Question 1

Wetzel Company has variable costs of $5 per unit and a selling price of $10 per unit.Fixed costs are $200,000.Planned unit sales for 2015 are 45,000 units.Actual unit sales for 2014 were 42,000.What is the margin of safety in units for 2015?
A) 2,000 units
B) 3,000 units
C) 5,000 units
D) 7,000 units

Accepted Answer

The margin of safety in units is calculated as the difference between planned sales and breakeven sales. Breakeven sales = Fixed Costs / (Selling Price - Variable Cost) = $200,000 / ($10 - $5) = 40,000 units. Margin of safety = Planned sales - Breakeven sales = 45,000 - 40,000 = 5,000 units.

Question 2

The degree of operating leverage for Murphy Company is 8.0 at 80,000 units of sales.At 80,000 units of sales,the net profit is $10,000.If the sales volume decreases to 72,000 units,what is the net profit?
A) $2,000
B) $8,000
C) $10,000
D) $18,000

Accepted Answer

The degree of operating leverage (DOL) indicates how a percentage change in sales volume will affect profits. A DOL of 8.0 means that a 10% decrease in sales volume (from 80,000 to 72,000 units, which is a 10% decrease) will result in an 80% decrease in net profit. Therefore, the net profit will decrease from $10,000 to $2,000.

Question 3

The following information is available for Kinsner Corporation:
$\begin{array}{ll}
\text { Total fixed costs }&\$313,500\
\text { Variable costs per unit } & \$ 99 \
\text { Selling price per unit } & \$ 154
\end{array}$
If management has a targeted net income of $46,200,then the number of units that must be sold is ________.
A) 2,036 units
B) 2,336 units
C) 5,700 units
D) 6,540 units

Accepted Answer

To find the number of units needed to achieve the targeted net income, use the formula: $(\text{Total Fixed Costs} + \text{Target Net Income}) / (\text{Selling Price per Unit} - \text{Variable Cost per Unit})$. Plugging in the values: $(\$313,500 + \$46,200) / (\$154 - \$99) = 6,540$ units.

Question 4

Key Company has a targeted sales volume of 62,300 units.Total fixed costs are $31,200.The contribution margin per unit is $1.20.What is targeted net income?
A) $31,200
B) $37,440
C) $43,560
D) $74,760

Accepted Answer

The formula for targeted net income is:

Targeted Net Income = (Targeted Sales Volume x Contribution Margin per Unit) - Total Fixed Costs

Substituting the given values, we get:

Targeted Net Income = (62,300 x $1.20) - $31,200
Targeted Net Income = $74,760 - $31,200
Targeted Net Income = $43,560

Hence, the correct answer is choice C, $43,560.

Question 5

The degree of operating leverage for Geesling Company is 8.0 at 80,000 units of sales.At 80,000 units of sales,the net profit is $10,000.If the sales volume increases to 90,000 units,what is the net profit?
A) $12,000
B) $20,000
C) $22,222
D) $80,000

Accepted Answer

The answer of The degree of operating leverage for Geesling...

Question 6

Gokey Company has a contribution-margin ratio of 0.30.Targeted net income is $76,800 and targeted sales volume in dollars is $480,000.What are total fixed costs?
A) $23,000
B) $44,160
C) $67,200
D) $144,000

Accepted Answer

The contribution margin ratio is 0.30, meaning 30% of sales contribute to covering fixed costs and profit. With targeted sales of $480,000, the contribution margin is $144,000 (0.30 * $480,000). Subtracting the targeted net income of $76,800 from the contribution margin gives total fixed costs of $67,200 ($144,000 - $76,800).

Question 7

The Eastman Family Restaurant is open 24 hours per day.Fixed costs are $24,000 per month.Variable costs are estimated at $9.60 per meal.The average revenue is $12 per meal.The restaurant wished to earn a profit before taxes of $6,000 per month.
Required:
A) Compute the number of meals that must be served to earn a profit before taxes of $6,000 per month.
B) Assume that fixed costs increase to $30,000 per month. How many additional meals must be served to earn a profit before taxes of $6,000 per month?

Accepted Answer

The answer of The Eastman Family Restaurant is open 24...

Question 8

Assume the following facts:
$\begin{array}{ll}
\text { Sales price }&\$180 \text { per unit }\
\text { Variable cost }&\$100\text { per unit }\
\text { Total fixed costs } & \$ 39,600 \
\text { Targeted net income } & \$ 52,800
\end{array}$
How many units must be sold to achieve the targeted net income?
A) 513
B) 629
C) 963
D) 1,155

Accepted Answer

To find the number of units needed to achieve the targeted net income, use the formula: $(\text{Fixed Costs} + \text{Targeted Net Income}) / (\text{Sales Price per Unit} - \text{Variable Cost per Unit})$. Plugging in the values: $(39,600 + 52,800) / (180 - 100) = 1,155$ units.

Question 9

Sole Company manufactures running shoes.The selling price is $80 per pair (unit)and variable costs are $60 per pair (unit).The sales volume of $776,000 generates $100,750 of net income before taxes.
Required:
A) Compute total fixed costs.
B) Compute total variable costs.
C) Compute the break-even point in units.
D) Compute the quantity of units above the break-even point to reach targeted net income before taxes.

Accepted Answer

The answer of Sole Company manufactures running shoes.The selling price...

Question 10

Operating leverage is the sensitivity of a firm's ________ to changes in ________.
A) sales volume; the cost structure
B) margin of safety; ratio of fixed costs to variable costs
C) sales volume; the cost driver levels
D) net income; sales volume

Accepted Answer

Operating leverage measures how a firm's net income responds to changes in sales volume, indicating the proportion of fixed and variable costs in the company's cost structure.

Question 11

The following information is available for Kismer Corporation:
$\begin{array}{ll}
\text { Total fixed costs }&\$313,500\
\text { Variable costs per unit } & \$ 90 \
\text { Selling price per unit } & \$ 150
\end{array}$
If management has a targeted net income of $59,400,then sales revenue should be ________.
A) $239,721
B) $580,067
C) $671,220
D) $932,250

Accepted Answer

To find the required sales revenue, first calculate the required sales in units to achieve the target net income. Use the formula: Required sales in units = (Total fixed costs + Target net income) / (Selling price per unit - Variable cost per unit). Plugging in the values: (313,500 + 59,400) / (150 - 90) = 6,225 units. Then, calculate the sales revenue: 6,225 units * $150 = $933,750. However, the closest option is $932,250, which is likely due to rounding differences.

Question 12

In companies with high operating leverage,small changes in sales volume result in large changes in net income.

Accepted Answer

High operating leverage means a company has high fixed costs relative to variable costs. This means that a small increase in sales volume can lead to a much larger increase in net income, as the fixed costs remain the same but are spread over a larger revenue base. Conversely, a small decrease in sales volume can lead to a much larger decrease in net income.

Question 13

The degree of operating leverage for a firm equals the ratio of ________ to ________.
A) fixed costs; variable costs
B) variable costs; fixed costs
C) fixed costs: operating profit
D) contribution margin; net income

Accepted Answer

The degree of operating leverage is calculated as the ratio of the contribution margin to net income, reflecting how a change in sales volume will affect operating income.

Question 14

Goy Company has a break-even point of 88,000 units.The contribution margin per unit is $9.60.The desired target profit is $18,096.How many units must be sold to achieve the desired profit?
A) 1,885 units
B) 88,000 units
C) 89,885 units
D) 106,096 units

Accepted Answer

The formula to calculate the number of units required to achieve a target profit is:

(Total fixed costs + Target Profit) / Contribution Margin per unit

Substituting the values given in the problem, we get:

(88,000 x $9.60) + $18,096 / $9.60 = 89,885 units

Therefore, the answer is C, which is 89,885 units.

Question 15

A small margin of safety may indicate a risky situation.

Accepted Answer

A small margin of safety means that there is little room for error or unexpected events, which can lead to a risky situation.

Question 16

Yemen Company has the following information available:
$\begin{array} { l  }
 \text {Selling price per unit }&\$100\
 \text {Variable cost per unit }&\$45\
 \text { Fixed costs per year}&\$420,000\
 \text {Expected sales per year (units) }&20,000\
\end{array}$

If variable costs increase to $65 per unit and fixed costs increase by $200,000,what is the break-even point in units?
A) 11,273
B) 12,000
C) 20,000
D) 17,714

Accepted Answer

With the new variable cost of $65 per unit and an increase in fixed costs to $620,000 ($420,000 + $200,000), the contribution margin per unit becomes $35 ($100 - $65). The break-even point in units is calculated by dividing the total fixed costs by the contribution margin per unit: $620,000 / $35 = 17,714 units.

Question 17

Companies with high levels of operating leverage are less risky than companies with low levels of operating leverage.

Accepted Answer

Companies with high levels of operating leverage are more risky than companies with low levels of operating leverage. This is because high operating leverage means a company has high fixed costs, which can amplify both profits and losses. In contrast, low operating leverage means a company has low fixed costs, which can result in more stable profits and less risk.

Question 18

Berea Company expects to sell 19,000 units.Total fixed costs are $84,000 and the contribution margin per unit is $6.00.Berea's tax rate is 40%.What is the margin of safety in units?
A) 3,000 units
B) 5,000 units
C) 7,500 units
D) 14,000 units

Accepted Answer

The margin of safety in units is calculated by subtracting the break-even point in units from the expected sales units. The break-even point is calculated as total fixed costs divided by the contribution margin per unit. Here, $84,000 / $6.00 = 14,000 units. Therefore, the margin of safety is 19,000 - 14,000 = 5,000 units.

Question 19

Helium Company has the following information available:
$\begin{array}{ll}
\text { Selling price per unit } & \$ 5.00 \
\text { Variable cost per unit } & \$ 3.50\
\text { Total fixed costs }&\$90,000.00\
\text { Targeted net income }&\$30,000.00
\end{array}$
How many units must be sold to achieve the targeted net income?
A) 10,000 units
B) 27,000 units
C) 45,000 units
D) 80,000 units

Accepted Answer

The answer of Helium Company has the following information available:
\(\begin{array}{ll}
\text...

Question 20

Nealy Company has the following information available:
$\begin{array}{ll}
\text { Revencie }&\$500,000\
\text { Variable production costs }&\$100,000\
\text { Fixed production costs }&\$100,000\
\text { Variable selling costs } & \$ 50,000 \
\text { Fixed selling costs } & \$ 50,000
\end{array}$
What is the contribution margin?
A) $300,000
B) $350,000
C) $400,000
D) $450,000

Accepted Answer

The contribution margin is calculated as Revenue minus Variable Costs. Here, Revenue = $500,000, Variable Production Costs = $100,000, and Variable Selling Costs = $50,000. So, the contribution margin = $500,000 - ($100,000 + $50,000) = $350,000.

Quiz 2: Introduction to Cost Behavior and Cost Volume Profit Relationships

Wetzel Company has variable costs of $5 per unit and a selling price of $10 per unit.Fixed costs are $200,000.Planned unit sales for 2015 are 45,000 units.Actual unit sales for 2014 were 42,000.What is the margin of safety in units for 2015?

The degree of operating leverage for Murphy Company is 8.0 at 80,000 units of sales.At 80,000 units of sales,the net profit is $10,000.If the sales volume decreases to 72,000 units,what is the net profit?

Key Company has a targeted sales volume of 62,300 units.Total fixed costs are $31,200.The contribution margin per unit is $1.20.What is targeted net income?

The degree of operating leverage for Geesling Company is 8.0 at 80,000 units of sales.At 80,000 units of sales,the net profit is $10,000.If the sales volume increases to 90,000 units,what is the net profit?

Gokey Company has a contribution-margin ratio of 0.30.Targeted net income is $76,800 and targeted sales volume in dollars is $480,000.What are total fixed costs?

Operating leverage is the sensitivity of a firm's to changes in .

In companies with high operating leverage,small changes in sales volume result in large changes in net income.

The degree of operating leverage for a firm equals the ratio of to .

Goy Company has a break-even point of 88,000 units.The contribution margin per unit is $9.60.The desired target profit is $18,096.How many units must be sold to achieve the desired profit?

A small margin of safety may indicate a risky situation.

Companies with high levels of operating leverage are less risky than companies with low levels of operating leverage.

Berea Company expects to sell 19,000 units.Total fixed costs are $84,000 and the contribution margin per unit is $6.00.Berea's tax rate is 40%.What is the margin of safety in units?