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Exam 6: Cost-Volume-Profit Relationships

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Question 91

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Sarratt Corporation's contribution margin ratio is 62% and its fixed monthly expenses are $91,000.Assume that the company's sales for May are expected to be $193,000. Required: Estimate the company's net operating income for May, assuming that the fixed monthly expenses do not change.Show your work!

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Profit = (CM ratio × Sales)- F...

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Question 92

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The company's degree of operating leverage is closest to:

A) 11.25
B) 25.88
C) 1.99
D) 75.38

E) A) and D)
F) C) and D)

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Question 93

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Hamiel Corporation produces and sells a single product.Data concerning that product appear below: Fixed expenses are $301,000 per month.The company is currently selling 5,000 units per month. Required: The marketing manager would like to introduce sales commissions as an incentive for the sales staff.The marketing manager has proposed a commission of $16 per unit.In exchange, the sales staff would accept an overall decrease in their salaries of $68,000 per month.The marketing manager predicts that introducing this sales incentive would increase monthly sales by 200 units.What should be the overall effect on the company's monthly net operating income of this change? Show your work!

If the variable expense per unit decreases, and all other factors remain the same, the contribution margin ratio will increase.

Northern Pacific Fixtures Corporation sells a single product for $28 per unit.If variable expenses are 65% of sales and fixed expenses total $9,800, the break-even point is:

If the company sells 9,100 units, its total contribution margin should be closest to:

The company's contribution margin ratio is closest to:

Serfass Corporation's contribution format income statement for July appears below: The degree of operating leverage is closest to:

If the contribution margin is not sufficient to cover fixed expenses:

Hawver Corporation produces and sells a single product.Data concerning that product appear below: Required: Assume the company's monthly target profit is $19,800.Determine the unit sales to attain that target profit.Show your work!

Sattler Corporation has provided the following contribution format income statement.All questions concern situations that are within the relevant range. Required: a.What is the contribution margin per unit? b.What is the variable expense ratio? c.If sales decline to 7,900 units, what would be the estimated net operating income? d.If the variable cost per unit increases by $5, spending on advertising increases by $2,000, and unit sales increase by 3,400 units, what would be the estimated net operating income? e.What is the break-even point in dollar sales? f.Estimate how many units must be sold to achieve a target profit of $50,400. g.What is the margin of safety percentage? h.Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 15% increase in sales?

Data concerning Pellegren Corporation's single product appear below: Fixed expenses are $531,000 per month.The company is currently selling 4,000 units per month.The marketing manager would like to cut the selling price by $14 and increase the advertising budget by $35,000 per month.The marketing manager predicts that these two changes would increase monthly sales by 500 units.What should be the overall effect on the company's monthly net operating income of this change?

What is the company's break-even point in sales dollars?

If the company sells 4,200 units, its net operating income should be closest to:

Using the degree of operating leverage, the estimated percent increase in net operating income as the result of a 5% increase in sales is closest to:

Malensek International, Inc., produces and sells a single product.The product sells for $240.00 per unit and its variable expense is $55.20 per unit.The company's monthly fixed expense is $249,480. Required: Determine the monthly break-even in total dollar sales.Show your work!

A $2.00 increase in a product's variable expense per unit accompanied by a $2.00 increase in its selling price per unit will:

Langin Corporation has provided the following contribution format income statement.All questions concern situations that are within the relevant range. Required: a.What is the margin of safety percentage? b.Using the degree of operating leverage, what is the estimated percent increase in net operating income of a 15% increase in sales?

Data concerning Kardas Corporation's single product appear below: The company is currently selling 8,000 units per month.Fixed expenses are $719,000 per month.The marketing manager believes that a $20,000 increase in the monthly advertising budget would result in a 180 unit increase in monthly sales.What should be the overall effect on the company's monthly net operating income of this change?

If the degree of operating leverage is 4, then a one percent change in quantity sold should result in a four percent change in: