable costing income statements for the current year are presented below:  
Instructions
(a) Determine the sales mix and contribution margin ratio for each division.
(b) Calculate the company's weighted-average contribution margin ratio.
(c) Calculate the company's break-even point in dollars.
(d) Determine the sales level, in dollars, for each division at the break-even point.

Accepted Answer

The answer of Blue Chance Co. sells computers and video...

Question 12

The ______________ income statement classifies cost as variable or fixed and computes a contribution margin.

Accepted Answer

The answer of The ______________ income statement classifies cost as...

Question 13

___________________ is the relative percentage in which a company sells its multiple products.

Accepted Answer

The answer of ___________________ is the relative percentage in which...

Question 14

Seaver Corporation manufactures mountain bikes. It has fixed costs of $4,140,000. Seaver's sales mix and contribution margin per unit is shown as follows:  
Instructions
Compute the number of each type of bike that the company would need to sell in order to break even under this product mix.

Accepted Answer

The answer of Seaver Corporation manufactures mountain bikes. It has...

Question 15

The following CVP income statements are available for Chantal Corp. and Mantle, Inc.  
Instructions
(a) Compute the degree of operating leverage for each company.
(b) Assume that sales revenue decreases by 20%. Prepare a CVP income statement for each company.

Accepted Answer

The answer of The following CVP income statements are available...

Question 16

_________________ tells a company how far sales can drop before it will be operating at a loss.

Accepted Answer

The answer of _________________ tells a company how far sales...

Question 17

Qwik Service has over 200 auto-maintenance service outlets nationwide. It provides primarily two lines of service: oil changes and brake repair. Oil change-related services represent 75% of its sales and provide a contribution margin ratio of 20%. Brake repair represents 25% of its sales and provides a 60% contribution margin ratio. The company's fixed costs are $15,000,000 (that is, $75,000 per service outlet).
Instructions
(a) Calculate the dollar amount of each type of service that the company must provide in order to break even.
(b) The company has a desired net income of $45,000 per service outlet. What is the dollar amount of each type of service that must be provided by each service outlet to meet its target net income per outlet?

Accepted Answer

The answer of Qwik Service has over 200 auto-maintenance service...

Question 18

The _________________________ provides a measure of a company's earnings volatility and can be used to compare companies.

Accepted Answer

The answer of The _________________________ provides a measure of a...

Question 19

Oscar Corporation produces and sells three products. Unit data concerning each product is shown below.  
The company has 2,000 hours of labor available to build inventory in anticipation of the company's peak season. Management is trying to decide which product should be produced. The direct labor hourly rate is $15.
Instructions
(a) Determine the number of direct labor hours per unit.
(b) Determine the contribution margin per direct labor hour.
(c) Determine which product should be produced and the total contribution margin for that product.

Accepted Answer

The answer of Oscar Corporation produces and sells three products....

Question 20

An investment banker is analyzing two companies that specialize in the production and sale of gourmet cappuccino and chai mixes. Roasted Beans Co. uses a labor-intensive approach and Monat Industries uses a mechanized system. Variable costing income statements for the two companies are shown below:  
The investment banker is interested in acquiring one of these companies. However, she is concerned about the impact that each company's cost structure might have on its profitability.
Instructions
(a) Calculate each company's degree of operating leverage.
(b) Determine the effect on each company's net income if sales decrease by 10% and if sales increase by 15%. Do not prepare income statements.

Accepted Answer

The answer of An investment banker is analyzing two companies...

Quiz 19: Cost-Volume-Profit Analysis: Additional Issues

When a company has ________________, management must decide which products to make and sell in order to maximize net income.

___________________ refers to the relative proportion of fixed versus variable costs that a company incurs.

The degree of operating leverage

When more than one product is sold, the break-even point can be determined by dividing fixed expenses by _______________________.

A company with a higher contribution margin ratio is

The ______________ income statement classifies cost as variable or fixed and computes a contribution margin.

___________________ is the relative percentage in which a company sells its multiple products.

Seaver Corporation manufactures mountain bikes. It has fixed costs of $4,140,000. Seaver's sales mix and contribution margin per unit is shown as follows: Instructions Compute the number of each type of bike that the company would need to sell in order to break even under this product mix.

The following CVP income statements are available for Chantal Corp. and Mantle, Inc. Instructions (a) Compute the degree of operating leverage for each company. (b) Assume that sales revenue decreases by 20%. Prepare a CVP income statement for each company.

_________________ tells a company how far sales can drop before it will be operating at a loss.

The _________________________ provides a measure of a company's earnings volatility and can be used to compare companies.