Question 1

East Side Company produces two products,X and Y,which account for 60% and 40%,respectively,of total sales dollars.Contribution margin ratios are 50% for X and 25% for Y.Total fixed costs are $120,000.What is East Side's break-even point in sales dollars?

Accepted Answer

The answer of East Side Company produces two products,X and...

Question 2

Acme Company provided the following data:
 $\begin{array}{lr}
\text { Selling price per unit } & \$ 80 \
\text { Variable cost per unit } & \$ 60 \
\text { Total fixed costs } & \$ 400,000
\end{array}$
-Refer to the Figure.What is the break-even point in units?

Accepted Answer

The answer of Acme Company provided the following data:
 \(\begin{array}{lr}
\text...

Question 3

Suppose the contribution margin per unit decreases.What will be the effect on the break-even point in units?

Accepted Answer

If the contribution margin per unit decreases, it means that there is less money available to cover fixed costs. As a result, more units will need to be sold in order to break even. Therefore, the break-even point in units will increase.

Question 4

Bonda,Inc.sells its product for $90.It has a variable cost ratio of 50% and total fixed costs of $14,000.What is the break-even point in sales dollars?

Accepted Answer

The break-even point in sales dollars can be calculated using the formula: Break-even point = Fixed Costs / (1 - Variable Cost Ratio). Given that the fixed costs are $14,000 and the variable cost ratio is 50% (or 0.5), the break-even point = $14,000 / (1 - 0.5) = $14,000 / 0.5 = $28,000.

Question 5

Product 1 has a contribution margin of $6.00 per unit,and Product 2 has a contribution margin of $7.50 per unit.Total fixed costs are $300,000.Sales mix and total volume varies from one period to another.Which statement is true?

Accepted Answer

Since the contribution margin per unit for Product 2 is higher than for Product 1, it can be assumed that a higher sales volume of Product 2 will be required to cover the fixed costs and generate profit. Therefore, option A is true that a sales volume in excess of 25,000 units of both products will result in profitable operations. The other options are not necessarily true based on the information provided.

Question 6

Plastic Gym makes children's jungle gyms and tree houses. The price of jungle gyms is $120, and its variable expenses are $90 per unit. The price of tree houses is $200, and its variable expenses are $100. Total fixed expenses are $253,750. Last year, Plastic Gym sold 12,000 gyms and 4,000 tree houses.
-Refer to the Figure.Plastic Gym expects tree house demand to increase from 4,000 to 8,000 units per year.What is the new contribution margin ratio?

Accepted Answer

The contribution margin ratio is calculated as (Sales - Variable Expenses) / Sales. For the new scenario, the sales will be (12,000 x $120) + (8,000 x $200) = $2,880,000. The variable expenses will be (12,000 x $90) + (8,000 x $100) = $1,920,000. Therefore, the contribution margin will be $2,880,000 - $1,920,000 = $960,000. The contribution margin ratio will be $960,000 / $2,880,000 = 38%.

Question 7

The following data pertain to the three products produced by Rona Corporation: Fixed costs are $90,000 per month.
Of all units sold,60% are Product A,30% are Product B,and 10% are Product C.
What is the monthly break-even point for total units?
$\begin{array}{lrrr} 
& \mathrm{A} & \mathrm{B} & \mathrm{C} \
\text { Selling price per unit } & \$ 5.00 & \$ 7.00 & \$ 6.00 \
\text { Variable costs per unit } & 4.00 & 5.00 & 3.00 \
\text { Contribution margin per unit } & \$ 1.00 & \$ 2.00 & \$ 3.00
\end{array}$

Accepted Answer

To find the break-even point in units, we first calculate the weighted average contribution margin per unit, considering the sales mix. The weighted average contribution margin is calculated as follows: $(0.60 \times \$1) + (0.30 \times \$2) + (0.10 \times \$3) = \$0.60 + \$0.60 + \$0.30 = \$1.50$. Then, we divide the total fixed costs by the weighted average contribution margin to find the break-even point in units: $\$90,000 / \$1.50 = 60,000$ units.

Question 8

Go For It Company sells go-carts at $1000 each,incurs a variable cost per unit of $600,and has a total fixed expense of $75,000.How many units must be sold to achieve a target operating income of $55,000?

Accepted Answer

The answer of Go For It Company sells go-carts at...

Question 9

Assume the following information: What volume of sales dollars is needed to break even?
$$\begin{array} { l r } 
\text { Variable cost ratio } & 80 \% \
\text { Total fixed costs } & \$ 60,000
\end{array}$$

Accepted Answer

The break-even point in sales dollars can be found using the formula: Break-even Sales = Total Fixed Costs / (1 - Variable Cost Ratio). Plugging in the given numbers: $60,000 / (1 - 0.8) = $60,000 / 0.2 = $300,000.

Question 10

Information about the K-9 Salon's two products is as follows: Suppose the sales mix in units is 70% Product X and 30% Product Y.What total monthly sales volume in units is required to break even?

Accepted Answer

The answer of Information about the K-9 Salon's two products...

Question 11

What formula is used to calculate the sales dollars needed to earn a desired profit?

Accepted Answer

The formula used to calculate the sales dollars needed to earn a desired profit is (fixed costs + desired profit)/(1 − variable cost ratio). This formula takes into account the fixed costs, desired profit, and variable cost ratio to determine the amount of sales needed to earn the desired profit.

Question 12

Hammer Company expects the following results for the next accounting period: The sales manager believes sales could be increased by 400 units if advertising expenditures are increased by $10,000.Suppose advertising expenditures are increased and sales increase by 400 units.What will be the effect on operating income?
$\begin{array}{lr}
\text { Sales } & \$ 240,000 \
\text { Variable costs } & \$ 135,000 \
\text { Fixed costs } & \$ 40,000 \
\text { Expected production and sales in units } & 3,000
\end{array}$

Accepted Answer

To calculate the effect on operating income, first determine the contribution margin per unit and then assess the impact of the increased advertising expenditure. The contribution margin per unit is calculated as follows: (Sales - Variable Costs) / Units = ($240,000 - $135,000) / 3,000 = $35 per unit. With an increase of 400 units, the additional contribution margin is 400 units * $35 = $14,000. After accounting for the $10,000 increase in advertising expenditures, the net effect on operating income is an increase of $4,000.

Question 13

Plastic Gym makes children's jungle gyms and tree houses. The price of jungle gyms is $120, and its variable expenses are $90 per unit. The price of tree houses is $200, and its variable expenses are $100. Total fixed expenses are $253,750. Last year, Plastic Gym sold 12,000 gyms and 4,000 tree houses.
-Refer to the Figure.Plastic Gym expects tree house demand to increase from 4,000 to 8,000 units.What is the sales revenue at break-even?

Accepted Answer

To calculate the break-even sales revenue, we first need to determine the contribution margin per unit for each product, then calculate the weighted average contribution margin per unit, and finally use the total fixed expenses to find the break-even point in dollars.For jungle gyms:- Selling price per unit = $120- Variable expenses per unit = $90- Contribution margin per unit = $120 - $90 = $30For tree houses:- Selling price per unit = $200- Variable expenses per unit = $100- Contribution margin per unit = $200 - $100 = $100Expected sales mix:- Jungle gyms: 12,000 units- Tree houses: 8,000 units (increased from 4,000 units)Total units = 12,000 gyms + 8,000 tree houses = 20,000 unitsWeighted average contribution margin per unit = [(12,000 units * $30) + (8,000 units * $100)] / 20,000 units= [$360,000 + $800,000] / 20,000 units= $1,160,000 / 20,000 units= $58 per unitTotal fixed expenses = $253,750Break-even point in units = Total fixed expenses / Weighted average contribution margin per unit= $253,750 / $58 per unit= 4,377 units (approximately)To find the break-even sales revenue, we need to distribute the break-even units according to the sales mix and then calculate the revenue based on the selling prices. However, since we are not given a specific method to distribute the break-even units and the question directly asks for the break-even sales revenue, we use the total fixed expenses and the contribution margin to find it directly.Break-even sales revenue = Total fixed expenses + Total variable expenses (at break-even)Since we cannot directly calculate the total variable expenses without the exact distribution of break-even units, we approach this differently.Given the complexity of the calculation error in the explanation, the correct approach to find the break-even sales revenue directly is not fully detailed here. However, the correct answer is based on understanding that the break-even sales revenue must cover all fixed costs and variable costs. The calculation error led to an incorrect explanation of how to distribute break-even units and calculate revenue. The correct break-even sales revenue should be calculated based on the overall contribution margin ratio and the fixed costs, but the detailed step-by-step calculation was not accurately provided in this response.

Question 14

What formula is used to calculate the number of units needed to earn a desired profit?

Accepted Answer

The formula to calculate the number of units needed to earn a desired profit is (fixed costs + desired profit)/contribution margin per unit. This formula takes into account the company's fixed costs, desired profit, and contribution margin per unit to determine the number of units required to earn the desired profit. Option C correctly represents this formula.

Question 15

Firm X and Firm Y compete within the same industry.Firm X manufactures its product using large amounts of direct labour.Firm Y has replaced direct labour with investment in machinery.Projected sales for both firms are 15% less than in the previous year.What will be the projected profits for Firm X compared to Firm Y?

Accepted Answer

Since both firms will experience a 15% decrease in sales, Firm X will suffer a greater loss in profit because it uses more direct labour, which is more expensive than investment in machinery. Firm Y, on the other hand, will lose less profit due to its investment in machinery. Therefore, the projected profits for Firm Y will be higher than for Firm X.

Question 16

Diamonds in the Ruff sells only one product at a regular price of $7.50 per unit.Variable expenses are 60% of sales,and fixed expenses are $30,000.Management has decided to decrease the selling price to $6.00 in hopes of increasing its volume of sales.How many sales (in dollars)were required to break even at the old price of $7.50 per unit?

Accepted Answer

To find the break-even sales in dollars at the old price, we first calculate the contribution margin per unit: $7.50 - (60% of $7.50) = $3.00. The break-even point in units is fixed expenses divided by the contribution margin per unit: $30,000 / $3.00 = 10,000 units. Therefore, the break-even sales in dollars is 10,000 units * $7.50 = $75,000.

Question 17

Assume the following information: How many units must be sold to generate a before-tax profit of $45,000?
$\begin{array}{lr}
\text { Selling price per unit } & \$ 100 \
\text { Contribution margin ratio } & 50 \% \
\text { Total fixed costs } & \$ 250,000
\end{array}$

Accepted Answer

The answer of Assume the following information: How many units...

Question 18

Acme Company provided the following data:
 $\begin{array}{lr}
\text { Selling price per unit } & \$ 80 \
\text { Variable cost per unit } & \$ 60 \
\text { Total fixed costs } & \$ 400,000
\end{array}$
-Refer to the Figure.How many units must Acme sell to earn a profit of $40,000?

Accepted Answer

To find the number of units needed to earn a profit of $40,000, we first calculate the contribution margin per unit, which is the selling price per unit minus the variable cost per unit: $80 - $60 = $20. Then, we add the desired profit ($40,000) to the total fixed costs ($400,000) to find the total amount needed: $400,000 + $40,000 = $440,000. Finally, we divide this total by the contribution margin per unit to find the number of units: $440,000 / $20 = 22,000 units.

Question 19

Suppose the contribution margin ratio increases.What will be the effect on the break-even point in sales dollars?

Accepted Answer

An increase in the contribution margin ratio means that each unit sold contributes more towards covering fixed expenses and generating profits. This reduces the break-even point in sales dollars as it takes fewer sales to cover the fixed expenses and reach the point of generating profits. Therefore, the dollar value will decrease.

Question 20

TriTech Company sells a product for $12.Variable costs are $6 per unit,and total fixed costs are $6,000.How many units must Melody sell to earn an operating profit of $240?

Accepted Answer

The answer of TriTech Company sells a product for $12.Variable...

Quiz 4: Costvolumeprofit Analysis: a Managerial Planning Tool