Question 1

What is the contribution margin ratio?
A) 12.5%.
B) 33.0%.
C) 25.0%.
D) 37.5%.

Accepted Answer

The contribution margin ratio is calculated as (Sales - Variable Expenses) / Sales. For Paxton Corp, this is (\$400,000 - \$250,000) / \$400,000 = \$150,000 / \$400,000 = 0.375 or 37.5%.

Question 2

What is the degree of operating leverage for July?
A) The same as that for June.
B) Higher than that for June.
C) Lower than that for June.
D) Not determinable.June CM = 8,000 * 10.30 = 82,400 DOL = 82,400/(82,400 - 80,000)= 34.33.

Accepted Answer

The degree of operating leverage (DOL) is calculated by dividing the percentage change in operating income by the percentage change in sales. As the information for July's sales and operating income is not given, we cannot determine the DOL for July. Therefore, it is not possible to determine if the DOL is higher or lower than that for June.

Question 3

If Dorian Company desires a monthly operating income equal to 10% of sales,what will its monthly sales have to be?
A) $90,000.
B) $45,600.
C) $120,000.
D) $96,000.

Accepted Answer

The answer of If Dorian Company desires a monthly operating...

Question 4

If the company's fixed costs decrease by 20% next year,all other factors remaining the same,by how much will the break-even level change compared to that of the current year,rounded to the nearest whole unit?
A) 200-unit increase.
B) 440-unit decrease.
C) 200-unit decrease.
D) No change in the break-even point.

Accepted Answer

If fixed costs decrease, the break-even point will also decrease. The formula for break-even point is (fixed costs)/(contribution margin per unit). If fixed costs decrease by 20%, the numerator will decrease by the same amount, resulting in a decrease in the break-even point. Therefore, the break-even point will decrease by 20%, which is approximately 200 units.

Question 5

If the fixed expenses increase in a company,and all other factors remain unchanged,then one would expect the margin of safety to decrease.

Accepted Answer

Margin of safety is the difference between the actual or expected sales and the break-even point. If fixed expenses increase, the break-even point will increase, causing the margin of safety to decrease unless sales also increase proportionally.

Question 6

What is the degree of operating leverage?
A) 3.
B) 8.
C) 0.33.
D) 5.

Accepted Answer

The answer of What is the degree of operating leverage?
A)...

Question 7

What is the break-even point in sales dollars,rounded to the nearest dollar?
A) $148,148.
B) $266,667.
C) $333,333.
D) $350,000.

Accepted Answer

The break-even point in sales dollars can be calculated using the formula: Break-even Point = Fixed Expenses / (1 - Variable Expense Ratio). The Variable Expense Ratio is Variable Expenses / Sales = $250,000 / $400,000 = 0.625. Therefore, the Break-even Point = $100,000 / (1 - 0.625) = $100,000 / 0.375 = $266,667.

Question 8

If the selling price is reduced by 5%,variable expenses reduced by $1.00,and fixed expenses increased to a total of $38,400,how many units would need to be sold to earn an operating income of $21,000?
A) 1,000 units.
B) 2,700 units.
C) 1,700 units.
D) 2,950 units.Units required = (38,400 + 21,000)/22 = 2,700 units.

Accepted Answer

The calculation for the units required to earn an operating income of $21,000 is given in the question as 2,700 units. Therefore, option B is the correct choice.

Question 9

The contribution margin ratio is closest to which of the following?
A) 47.1%.
B) 2.1%.
C) 1.9%.
D) 52.9%.

Accepted Answer

The answer of The contribution margin ratio is closest to...

Question 10

If the company wants its margin of safety to equal $35,000 next year,all other factors remaining the same,how many units will it need to sell?
A) 1,000 units.
B) 833 units.
C) 1,583 units.
D) 1,833 units.

Accepted Answer

The answer of If the company wants its margin of...

Question 11

What is the contribution margin ratio for the book?
A) 71.5%.
B) 54.0%.
C) 51.5%.
D) 51.9%.

Accepted Answer

To calculate the contribution margin ratio, we first need to find the contribution margin per unit and then divide it by the selling price per unit.

Contribution margin per unit = Selling price per unit - Variable cost per unit
= $25 - $12.15
= $12.85

Contribution margin ratio = (Contribution margin per unit / Selling price per unit) x 100%
= ($12.85 / $25) x 100%
= 51.4% 
Rounding off to one decimal place, the contribution margin ratio for the book is 51.5% (Option C).

Question 12

A company with sales of $80,000 and variable expenses of $40,000 should spend $12,000 on increased advertising,if the increased advertising will increase sales by $22,000.
CM ratio = 50% so incremental CM = 22,000 * .5 which is less than $12,000.

Accepted Answer

The calculation should be as follows:
Incremental CM = $22,000 * CM ratio
= $22,000 * 0.5
= $11,000
Since the incremental CM of $11,000 is less than the proposed $12,000 increase in advertising, it would not be a feasible decision to make.

Question 13

What is the variable expense per unit?
A) $31.20 per unit.
B) $24.00 per unit.
C) $36.00 per unit.
D) $28.80 per unit.

Accepted Answer

The answer of What is the variable expense per unit?
A)...

Question 14

The total volume in sales dollars that would be required to attain a given target operating profit is determined by dividing the sum of the fixed expenses and the target operating profit by the contribution margin ratio.

Accepted Answer

This formula is known as the breakeven point formula and is used to determine the sales volume needed to cover fixed expenses and reach a certain operating profit. It is calculated by dividing the sum of fixed expenses and target operating profit by the contribution margin ratio.

Question 15

What is the break-even point in units?
A) 8,247 books.
B) 7,767 books.
C) 7,407 books.
D) 6,504 books.

Accepted Answer

The break-even point in units is calculated by dividing the fixed costs by the contribution margin per unit. 
Fixed costs = $91,500 
Contribution margin per unit = selling price per unit – variable cost per unit = $18 – $12 = $6 
Break-even point in units = $91,500 ÷ $6 = 15,250 units 
Therefore, the best choice would be B, which is the closest to the calculated break-even point of 15,250.

Question 16

What is the break-even point in sales dollars?
Refer To: 04-05
A) $48,000.
B) $72,000.
C) $28,800.
D) $0.

Accepted Answer

The break-even point in sales dollars can be calculated by dividing the total fixed costs ($36,000) by the contribution margin ratio (0.5). This results in a break-even point of $72,000. Therefore, the best choice is B.

Question 17

The break-even point is closest to which of the following?
A) 19,111 units.
B) 10,118 units.
C) 21,500 units.
D) 24,000 units.

Accepted Answer

The break-even point is where total revenue equals total cost, meaning there is no profit or loss.

To find the break-even point, we need to divide the fixed costs by the contribution margin per unit.

Fixed costs = $245,000
Contribution margin per unit = Selling price per unit - Variable cost per unit
= $35 - $20
= $15

Break-even point = Fixed costs / Contribution margin per unit
= $245,000 / $15
= 16,333.33 units

Since we can't sell a fraction of a unit, we round up to the nearest whole number, which is 16,334 units.

Therefore, the closest answer is (C) 21,500 units.

Question 18

If the company wants to increase its total contribution margin by 40% in the next year,all other factors remaining the same,by how much will it need to increase its sales?
A) $96,000.
B) $50,400.
C) $67,200.
D) $72,000.

Accepted Answer

The answer of If the company wants to increase its...

Question 19

If the company's sales volume increases by 30% next year,all other factors remaining the same,by how much will its operating income increase?
A) $92,400.
B) $50,400.
C) $37,800.
D) $72,000.

Accepted Answer

The answer of If the company's sales volume increases by...

Question 20

The degree of operating leverage for July is closest to which of the following?
A) 4.48.
B) 3.48.
C) 4.22.
D) 8.70.

Accepted Answer

The calculation for July's degree of operating leverage (DOL) is correctly given as 4.477, which is closest to 4.48.

Quiz 4: Cost-Volume-Profit Relationships

What is the contribution margin ratio?

What is the degree of operating leverage for July?

If Dorian Company desires a monthly operating income equal to 10% of sales,what will its monthly sales have to be?

If the company's fixed costs decrease by 20% next year,all other factors remaining the same,by how much will the break-even level change compared to that of the current year,rounded to the nearest whole unit?

If the fixed expenses increase in a company,and all other factors remain unchanged,then one would expect the margin of safety to decrease.

What is the degree of operating leverage?

What is the break-even point in sales dollars,rounded to the nearest dollar?

If the selling price is reduced by 5%,variable expenses reduced by $1.00,and fixed expenses increased to a total of $38,400,how many units would need to be sold to earn an operating income of $21,000?

The contribution margin ratio is closest to which of the following?

If the company wants its margin of safety to equal $35,000 next year,all other factors remaining the same,how many units will it need to sell?

What is the contribution margin ratio for the book?

A company with sales of $80,000 and variable expenses of $40,000 should spend $12,000 on increased advertising,if the increased advertising will increase sales by $22,000. CM ratio = 50% so incremental CM = 22,000 * .5 which is less than $12,000.

What is the variable expense per unit?

The total volume in sales dollars that would be required to attain a given target operating profit is determined by dividing the sum of the fixed expenses and the target operating profit by the contribution margin ratio.

What is the break-even point in units?

What is the break-even point in sales dollars? Refer To: 04-05

The break-even point is closest to which of the following?

If the company wants to increase its total contribution margin by 40% in the next year,all other factors remaining the same,by how much will it need to increase its sales?

If the company's sales volume increases by 30% next year,all other factors remaining the same,by how much will its operating income increase?

The degree of operating leverage for July is closest to which of the following?