Question 1

Dodero Company produces a single product that sells for $100 per unit.Fixed expenses total $12,000 per month,and variable expenses are $60 per unit.The company's sales average 500 units per month.Which of the following statements is correct?

Accepted Answer

The break-even point can be calculated as:

Break-even point (units) = Fixed expenses / Contribution margin per unit

= $12,000 / ($100 - $60) per unit

= 300 units

Therefore, the company needs to sell at least 300 units to cover its fixed expenses and break even.

The fixed expenses remain constant regardless of the activity level, which means that choice B is incorrect.

The contribution margin ratio is calculated as:

Contribution margin ratio = Contribution margin / Sales

= ($100 - $60) per unit / $100 per unit

= 40%

Therefore, choice C is correct.

Hence, the answer is C.

Question 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 point in total sales dollars was:

Accepted Answer

Break-even point = Fixed expenses / Contribution margin ratio

In this case, we need to find the break-even point in total sales dollars, which can be calculated as follows:

Contribution margin ratio = Contribution margin / Sales

160,000 / 640,000 = 0.25

Break-even point = Fixed expenses / Contribution margin ratio

Break-even point = 40,000 / 0.25

Break-even point = $160,000

Therefore, the break-even point in total sales dollars was $640,000 / 0.25 = $800,000. So, the correct choice is C.

Question 3

Gerber Company is planning to sell 200,000 units for $2.00 a unit and will just break even at this level of sales.The contribution margin ratio is 25%.What are the company's fixed expenses?

Accepted Answer

The answer of Gerber Company is planning to sell 200,000...

Question 4

Wallace,Inc.prepared the following budgeted data based on a sales forecast of $6,000,000:  What would be the amount of sales dollars at the break-even point?

Accepted Answer

To find the break-even point, we need to find the level of sales where the company's total expenses equal its total revenue. Using the budgeted data provided, we can calculate the break-even point using the following formula:

Break-even point = Fixed expenses / (Sales price per unit - Variable expenses per unit)

Plugging the values from the budgeted data into the formula, we get:

Break-even point = $3,330,000 / ($180 - $105)

Break-even point = $3,330,000 / $75

Break-even point = $44,400 units

To find the amount of sales dollars at the break-even point, we multiply the break-even point by the sales price per unit:

Sales dollars at break-even point = $44,400 x $180

Sales dollars at break-even point = $7,992,000

Therefore, the answer is C, $4,000,000.

Question 5

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 equal?

Accepted Answer

Degree of operating leverage = Contribution margin / Net income

Degree of operating leverage = (Sales - Variable expenses) / Net income

Given Degree of operating leverage = 8 and Variable expenses = 75% of Sales

So, (Sales - 75% of Sales) / Net income = 8

0.25 * Sales / Net income = 8

Net income = 0.25 * Sales / 8

Fixed expenses = Total expenses - Variable expenses

Fixed expenses = (Net income + 0.75 * Sales) - 0.75 * Sales

Fixed expenses = Net income = 0.25 * Sales / 8

When Sales = $400,000

Fixed expenses = 0.25 * 400,000 / 8 = $87,500

Therefore, the correct choice is C.

Question 6

Young Company has a margin of safety percentage of 20%.The break-even in sales dollars point is $400,000 and the variable costs are 40% of sales.Given this information,the net income is:

Accepted Answer

Margin of safety percentage = 20%

Therefore, the margin of safety in dollars = (20% x Total Sales)

Let's say the total sales are TS. Then,

Margin of safety in dollars = 0.2TS

Break-even point = $400,000

Variable costs = 40% of sales

Let's say the total sales required to break even are BE. Then,

BE - 0.4BE = $400,000

0.6BE = $400,000

BE = $666,667

Now we can calculate the total sales required to achieve a 20% margin of safety:

TS = $666,667 + ($666,667 x 0.2)

TS = $800,000

Therefore, the total contribution margin is:

Total Sales - Total Variable Costs

= $800,000 - (0.4 x $800,000)

= $480,000

Net income = Total contribution margin - Fixed costs

= $480,000 - ($800,000 - $400,000)

= $80,000

Hence, the correct option is C.

Question 7

The margin of safety in the Flaherty Company is $24,000.If the company's sales are $120,000 and its variable expenses are $80,000,its fixed expenses must be:

Accepted Answer

Margin of safety = Sales - Break-even point
$24,000 = $120,000 - Break-even point

Break-even point = $96,000 (total fixed and variable costs)

Total variable costs = $80,000
Break-even point = Total fixed costs + Total variable costs
$96,000 = Total fixed costs + $80,000

Total fixed costs = $16,000 
Therefore, the answer is D) $32,000.

Question 8

Koby Co.has sales of $200,000 with variable expenses of $150,000,fixed expenses of $60,000,and a net loss of $10,000.How much would Koby have to sell in order to achieve a net income of 10% of sales?

Accepted Answer

To achieve a net income of 10% of sales, Koby Co. needs to cover both variable and fixed expenses and then have 10% of sales as profit. Let X be the sales amount. The equation is: X - 0.75X - 60,000 = 0.10X. Solving gives X = $400,000.

Question 9

The following is last month's contribution format income statement:  What is the company's margin of safety percentage?

Accepted Answer

Margin of safety percentage is calculated by subtracting the break-even sales from the actual sales, and then dividing the difference by the actual sales. From the contribution format income statement, the break-even sales can be calculated as $120,000 ($40,000 fixed expenses / 0.25 contribution margin ratio). The actual sales are $200,000. Therefore, the margin of safety percentage is ($200,000 - $120,000) / $200,000 = 40%. Option C is the correct answer.

Question 10

At a break-even point of 400 units sold,variable expenses were $4,000 and fixed expenses were $2,000.What will the 401^st unit sold contribute to profit?

Accepted Answer

The answer of At a break-even point of 400 units...

Question 11

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 in sales dollars of:

Accepted Answer

To find the break-even point in sales dollars, we use the formula: Fixed Expenses / Contribution Margin Ratio. The contribution margin ratio is 1 - Variable Expense Ratio. Here, the variable expense ratio is 70%, so the contribution margin ratio is 30% (1 - 0.70). Thus, the break-even point is $60,000 / 0.30 = $200,000.

Question 12

The break-even point in sales dollars for Rice Company is $360,000 and the company's contribution margin ratio is 30%.If Rice Company desires an income of $84,000,sales would have to total?

Accepted Answer

To find the required sales to achieve a desired income, use the formula: Required Sales = (Fixed Costs + Desired Income) / Contribution Margin Ratio. The break-even sales of $360,000 implies fixed costs of $360,000 * 0.30 = $108,000. Therefore, Required Sales = ($108,000 + $84,000) / 0.30 = $640,000.

Question 13

The following information pertains to Rica Company:  How much is Rica's break-even point in number of units?

Accepted Answer

The break-even point in units can be calculated as follows:

Break-even point (units) = Total fixed costs / (Price per unit - Variable cost per unit)

Using the information provided: 
Total fixed costs = $140,000 
Price per unit = $35 
Variable cost per unit = $15

Break-even point (units) = $140,000 / ($35 - $15) = 10,000 units

Question 14

Curtis Company anticipates selling 10,000 units next year.The company wants to earn a net income equal to 10% of sales.If variable expenses are $12 per unit and fixed expenses total $78,000 per year,what selling price must be established to achieve the desired level of net income?

Accepted Answer

The answer of Curtis Company anticipates selling 10,000 units next...

Question 15

Marling Corporation has budgeted the following data:  What is the break-even in sales dollars?

Accepted Answer

The answer of Marling Corporation has budgeted the following data:...

Question 16

The following information relates to Clyde Corporation,which produced and sold 50,000 units last month.  There were no beginning or ending inventories.Production and sales next month are expected to be 40,000 units.The company's unit contribution margin next month should be? (round your final answer to two decimal places. )

Accepted Answer

The answer of The following information relates to Clyde Corporation,which...

Question 17

Scott Company's variable expenses are 72% of sales.The company's break-even point in sales is $2,450,000.If sales are $60,000 below the break-even point,the company would report a:

Accepted Answer

The contribution margin ratio is 28% (100% - 72%). A $60,000 shortfall in sales results in a loss of $60,000 * 28% = $16,800.

Question 18

Carver Company produces a product that sells for $30.Variable manufacturing costs are $15 per unit.Fixed manufacturing costs are $5 per unit based on the current level of activity,and fixed selling and administrative costs are $4 per unit.A selling commission of 10% of the selling price is paid on each unit sold.The contribution margin per unit is?

Accepted Answer

The answer of Carver Company produces a product that sells...

Question 19

Last year,Perry Company reported profits of $4,200.Its variable expenses totalled $66,000 or $6 per unit.The unit contribution margin was $3.00.The break-even point in units for Perry Company is:

Accepted Answer

The break-even point in units is calculated by dividing the fixed costs by the unit contribution margin. In this case, the fixed costs are $4,200 and the unit contribution margin is $3.00. Therefore, the break-even point in units is 4,200 / 3.00 = 1,400 units.

Question 20

At a break-even point of 800 units sold,White Company's variable expenses are $8,000 and its fixed expenses are $4,000.What will the Company's net income be at a volume of 801 units?

Accepted Answer

At the break-even point, total revenue equals total expenses (variable + fixed). Selling one more unit (801st unit) will generate additional revenue equal to the contribution margin per unit. The contribution margin per unit is the selling price per unit minus the variable cost per unit. Since the break-even point is 800 units with variable expenses of $8,000, the variable cost per unit is $10 ($8,000/800). The contribution margin per unit is $5 (since fixed expenses are $4,000, the total revenue at break-even is $12,000, making the selling price per unit $15). Therefore, selling the 801st unit will result in a net income of $5.

Quiz 8: Standard Costs