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Exam 2: Cost-Volume-Profit Relationships

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Question 61

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Dubitsky Corporation produces and sells a single product. Data concerning that product appear below: Fixed expenses are $516,000 per month. The company is currently selling 7,000 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 $9 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $55,000 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!

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Question 62

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The difference between total sales in dollars and total variable expenses is called:

A) net operating income.
B) net profit.
C) the gross margin.
D) the contribution margin.

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Question 63

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The contribution margin ratio is:

The break-even in monthly dollar sales is closest to:

Last year, Farrer Corporation had sales of $1,500,000, variable expenses of $900,000, and fixed expenses of $400,000. What would be the dollar sales at the break-even point?

In the most recent month, Eckstrom Corporation's total contribution margin was $208,000 and its net operating income $39,400. Required: a. Compute the degree of operating leverage to two decimal places. b. Using the degree of operating leverage, estimate the percentage change in net operating income that should result from a 1% increase in sales.

Data concerning Hewell Enterprises Corporation's single product appear below: The unit sales to attain the company's monthly target profit of $14,000 is closest to:

Data concerning Lancaster Corporation's single product appear below: Fixed expenses are $105,000 per month. The company is currently selling 1,000 units per month. Management is considering using a new component that would increase the unit variable cost by $44. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 400 units. What should be the overall effect on the company's monthly net operating income of this change?

If the company sells 2,900 units, its net operating income should be closest to:

Candice Corporation has decided to introduce a new product. The product can be manufactured using either a capital-intensive or labor-intensive method. The manufacturing method will not affect the quality or sales of the product. The estimated manufacturing costs of the two methods are as follows: The company's market research department has recommended an introductory selling price of $30 per unit for the new product. The annual fixed selling and administrative expenses of the new product are $500,000. The variable selling and administrative expenses are $2 per unit regardless of how the new product is manufactured. Required: a. Calculate the break-even point in units if Candice Corporation uses the: 1. capital-intensive manufacturing method. 2. labor-intensive manufacturing method. b. Determine the unit sales volume at which the net operating income is the same for the two manufacturing methods. c. Assuming sales of 250,000 units, what is the degree of operating leverage if the company uses the: 1. capital-intensive manufacturing method. 2. labor-intensive manufacturing method. d. What is your recommendation to management concerning which manufacturing method should be used?

With regard to the CVP graph, which of the following statements is not correct?

Data concerning Maline Corporation's single product appear below: Fixed expenses are $55,000 per month. The company is currently selling 1,000 units per month. Required: The marketing manager would like to cut the selling price by $6 and increase the advertising budget by $2,700 per month. The marketing manager predicts that these two changes would increase monthly sales by 100 units. What should be the overall effect on the company's monthly net operating income of this change? Show your work!

The contribution margin ratio of Lime Corporation's only product is 75%. The company's monthly fixed expense is $688,500 and the company's monthly target profit is $20,000. The dollar sales to attain that target profit is closest to:

The margin of safety percentage is computed as:

Assume the company's monthly target profit is $25,000. The unit sales to attain that target profit are closest to:

The number of units needed to achieve a target net operating income of $49,500 would be:

A company with a degree of operating leverage of 4 would expect net operating income to increase by 200% if sales increased from $100,000 to $150,000.

Calderon Corporation produces and sells a single product. Data concerning that product appear below: Fixed expenses are $110,000 per month. The company is currently selling 1,000 units per month. Required: Management is considering using a new component that would increase the unit variable cost by $56. Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 500 units. What should be the overall effect on the company's monthly net operating income of this change if fixed expenses are unaffected? Show your work!

This question is to be considered independently of all other questions relating to Homme Corporation. Refer to the original data when answering this question. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $14 per unit. In exchange, the sales staff would accept a decrease in their salaries of $24,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 100 units. What should be the overall effect on the company's monthly net operating income of this change?

South Company sells a single product for $20 per unit. If variable expenses are 60% of sales and fixed expenses total $9,600, the break-even point will be: