Question 1

Yellow Company's variable expenses are 40% of sales and have monthly fixed expenses of $15,000.The monthly target operating income is $3,750.What is the monthly margin of safety as a percentage of target sales in dollars?

Accepted Answer

A)
Fixed expenses 15,000
Target income 3,750
18,750
Contribution margin 60% (Variable expense of 40%)
Target sales 31,250
Fixed expense 15,000
Contribution margin 60%
Breakeven sales 25,000 (15,000 / .60)
Target sales 31,250
- Breakeven sales 25,000
Margin safety 6,250
Target sales 31,250
Percent of sales 20% (6,250 / 31,250)

Question 2

Yellow Company's variable expenses are 40% of sales and have monthly fixed expenses of $15,000.The monthly target operating income is $3,750.What is Yellow Company's operating leverage factor at the target level of operating income?

Accepted Answer

D)
Fixed expenses 15,000
- Target income 3,750
18,750
Operating leverage 5.00 (18,750 / 3,750)

Question 3

Neeley Grocery has a monthly target operating income of $25,000.Variable expenses are 20% of sales and monthly fixed expenses are $15,000.What is the monthly margin of safety as a percentage of target sales in dollars?

Accepted Answer

B)
Fixed expenses 15,000
Target income 25,000
40,000
Contribution margin 80% (Variable expense of 20%)
Target sales 50,000
Fixed expense 15,000
Contribution margin 80%
Break -even sales 18,750 (15,000 / .80)
Target sales 50,000
- Breakeven sales 18,750
Margin safety 31,250
% of Target sales 62.50% (31,250 / 50,000)

Question 4

Stanley's Candies is considering building a new plant in Europe.It predicts sales at the new plant to be 40,000 units at $4.00/unit.Below is a listing of estimated expenses.

A European firm was contracted to sell the product and will receive a commission of 10% of the sales price.No U.S.home office expenses will be allocated to the new facility.
The contribution margin ratio for Stanley's Candies is

Accepted Answer

C)
Category Total Exps %Fixed Total fixed Total Variable
Materials $20,000 10% 2,000 18,000
Labor $30,000 20% 6,000 24,000
Overhead $50,000 40% 20,000 30,000
Market/Admin $10,000 60% 6,000 4,000
Sub Total 110,000 34,000 76,000
Commissions ( 40,000 units × $4.00 ×10 %)16,000
Total expense 34,000 92,000
Contribution margin Sales 160,000 (40,000 units × $4)
Variable expense 92,000
Contribution margin 68,000
Percentage 42.5% (68,000 / 160,000)

Question 5

Fancy Furniture has variable expenses of 40% of sales and monthly fixed expenses of $240,000.The monthly target operating income is $60,000.What is the monthly margin of safety in dollars if Fancy Furniture achieves its operating income goal?

Accepted Answer

A)
Fixed expenses 240,000
Target income 60,000
300,000
Contribution margin 60% (Variable expense of 40%)
Target sales 500,000
Fixed expense 240,000
Contribution margin 60%
Breakeven sales 400,000(240,000 / .60)
Target sales 500,000
- Breakeven sales 400,000
Margin safety 100,000

Question 6

Garfield Corporation is considering building a new plant in Canada.It predicts sales at the new plant to be 50,000 units at $5.00/unit.Below is a listing of estimated expenses:

A Canadian firm was contracted to sell the product and will receive a commission of 10% of the sales price.No U.S.home office expenses will be allocated to the new facility.
How much does the Canadian contractor expect to make in commissions?

Accepted Answer

A)
Sales units 50,000
Sales price 5
Total sales 250,000
Commission 10%
Total 25,000

Question 7

Fancy Furniture has variable expenses of 40% of sales and monthly fixed expenses of $240,000.The monthly target operating income is $60,000.What is the monthly margin of safety as a percentage of target sales in dollars?

Accepted Answer

C)
Fixed expenses 240,000
Target income 60,000
300,000
Contribution margin 60% (Variable expense of 40%)
Target sales 500,000
Fixed expense 240,000
Contribution margin 60%
Breakeven sales 400,000 (240,000 / .60)
Target sales 500,000
- Breakeven sales 400,000
Margin safety 100,000
Target sales 500,000
Percent of sales 20% (100,000 / 500,000)

Question 8

Stanley's Candies is considering building a new plant in Europe.It predicts sales at the new plant to be 40,000 units at $4.00/unit.Below is a listing of estimated expenses:

A European firm was contracted to sell the product and will receive a commission of 10% of the sales price.No U.S.home office expenses will be allocated to the new facility.
How much does the European contractor expect to make in commissions?

Accepted Answer

D)
Sales units 40,000
Sales price 4.00
Sales 160,000
Commission rate 10%
Commission 16,000 (160,000 × .10)

Question 9

Garfield Corporation is considering building a new plant in Canada.It predicts sales at the new plant to be 50,000 units at $5.00/unit.Below is a listing of estimated expenses.

A Canadian firm was contracted to sell the product and will receive a commission of 10% of the sales price.No U.S.home office expenses will be allocated to the new facility.
The contribution margin ratio for Garfield Corporation is

Accepted Answer

A) 11ea7fd5_672c_4f1f_99dd_65088335692f_TB1766_00

Question 10

Mr.Pattison is the managerial accountant at the Beach Bum Surf Shoppe.Mr.Pattison advised the Sales Manager that budgeted sales at the store were 100 units,and the store's breakeven point is 14 units.What is the margin of safety in units at the Beach Bum Surf Shoppe?

Accepted Answer

C)
The margin of safety at Beach Bum Surf Shoppe is 86 units.
100 - 14 = 86 units

Question 11

Garfield Corporation is considering building a new plant in Canada.It predicts sales at the new plant to be 50,000 units at $5.00/unit.Below is a listing of estimated expenses:

A Canadian firm was contracted to sell the product and will receive a commission of 10% of the sales price.No U.S.home office expenses will be allocated to the new facility.
The margin of safety percentage for Duncan Enterprises is

Accepted Answer

B) 11ea7fd5_672c_00fd_99dd_3ba51293bcb0_TB1766_00

Question 12

Heavenly Cupcakes has a monthly target operating income of $12,000.Variable expenses are 40% of sales and monthly fixed expenses are $8,000.
Requirements:
a.What is the monthly margin of safety in dollars if the business achieves its operating income goal?
b.What is the monthly margin of safety as a percentage of target sales in dollars?
c.What is Heavenly Cupcakes' operating leverage factor at the target level of operating income?

Accepted Answer

The answer of Heavenly Cupcakes has a monthly target operating...

Question 13

Neeley Grocery has a monthly target operating income of $25,000.Variable expenses are 20% of sales and monthly fixed expenses are $15,000.What is the monthly margin of safety in dollars if the business achieves its operating income goal?

Accepted Answer

B)
Fixed expenses 15,000
Target income 25,000
40,000
Contribution margin 80% (Variable expense of 20%)
Target sales 50,000
Fixed expense 15,000
Contribution margin 80%
Breakeven sales 18,750 (15,000 / .80)
Target sales 50,000
- Breakeven sales 18,750
Margin safety 31,250

Question 14

Fancy Furniture has variable expenses of 40% of sales and monthly fixed expenses of $240,000.The monthly target operating income is $60,000.What is Fancy Furniture's operating leverage factor at the target level of operating income?

Accepted Answer

B)
Fixed expenses 240,000
Target income 60,000
300,000
Operating leverage 5.0 (300,000 / 60,000)

Question 15

Garfield Corporation is considering building a new plant in Canada.It predicts sales at the new plant to be 50,000 units at $5.00/unit.Below is a listing of estimated expenses:

A Canadian firm was contracted to sell the product and will receive a commission of 10% of the sales price.No U.S.home office expenses will be allocated to the new facility.
The unit variable cost for Garfield Corporation is

Accepted Answer

C) 11ea7fd5_672b_b2db_99dd_1bed0f983b7c_TB1766_00

Question 16

Neeley Grocery has a monthly target operating income of $25,000.Variable expenses are 20% of sales and monthly fixed expenses are $15,000.What is Neeley Grocery's operating leverage factor at the target level of operating income?

Accepted Answer

D)
Fixed expenses $25,000
+ Target income 15,000
40,000
Operating leverage 1.60 (40,000 / 25,000)

Question 17

Yellow Company's variable expenses are 40% of sales and have monthly fixed expenses of $15,000.The monthly target operating income is $3,750.What is the monthly margin of safety in dollars if Yellow Company achieves its operating income goal?

Accepted Answer

C)
Fixed expenses 15,000
Target income 3,750
18,500
Contribution margin 60% (Variable expense of 40%)
Target sales 31,250
Fixed expense 15,000
Contribution margin 60%
Breakeven sales 25,000 (15,000 / .60)
Target sales 31,250
- Breakeven sales 25,000
Margin safety 6,250

Question 18

Stanley's Candies is considering building a new plant in Europe.It predicts sales at the new plant to be 40,000 units at $4.00/unit.Below is a listing of estimated expenses:

A European firm was contracted to sell the product and will receive a commission of 10% of the sales price.No U.S.home office expenses will be allocated to the new facility.
The margin of safety percentage for Stanley's Candies is

Accepted Answer

A) 11ea7fd5_6729_de17_99dd_2dd05bb573aa_TB1766_00

Question 19

Fast as Lightning is an oil change service drive-through that charges each customer $24.00 for an oil and filter change service.Fast as Lightning has found that it costs its business $16.00 per oil and filter change.Monthly fixed costs are $44,000;current sales are 8,000 services.
a.Compute the breakeven sales in units.
b.Compute Fast as Lightning's margin of safety in units and sales dollars.
c.Compute Fast as Lightning's margin of safety as a percentage.
d.Compute Fast as Lightning's operating leverage factor.
e.Compute Fast as Lightning's % of operating income decline if sales fall by 18%.

Accepted Answer

The answer of Fast as Lightning is an oil change...

Question 20

Stanley's Candies is considering building a new plant in Europe.It predicts sales at the new plant to be 40,000 units at $4.00/unit.Below is a listing of estimated expenses:

A European firm was contracted to sell the product and will receive a commission of 10% of the sales price.No U.S.home office expenses will be allocated to the new facility.
The unit variable cost for Stanley's Candies is

Accepted Answer

C)
Category Total Exps %Fixed Total fixed Total Variable
Materials $20,000 10% 2,000 18,000
Labor $30,000 20% 6,000 24,000
Overhead $50,000 40% 20,000 30,000
Market/Admin $10,000 60% 6,000 4,000
Total 110,000 34,000 76,000
Commissions ( 40,000 units × $4.00 × 10%)16,000
Total variable expense 92,000
Unit variable costs (92,000 / 40,000 units)= $2.30

Quiz 7: Cost-Volume-Profit Analysis

Yellow Company's variable expenses are 40% of sales and have monthly fixed expenses of $15,000.The monthly target operating income is $3,750.What is the monthly margin of safety as a percentage of target sales in dollars?

Yellow Company's variable expenses are 40% of sales and have monthly fixed expenses of $15,000.The monthly target operating income is $3,750.What is Yellow Company's operating leverage factor at the target level of operating income?

Neeley Grocery has a monthly target operating income of $25,000.Variable expenses are 20% of sales and monthly fixed expenses are $15,000.What is the monthly margin of safety as a percentage of target sales in dollars?

Fancy Furniture has variable expenses of 40% of sales and monthly fixed expenses of $240,000.The monthly target operating income is $60,000.What is the monthly margin of safety in dollars if Fancy Furniture achieves its operating income goal?

Fancy Furniture has variable expenses of 40% of sales and monthly fixed expenses of $240,000.The monthly target operating income is $60,000.What is the monthly margin of safety as a percentage of target sales in dollars?

Mr.Pattison is the managerial accountant at the Beach Bum Surf Shoppe.Mr.Pattison advised the Sales Manager that budgeted sales at the store were 100 units,and the store's breakeven point is 14 units.What is the margin of safety in units at the Beach Bum Surf Shoppe?

Neeley Grocery has a monthly target operating income of $25,000.Variable expenses are 20% of sales and monthly fixed expenses are $15,000.What is the monthly margin of safety in dollars if the business achieves its operating income goal?

Fancy Furniture has variable expenses of 40% of sales and monthly fixed expenses of $240,000.The monthly target operating income is $60,000.What is Fancy Furniture's operating leverage factor at the target level of operating income?

Neeley Grocery has a monthly target operating income of $25,000.Variable expenses are 20% of sales and monthly fixed expenses are $15,000.What is Neeley Grocery's operating leverage factor at the target level of operating income?

Yellow Company's variable expenses are 40% of sales and have monthly fixed expenses of $15,000.The monthly target operating income is $3,750.What is the monthly margin of safety in dollars if Yellow Company achieves its operating income goal?