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Question 1: Score 0/4
Your response
Correct response
Exercise 5-1 Fixed and Variable Cost Behavior [LO1]
Espresso Express operates a number of espresso coffee stands in busy suburban malls. The
fixed weekly expense of a coffee stand is $1,200 and the variable cost per cup of coffee
served is $0.22.
Requirement 1:
Fill in the following table with your estimates of total costs and cost per cup of coffee at
the indicated levels of activity for a coffee stand. (Round average cost per cup of coffee
to 3 decimal places. Omit the "$" sign in your response.)
2,000
Fixed cost
Variable cost
Total cost
Average cost per
cup of coffee served
$
0.60
0.22
$
0.82
$
0.792
Cups of Coffee Served in a Week
2,100
2,200
$ 0.571 (0%)
$ 0.545 (0%)
(0%)
(0%)
0.22
(0%)
0.22
(0%)
$ 0.791 (0%)
$ 0.765 (0%)
(0%)
(0%)
$
0.792
(0%)
$
0.792
(0%)
Exercise 5-1 Fixed and Variable Cost Behavior [LO1]
Espresso Express operates a number of espresso coffee stands in busy suburban malls. The
fixed weekly expense of a coffee stand is $1,200 and the variable cost per cup of coffee
served is $0.22.
Requirement 1:
Fill in the following table with your estimates of total costs and cost per cup of coffee at
the indicated levels of activity for a coffee stand. (Round average cost per cup of coffee
to 3 decimal places. Omit the "$" sign in your response.)
Fixed cost
Variable cost
Total cost
Average cost per cup of coffee served
Cups of Coffee Served in a Week
2,000
2,100
2,200
1,200
1,200
$
$
$ 1,200
440
1,640
$
462
1,662
$
484
1,684
$
$ 0.82
$ 0.791
$ 0.765
Total grade: 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% +
0%
Feedback:
Average cost per cup of coffee served = Total cost ÷ cups of coffee served in a week
Requirement 2:
Does the average cost per cup of coffee served increase, decrease, or remain the same as
the number of cups of coffee served in a week increases?
Your Answer:
Choice
Selected Correct
Increases
Decreases
Remains the
same
Feedback:
The average cost of a cup of coffee declines as the number of cups of
coffee served increases because the fixed cost is spread over more cups of
coffee.
Question 2: Score 0/4
Your response
Correct response
Exercise 6-2 Prepare a Cost-Volume-Profit (CVP) Graph [LO2]
Karlik Enterprises distributes a single product whose selling price is $24 and whose
variable expense is $18 per unit. The company's monthly fixed expense is $24,000.
Requirement 1:
Offline: Prepare a cost-volume-profit graph for the company up to a sales level of 8,000
units.
Requirement 2:
Estimate the company's break-even point in unit sales using your cost-volume-profit graph
analysis.
Break-even point in
sales
16.67
(0%) units
Exercise 6-2 Prepare a Cost-Volume-Profit (CVP) Graph [LO2]
Karlik Enterprises distributes a single product whose selling price is $24 and whose
variable expense is $18 per unit. The company's monthly fixed expense is $24,000.
Requirement 1:
Offline: Prepare a cost-volume-profit graph for the company up to a sales level of 8,000
units.
Requirement 2:
Estimate the company's break-even point in unit sales using your cost-volume-profit graph
analysis.
Break-even point in sales
4,000
units
Total grade: 0.0×1/1 = 0%
Feedback:
The break-even point is the point where the total sales revenue and the total expense lines
intersect. This occurs at sales of 4,000 units. This can be verified as follows:
Question 3: Score 2.6/4
Your response
Correct response
Exercise 5-3 High-Low Method [LO3]
The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total electrical
costs of the hotel and the number of occupancy-days over the last year. An occupancy-day
represents a room rented out for one day. The hotel's business is highly seasonal, with
peaks occurring during the ski season and in the summer.
Exercise 5-3 High-Low Method [LO3]
The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total electrical
costs of the hotel and the number of occupancy-days over the last year. An occupancy-day
represents a room rented out for one day. The hotel's business is highly seasonal, with
peaks occurring during the ski season and in the summer.
Month
January
February
March
April
May
June
July
August
September
Occupancy- Electrical
Days
Costs
1,736
$ 4,127
1,904
$ 4,207
2,356
$ 5,083
960
$ 2,857
360
$ 1,871
744
$ 2,696
2,108
$ 4,670
2,406
$ 5,148
840
$ 2,691
Month
January
February
March
April
May
June
July
August
September
Occupancy- Electrical
Days
Costs
1,736
$ 4,127
1,904
$ 4,207
2,356
$ 5,083
960
$ 2,857
360
$ 1,871
744
$ 2,696
2,108
$ 4,670
2,406
$ 5,148
840
$ 2,691
October
November
December
124
720
1,364
$ 1,588
$ 2,454
$ 3,529
October
November
December
Requirement 1:
Using the high-low method, estimate the variable cost of electricity per occupancy-day and
the fixed cost of electricity per month. (Round the fixed cost to the nearest whole dollar
and the variable cost to the nearest whole cent. Omit the "$" sign in your response.)
Variable cost
$
Fixed cost
$
1.56
1394
per occupancy
day
(0%) per month
124
720
1,364
Requirement 1:
Using the high-low method, estimate the variable cost of electricity per occupancy-day and
the fixed cost of electricity per month. (Round the fixed cost to the nearest whole dollar
and the variable cost to the nearest whole cent. Omit the "$" sign in your response.)
$ 1.56 per occupancy day
$ 1,395 per month
Variable cost
Fixed cost
(50%)
Total grade: 1.0×1/2 + 0.0×1/2 = 50% + 0%
Feedback:
Occupancy- Electrical
Days
Costs
High activity level
2,406
$ 5,148
(August)
Low activity level
124
1,588
(October)
Change
2,282
$ 3,560
Variable
cost
= Change in cost ÷ Change in activity
= $3,560 ÷ 2,282 occupancy-days
= $1.56 per occupancy-day
Total cost (August)
Variable cost element
($1.56 per occupancy-day × 2,406 occupancydays)
Fixed cost element
$ 5,148
3,753
$ 1,395
Requirement 2:
Which of the following statement(s) is true? (Select all that apply.)
Choice
Selected
Points
Electrical cost may reflect seasonal factors other than just the variation in occupancy days
Yes
+1
Fixed cost will not be affected by the number of days in a month
No
Less systematic factors such as frugality of individual guests may also affect electrical costs
Yes
Total correct answers: 2
Partial Grading Explained
Feedback:
$ 1,588
$ 2,454
$ 3,529
Electrical costs may reflect seasonal factors other than just the variation in occupancy
days. For example, common areas such as the reception area must be lighted for longer
+1
periods during the winter than in the summer. This will result in seasonal fluctuations in
the fixed electrical costs.
Additionally, fixed costs will be affected by the number of days in a month. In other
words, costs like the costs of lighting common areas are variable with respect to the
number of days in the month, but are fixed with respect to how many rooms are occupied
during the month.
Other, less systematic, factors may also affect electrical costs such as the frugality of
individual guests. Some guests will turn off lights when they leave a room. Others will
not.
Question 4: Score 2.48/4
Your response
Correct response
Exercise 5-4 Contribution Format Income Statement [LO4]
The Alpine House, Inc., is a large retailer of winter sports equipment. An income statement
for the company's Ski Department for a recent quarter is presented below:
Exercise 5-4 Contribution Format Income Statement [LO4]
The Alpine House, Inc., is a large retailer of winter sports equipment. An income statement
for the company's Ski Department for a recent quarter is presented below:
The Alpine House, Inc.
Income Statement—Ski Department
For the Quarter Ended March 31
Sales
Cost of goods sold
Gross margin
Selling and administrative expenses:
Selling expenses
Administrative expenses
Net operating income
The Alpine House, Inc.
Income Statement—Ski Department
For the Quarter Ended March 31
$ 150,000
90,000
60,000
$ 30,000
10,000
Sales
Cost of goods sold
Gross margin
Selling and administrative expenses:
Selling expenses
Administrative expenses
Net operating income
40,000
$ 20,000
$ 150,000
90,000
60,000
$ 30,000
10,000
40,000
$ 20,000
Skis sell, on the average, for $750 per pair. Variable selling expenses are $50 per pair
of skis sold. The remaining selling expenses are fixed. The administrative expenses are
20% variable and 80% fixed. The company does not manufacture its own skis; it purchases
them from a supplier for $450 per pair.
Skis sell, on the average, for $750 per pair. Variable selling expenses are $50 per pair
of skis sold. The remaining selling expenses are fixed. The administrative expenses are
20% variable and 80% fixed. The company does not manufacture its own skis; it purchases
them from a supplier for $450 per pair.
Requirement 1:
Prepare a contribution format income statement for the quarter. (Omit the "$" sign in
your response.)
Requirement 1:
Prepare a contribution format income statement for the quarter. (Omit the "$" sign in
your response.)
The Alpine House, Inc.
Income Statement—Ski Department
For the Quarter Ended March 31
$
Sales
(6%)
Variable expenses:
150000
(6%)
Sales
$
150000
Variable expenses:
Cost of goods sold (6%)
Selling expenses (6%)
Administrative expenses
Contribution margin
The Alpine House, Inc.
Income Statement—Ski Department
For the Quarter Ended March 31
(6%)
$
(6%)
90000
10000
2000
(6%)
(6%)
(6%)
102000
(6%)
48000 (6%)
Cost of goods sold
Selling expenses
Administrative expenses
Contribution margin
$
90000
10000
2000
102000
48000
Fixed expenses:
Fixed expenses:
Advertising expenses
Administrative expenses
Net operating income
90000
8000
(0%)
(6%)
(0%)
(6%)
98000
$
(6%)
(0%)
-
50000
Selling expenses
Administrative expenses
Net operating income
20,000
8000
$
28,000
20,000
(0%)
Total grade: 1.0×1/18 + 1.0×1/18 + 1.0×1/18 + 1.0×1/18 + 1.0×1/18 + 1.0×1/18 + 1.0×1/18 + 1.0×1/18 + 1.0×1/18 + 1.0×1/18 + 1.0×1/18 + 0.0×1/18 + 0.0×1/18 + 1.0×1/18 + 1.0×1/18 + 0.0×1/18 + 1.0×1/18 + 0.0×1/18 = 6% + 6% + 6% + 6% +
6% + 6% + 6% + 6% + 6% + 6% + 6% + 0% + 0% + 6% + 6% + 0% + 6% + 0%
Feedback:
Cost of goods sold (200 pairs* × $450 per pair)
Variable selling expenses (200 pairs × $50 per pair)
Variable administrative expenses (20% × $10,000)
Fixed selling expenses [$30,000 – (200 pairs × $50
per pair)]
Fixed administrative expenses (80% × $10,000)
$ 90,000
10,000
2,000
20,000
8,000
*$150,000 ÷ $750 per pair = 200 pairs
Your response
Correct response
Requirement 2:
For every pair of skis sold during the quarter, what was the contribution toward covering
fixed expenses and toward earning profits? (Omit the "$" sign in your response.)
Requirement 2:
For every pair of skis sold during the quarter, what was the contribution toward covering
fixed expenses and toward earning profits? (Omit the "$" sign in your response.)
Contribution margin per pair
$
50
(0%)
Contribution margin per pair
E5_4_id4
E5_4_id4
E5_4_id6
E5_4_id6
E5_4_id8
E5_4_id8
E5_4_id13
E5_4_id13
E5_4_id15
E5_4_id15
Total grade: 0.0×1/1 = 0%
Feedback:
Since 200 pairs of skis were sold and the contribution margin totaled $48,000 for the
quarter, the contribution of each pair of skis toward covering fixed costs and toward
earning of profits was $240 ($48,000 ÷ 200 pairs = $240 per pair). Another way to
compute the $240 is:
Selling price per pair
Variable expenses:
Cost per pair
Selling expenses
$ 750
$ 450
50
$ 240
Administrative expenses
($2,000 ÷ 200 pairs)
Contribution margin per pair
10
510
$ 240
Question 5: Score 1.2/4
Your response
Correct response
Exercise 5-5 Cost Behavior; Contribution Format Income Statement [LO1, LO4]
Harris Company manufactures and sells a single product.
Requirement 1:
A partially completed schedule of the company's total and per unit costs over the relevant
range of 30,000 to 50,000 units produced and sold annually is given. Complete the
schedule of the company's total and unit costs below (Round the "total costs" to the
nearest dollar amount and the "cost per unit" to 2 decimal places. Omit the "$" sign
in your response) :
Units Produced and Sold
30,000
40,000
Total
costs:
Variable
costs
Fixed
costs
Total
costs
Cost per
unit:
Variable
cost
Fixed
cost
Total cost
per unit
$
180,000
$
300,000
$
$
$
480,000
3.6
(0%)
6
(0%)
9.6
(0%)
$
$
$
190000
(0%)
310000
(0%)
500000
(0%)
3.8
(0%)
6.2
(0%)
10.0
(0%)
$
$
$
$
50,000
200000
(0%)
320000
(0%)
520000
(0%)
4
(0%)
6.4
(0%)
6.8
(0%)
Exercise 5-5 Cost Behavior; Contribution Format Income Statement [LO1, LO4]
Harris Company manufactures and sells a single product.
Requirement 1:
A partially completed schedule of the company's total and per unit costs over the relevant
range of 30,000 to 50,000 units produced and sold annually is given. Complete the
schedule of the company's total and unit costs below (Round the "total costs" to the
nearest dollar amount and the "cost per unit" to 2 decimal places. Omit the "$" sign
in your response) :
Units Produced and Sold
30,000
40,000
50,000
Total costs:
Variable costs
Fixed costs
Total costs
Cost per unit:
Variable cost
Fixed cost
Total cost per unit
$ 180,000
300,000
$ 480,000
$
$
6
10
16
$ 240,000
$ 300,000
300,000
540,000
300,000
600,000
$
$
$
6
7.5
13.5
$
$
$
6
6
12
Total grade: 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%
+ 0% + 0% + 0% + 0% + 0%
Feedback:
The company's variable cost per unit is:
Your response
Requirement 2:
Assume that the company produces and sells 45,000 units during the year at a selling price
of $16 per unit. Prepare a contribution format income statement for the year. (Input all
amounts as positive values. Omit the "$" sign in your response.)
Income Statement
For the Year Ended
$
Sales (10%)
720000 (10%)
Variable
expenses (10%)
Contribution
margin (10%)
Fixed expense (10%)
Net operating
income (10%)
$
513000
(0%)
207000
(0%)
279000
(0%)
-70000
(0%)
Correct response
Requirement 2:
Assume that the company produces and sells 45,000 units during the year at a selling price
of $16 per unit. Prepare a contribution format income statement for the year. (Input all
amounts as positive values. Omit the "$" sign in your response.)
Income Statement
For the Year Ended
Sales
Variable expenses
Contribution margin
Fixed expense
Net operating income
$ 720000
270,000
450,000
300,000
$ 150,000
Total grade: 1.0×1/10 + 1.0×1/10 + 1.0×1/10 + 0.0×1/10 + 1.0×1/10 + 0.0×1/10 + 1.0×1/10 + 0.0×1/10 + 1.0×1/10 + 0.0×1/10 = 10% + 10% + 10% + 0% + 10% + 0% + 10% + 0% + 10% + 0%
Feedback:
Sales (45,000 units × $16 per unit) = $720,000
Variable expenses (45,000 units × $6 per unit) = $270,000
Question 6: Score 0.66/4
Your response
Correct response
Exercise 5-6 High-Low Method [LO2, LO3]
The following data relating to units shipped and total shipping expense have been
assembled by Archer Company, a wholesaler of large, custom-built air-conditioning units
for commercial buildings:
Exercise 5-6 High-Low Method [LO2, LO3]
The following data relating to units shipped and total shipping expense have been
assembled by Archer Company, a wholesaler of large, custom-built air-conditioning units
for commercial buildings:
Total
Units Shipping
Shipped Expense
3
$ 1,800
6
$ 2,300
4
$ 1,700
5
$ 2,000
7
$ 2,300
8
$ 2,700
2
$ 1,200
Month
January
February
March
April
May
June
July
Requirement 1:
Using the high-low method, estimate the cost formula for shipping expense where X is the
number of units shipped. (Omit the "$" sign in your response.)
Y = $
5
(0%) + $
5
(0%) X
Month
January
February
March
April
May
June
July
Total
Units Shipping
Shipped Expense
3
$ 1,800
6
$ 2,300
4
$ 1,700
5
$ 2,000
7
$ 2,300
8
$ 2,700
2
$ 1,200
Requirement 1:
Using the high-low method, estimate the cost formula for shipping expense where X is the
number of units shipped. (Omit the "$" sign in your response.)
Y
= $ 700 + $ 250 X
Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%
Feedback:
Units Shipping
Shipped Expense
High activity level
8
$ 2,700
(June)
Low activity level
2
1,200
(July)
Change
6
$ 1,500
Variable cost element:
Fixed cost element:
Shipping expense at the high activity level
Less variable cost element ($250 per unit × 8
units)
Total fixed cost
$ 2,700
2,000
$ 700
The cost formula is $700 per month plus $250 per unit shipped or
Y = $700 + $250X,
where X is the number of units shipped.
Requirement 2:
What factors, other than the number of units shipped, are likely to affect the company's
total shipping expense? (Select all that apply.)
Choice
Selected
Points
Weight of the units shipped
No
Distance travelled
Yes
+1
Size of the units shipped
Yes
+1
Fixed cost
Yes
-1
Variable cost
No
Total correct answers: 3
Partial Grading Explained
Feedback:
The cost of shipping units is likely to depend on the weight and volume of the units and the
distance traveled, as well as on the number of units shipped. In addition, higher cost
shipping might be necessary to meet a deadline.
Question 7: Score 0/4
Your response
Exercise 5-7 Cost Behavior; High-Low Method [LO1, LO3]
Hoi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company
has determined that if a truck is driven 105,000 kilometers during a year, the average
operating cost is 11.4 cents per kilometer. If a truck is driven only 70,000 kilometers
during a year, the average operating cost increases to 13.4 cents per kilometer.(The
Singapore dollar is the currency used in Singapore.)
Requirement 1:
Using the high-low method, estimate the variable and fixed cost elements of the annual
cost of the truck operation. (Round the variable cost per kilometer to 3 decimal places.
Omit the "$" sign in your response.)
Variable cost per
kilometer
Fixed cost per year
$
5
(0%)
$
5
(0%)
Correct response
Exercise 5-7 Cost Behavior; High-Low Method [LO1, LO3]
Hoi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company
has determined that if a truck is driven 105,000 kilometers during a year, the average
operating cost is 11.4 cents per kilometer. If a truck is driven only 70,000 kilometers
during a year, the average operating cost increases to 13.4 cents per kilometer.(The
Singapore dollar is the currency used in Singapore.)
Requirement 1:
Using the high-low method, estimate the variable and fixed cost elements of the annual
cost of the truck operation. (Round the variable cost per kilometer to 3 decimal places.
Omit the "$" sign in your response.)
Variable cost per kilometer
Fixed cost per year
$ 0.074
$ 4,200
Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%
Feedback:
Total
Kilometers
Annual
Driven
Cost*
High level of
105,000 $ 11,970
activity
Low level of activity
70,000
9,380
Change
35,000 $ 2,590
* 105,000 kilometers × $0.114 per kilometer =
$11,970
70,000 kilometers × $0.134 per kilometer =
$9,380
Variable cost per kilometer:
Fixed cost per year:
Total cost at 105,000 kilometers
Less variable portion:
105,000 kilometers × $0.074 per
kilometer
Fixed cost per year
$ 11,970
7,770
$ 4,200
Your response
Correct response
Requirement 2:
Express the variable and fixed costs in the form Y = a + bX. (Round the variable cost per
kilometer to 3 decimal places. Omit the "$" sign in your response.)
Y = $
5
(0%) + $
5
(0%) X
Requirement 2:
Express the variable and fixed costs in the form Y = a + bX. (Round the variable cost per
kilometer to 3 decimal places. Omit the "$" sign in your response.)
Y = $ 4,200 + $ 0.074 X
Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%
Your response
Correct response
Requirement 3:
If a truck were driven 80,000 kilometers during a year, what total cost would you expect to
be incurred? (Omit the "$" sign in your response.)
Requirement 3:
If a truck were driven 80,000 kilometers during a year, what total cost would you expect to
be incurred? (Omit the "$" sign in your response.)
Total annual cost
$
400000
Total annual cost
(0%)
$ 10,120
Total grade: 0.0×1/1 = 0%
Feedback:
Fixed cost
Variable cost:
$ 4,200
80,000 kilometers × $0.074 per
kilometer
Total annual cost
5,920
$ 10,120
Question 8: Score 0/4
Your response
Correct response
Exercise 5-8 High-Low Method; Predicting Cost [LO1, LO3]
The Lakeshore Hotel's guest-days of occupancy and custodial supplies expense over the
last seven months were:
Exercise 5-8 High-Low Method; Predicting Cost [LO1, LO3]
The Lakeshore Hotel's guest-days of occupancy and custodial supplies expense over the
last seven months were:
Month
March
April
May
June
July
August
September
GuestDays of
Occupancy
4,000
6,500
8,000
10,500
12,000
9,000
7,500
Custodial
Supplies
Expense
$ 7,500
$ 8,250
$ 10,500
$ 12,000
$ 13,500
$ 10,750
$ 9,750
Guest-days is a measure of the overall activity at the hotel. For example, a guest who
stays at the hotel for three days is counted as three guest-days.
Month
March
April
May
June
July
August
September
GuestDays of
Occupancy
4,000
6,500
8,000
10,500
12,000
9,000
7,500
Custodial
Supplies
Expense
$ 7,500
$ 8,250
$ 10,500
$ 12,000
$ 13,500
$ 10,750
$ 9,750
Guest-days is a measure of the overall activity at the hotel. For example, a guest who
stays at the hotel for three days is counted as three guest-days.
Requirement 1:
Using the high-low method, estimate a cost formula for custodial supplies expense where
X is the number of guest-days. (Round your answer to 2 decimal places. Omit the "$"
sign in your response.)
Y = $
5
(0%) + $
5
Requirement 1:
Using the high-low method, estimate a cost formula for custodial supplies expense where
X is the number of guest-days. (Round your answer to 2 decimal places. Omit the "$"
sign in your response.)
Y
(0%) X
= $ 4,500 + $ 0.75 X
Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%
Feedback:
Custodial
Guest- Supplies
Days
Expense
High activity level (July)
12,000 $ 13,500
Low activity level
4,000
7,500
(March)
Change
8,000 $
6,000
Variable cost element:
Fixed cost element:
Custodial supplies expense at high
activity level
Less variable cost element:
$ 13,500
12,000 guest-days × $0.75 per guestday
Total fixed cost
9,000
$ 4,500
The cost formula is $4,500 per month plus $0.75 per guest-day or
Y = $4,500 + $0.75X
Your response
Correct response
Requirement 2:
Using the cost formula you derived above, what amount of custodial supplies expense
would you expect to be incurred at an occupancy level of 11,000 guest-days? (Omit the
"$" sign in your response.)
Requirement 2:
Using the cost formula you derived above, what amount of custodial supplies expense
would you expect to be incurred at an occupancy level of 11,000 guest-days? (Omit the
"$" sign in your response.)
Variable cost
Fixed cost
Total cost
$
$
50
100
150
(0%)
(0%)
(0%)
Total grade: 0.0×1/3 + 0.0×1/3 + 0.0×1/3 = 0% + 0% + 0%
Feedback:
Variable cost
Fixed cost
Total cost
$ 8,250
4,500
$ 12,750
Variable cost (11,000 guest-days × $0.75 per guest-day) = $8,250
Question 9: Score 0/4
Your response
Correct response
Exercise 5-10 High-Low Method; Predicting Cost [LO1, LO3]
St. Mark's Hospital contains 450 beds. The average occupancy rate is 80% per month. In
other words, on average, 80% of the hospital's beds are occupied by patients. At this level
of occupancy, the hospital's operating costs are $32 per occupied bed per day, assuming a
30-day month. This $32 figure contains both variable and fixed cost elements.
During June, the hospital's occupancy rate was only 60%. A total of $326,700 in
operating cost was incurred during the month.
Requirement 1:
(a) Estimate the variable cost per occupied bed on a daily basis using the high-low method.
(Omit the "$" sign in your response.)
Variable cost per bedday
$
50
Exercise 5-10 High-Low Method; Predicting Cost [LO1, LO3]
St. Mark's Hospital contains 450 beds. The average occupancy rate is 80% per month. In
other words, on average, 80% of the hospital's beds are occupied by patients. At this level
of occupancy, the hospital's operating costs are $32 per occupied bed per day, assuming a
30-day month. This $32 figure contains both variable and fixed cost elements.
During June, the hospital's occupancy rate was only 60%. A total of $326,700 in
operating cost was incurred during the month.
Requirement 1:
(a) Estimate the variable cost per occupied bed on a daily basis using the high-low method.
(Omit the "$" sign in your response.)
Variable cost per bed-day
(0%)
$
7
Total grade: 0.0×1/1 = 0%
Feedback:
Difference in cost:
Monthly operating costs at 80% occupancy:
450 beds × 80% = 360 beds;
360 beds × 30 days × $32 per bed-day
Monthly operating costs at 60% occupancy
(given)
Difference in cost
Difference in activity:
80% occupancy (450 beds × 80% × 30
days)
60% occupancy (450 beds × 60% × 30
days)
Difference in activity
$ 345,600
326,700
$ 18,900
10,800
8,100
2,700
Your response
Correct response
(b) Estimate the total fixed operating costs per month using the high-low method. (Omit
the "$" sign in your response.)
Fixed operating costs per
month
$
50000
(b) Estimate the total fixed operating costs per month using the high-low method. (Omit
the "$" sign in your response.)
Fixed operating costs per month
(0%)
$ 270,000
Total grade: 0.0×1/1 = 0%
Feedback:
Monthly operating costs at 80% occupancy (above)
Less variable costs:
$ 345,600
360 beds × 30 days × $7 per bed-day
Fixed operating costs per month
75,600
$ 270,000
Your response
Correct response
Requirement 2:
Assume an occupancy rate of 70% per month. What amount of total operating cost would
you expect the hospital to incur? (Omit the "$" sign in your response.)
Requirement 2:
Assume an occupancy rate of 70% per month. What amount of total operating cost would
you expect the hospital to incur? (Omit the "$" sign in your response.)
Fixed costs
Variable costs
Total expected costs
$
$
500
50
550
(0%)
(0%)
(0%)
$ 270,000
Fixed costs
Variable costs
Total expected costs
66,150
$ 336,150
Total grade: 0.0×1/3 + 0.0×1/3 + 0.0×1/3 = 0% + 0% + 0%
Feedback:
450 beds × 70% = 315 beds occupied:
Variable costs: 315 beds × 30 days × $7 per bed-day = 66,150
Question 10: Score 0.8/4
Your response
Exercise 6-1 Preparing a Contribution Format Income Statement [LO1]
Whirly Corporation's most recent income statement is shown below:
Total
Sales (10,000
units)
Variable expenses
Contribution
margin
Fixed expenses
Exercise 6-1 Preparing a Contribution Format Income Statement [LO1]
Whirly Corporation's most recent income statement is shown below:
Per Unit
$ 350,000
$ 35.00
200,000
20.00
150,000
$ 15.00
135,000
Correct response
Sales (10,000
units)
Variable expenses
Contribution
margin
Fixed expenses
Total
Per Unit
$ 350,000
$ 35.00
200,000
20.00
150,000
$ 15.00
135,000
Net operating
income
Net operating
income
$ 15,000
Prepare a new contribution format income statement under each of the following
conditions (consider each case independently):
Requirement 1:
The sales volume increases by 100 units. (Omit the "$" sign in your response.)
Prepare a new contribution format income statement under each of the following
conditions (consider each case independently):
Requirement 1:
The sales volume increases by 100 units. (Omit the "$" sign in your response.)
Total
Sales
Variable
expenses
Contribution
margin
Fixed
expenses
Net operating
income
$
350000
(0%)
200000
(0%)
150000
(0%)
135000
$
15000
$ 15,000
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income
Total
$ 353,500
202,000
151,500
135000
$ 16,500
(20%)
(0%)
Total grade: 0.0×1/5 + 0.0×1/5 + 0.0×1/5 + 1.0×1/5 + 0.0×1/5 = 0% + 0% + 0% + 20% + 0%
Feedback:
Sales (10,100 × $35.00) = $353,500
Variable expenses (10,100 × $20.00) = $202,000
You can get the same net operating income using the following approach.
Original net operating
income
Change in contribution
margin
$ 15,000
(100 units × $15.00 per
unit)
New net operating
income
1,500
$ 16,500
Your response
Requirement 2:
The sales volume decreases by 100 units. (Omit the "$" sign in your response.)
Correct response
Requirement 2:
The sales volume decreases by 100 units. (Omit the "$" sign in your response.)
Total
Sales
Variable
expenses
Contribution
margin
Fixed
expenses
$
350000
(0%)
200000
(0%)
150000
(0%)
135000
(20%)
Total
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income
$ 346,500
198,000
148,500
135000
$ 13,500
Net operating
income
$
15000
(0%)
Total grade: 0.0×1/5 + 0.0×1/5 + 0.0×1/5 + 1.0×1/5 + 0.0×1/5 = 0% + 0% + 0% + 20% + 0%
Feedback:
Sales (9,900 × $35.00) = $346,500
Sales (9,900 × $20.00) = $198,000
You can get the same net operating income using the following approach.
Original net operating
income
Change in contribution
margin
(-100 units × $15.00
per unit)
New net operating
income
$ 15,000
(1,500)
$ 13,500
Your response
Requirement 3:
The sales volume is 9,000 units. (Leave no cells blank - be certain to enter "0"
wherever required. Omit the "$" sign in your response.)
Total
Sales
Variable
expenses
Contribution
margin
Fixed
expenses
Net operating
income
$
350000
(0%)
200000
(0%)
150000
(0%)
135000
$
15000
(20%)
(0%)
Total grade: 0.0×1/5 + 0.0×1/5 + 0.0×1/5 + 1.0×1/5 + 0.0×1/5 = 0% + 0% + 0% + 20% + 0%
Feedback:
Sales (9,000 × $35.00) = $315,000
Variable expenses (9,000 × $20.00) = $180,000
Note: This is the company's break-even point
Question 11: Score 0/4
Correct response
Requirement 3:
The sales volume is 9,000 units. (Leave no cells blank - be certain to enter "0"
wherever required. Omit the "$" sign in your response.)
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income
Total
$ 315,000
180,000
135,000
135000
0
$
Your response
Exercise 6-4 Computing and Using the CM Ratio [LO3]
Last month when Holiday Creations, Inc., sold 50,000 units, total sales were $200,000, total
variable expenses were $120,000, and fixed expenses were $65,000.
Requirement 1:
What is the company's contribution margin (CM) ratio? (Omit the "%" sign in your
response.)
Contribution margin
ratio
5
(0%) %
Correct response
Exercise 6-4 Computing and Using the CM Ratio [LO3]
Last month when Holiday Creations, Inc., sold 50,000 units, total sales were $200,000, total
variable expenses were $120,000, and fixed expenses were $65,000.
Requirement 1:
What is the company's contribution margin (CM) ratio? (Omit the "%" sign in your
response.)
Contribution margin ratio
40 %
Total grade: 0.0×1/1 = 0%
Feedback:
The company's contribution margin (CM) ratio is:
Total sales
$ 200,000
Total variable expenses 120,000
= Total contribution
80,000
margin
÷ Total sales
$ 200,000
= CM ratio
40%
Your response
Requirement 2:
Estimate the change in the company's net operating income if it were to increase its total
sales by $1,000.(Omit the "$" sign in your response.).
Estimated change in net operating
income
$
500
(0%)
Total grade: 0.0×1/1 = 0%
Feedback:
The change in net operating income from an increase in total sales of $1,000 can be
estimated by using the CM ratio as follows:
Change in total sales
× CM ratio
= Estimated change in net operating
income
Question 12: Score 2.66/4
$ 1,000
40 %
$ 400
Correct response
Requirement 2:
Estimate the change in the company's net operating income if it were to increase its total
sales by $1,000.(Omit the "$" sign in your response.).
Estimated change in net operating income
$
400
Your response
Exercise 6-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume
[LO4]
Data for Hermann Corporation are shown below:
Selling price
Variable expenses
Contribution
margin
Per unit
$ 90
63
Percent
of Sales
100%
70 %
$ 27
Correct response
Exercise 6-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume
[LO4]
Data for Hermann Corporation are shown below:
Selling price
Variable expenses
Contribution
margin
30%
Per unit
$ 90
63
Percent
of Sales
100%
70 %
$ 27
30%
Fixed expenses are $30,000 per month and the company is selling 2,000 units per month.
Fixed expenses are $30,000 per month and the company is selling 2,000 units per month.
Requirement 1:
(a) Calculate the change in net operating income if a $5,000 increase in the monthly
advertising budget would increase monthly sales by $9,000. (Negative amount should
be indicated by a minus sign. Omit the "$" sign in your response.)
Requirement 1:
(a) Calculate the change in net operating income if a $5,000 increase in the monthly
advertising budget would increase monthly sales by $9,000. (Negative amount should
be indicated by a minus sign. Omit the "$" sign in your response.)
Change in net operating income
$
500
(0%)
Change in net operating income
Total grade: 0.0×1/1 = 0%
Feedback:
The following table shows the effect of the proposed change in monthly advertising
budget:
Sales
Variable
expenses
Contribution
margin
Fixed
expenses
Net operating
income
Current
sales
$180,000
Sales with
Additional
Advertising
Budget
$189,000
Difference
$ 9,000
126,000
132,300
6,300
54,000
56,700
2,700
30,000
35,000
5,000
$ 24,000
$ 21,700
($ 2,300 )
(b) Should the advertising budget be increased as suggested in requirement 1(a) above?
Your Answer:
Choic
e
Selecte
d
Yes
No
Feedback:
Assuming no other important factors need to be considered, the increase in the
$ -2,300
advertising budget should not be approved because it would lead to a decrease in net
operating income of $2,300.
Requirement 2:
Refer to the original data. Management is considering using higher-quality components
that would increase the variable cost by $2 per unit. The marketing manager believes the
higher-quality product would increase sales by 10% per month. Should the higher-quality
components be used?
Your Answer:
Choic
e
Selecte
d
Yes
No
Feedback:
The $2 increase in variable cost will cause the unit contribution margin to decrease from
$27 to $25 with the following impact on net operating income:
Expected total contribution margin
with the higher-quality components:
2,200 units × $25 per unit
Present total contribution margin:
2,000 units × $27 per unit
Change in total contribution margin
$ 55,000
54,000
$ 1,000
Assuming no change in fixed costs and all other factors remain the same, the higherquality components should be used.
Question 13: Score 0/4
Your response
Correct response
Exercise 6-6 Compute the Level of Sales Required to Attain a Target Profit [LO5]
Lin Corporation has a single product whose selling price is $120 and whose variable
expense is $80 per unit. The company's monthly fixed expense is $50,000.
Exercise 6-6 Compute the Level of Sales Required to Attain a Target Profit [LO5]
Lin Corporation has a single product whose selling price is $120 and whose variable
expense is $80 per unit. The company's monthly fixed expense is $50,000.
Requirement 1:
Using the equation method, solve for the unit sales that are required to earn a target profit
of $10,000.
Requirement 1:
Using the equation method, solve for the unit sales that are required to earn a target profit
of $10,000.
Unit sales to earn target profit
5
(0%) units
Total grade: 0.0×1/1 = 0%
Feedback:
The equation method yields the required unit sales, Q, as follows:
Profit = [Unit CM × Q] − Fixed expenses
$10,000 = [($120 − $80) × Q] − $50,000
Unit sales to earn target profit 1,500 units
$10,000
$40 ×
Q
Q
Q
= [($40) × Q] − $50,000
= $10,000 + $50,000
= $60,000 ÷ $40
= 1,500 units
Your response
Correct response
Requirement 2:
Using the formula method, solve for the unit sales that are required to earn a target profit of
$15,000.
Requirement 2:
Using the formula method, solve for the unit sales that are required to earn a target profit of
$15,000.
Unit sales to earn target profit
50
(0%) units
Unit sales to earn target profit
1,625 units
Total grade: 0.0×1/1 = 0%
Feedback:
The formula approach yields the required unit sales as follows:
Question 14: Score 0/4
Your response
Exercise 6-7 Compute the Break-Even Point [LO6]
Mauro Products distributes a single product, a woven basket whose selling price is $15 and
whose variable expense is $12 per unit. The company's monthly fixed expense is $4,200.
Requirement 1:
Solve for the company's break-even point in unit sales using the equation method.
Break-even point in unit
sales
500
(0%) baskets
Total grade: 0.0×1/1 = 0%
Feedback:
The equation method yields the break-even point in unit sales, Q, as follows:
Profit = [Unit CM × Q] − Fixed expenses
$0 = [($15 − $12) × Q] − $4,200
$0 = [($3) × Q] − $4,200
Correct response
Exercise 6-7 Compute the Break-Even Point [LO6]
Mauro Products distributes a single product, a woven basket whose selling price is $15 and
whose variable expense is $12 per unit. The company's monthly fixed expense is $4,200.
Requirement 1:
Solve for the company's break-even point in unit sales using the equation method.
Break-even point in unit sales
1,400 baskets
$3Q = $4,200
Q = $4,200 ÷ $3
Q = 1,400 baskets
The formula method gives an answer that is identical to the equation method for the breakeven point in unit sales:
Fixed
Unit sales to break even = expenses
Unit CM
$4,200
=
$3
= 1,400 baskets
Your response
Requirement 2:
Solve for the company's break-even point in sales dollars using the equation method and
the CM ratio. (Omit the "$" sign in your response.)
Break-even point in
sales
$
500
Correct response
Requirement 2:
Solve for the company's break-even point in sales dollars using the equation method and
the CM ratio. (Omit the "$" sign in your response.)
Break-even point in sales
(0%)
$ 21,000
Total grade: 0.0×1/1 = 0%
Feedback:
The equation method can be used to compute the break-even point in sales dollars as
follows:
Unit contribution
CM ratio = margin
Unit selling price
$3
=
$15
= 0.20
Profit = [CM ratio × Sales] − Fixed expenses
$0 = [0.20 × Sales] − $4,200
0.20 × Sales = $4,200
Sales = $4,200 ÷ 0.20
Sales = $21,000
The formula method also gives an answer that is identical to the equation method for the
break-even point in dollar sales:
Fixed
Dollar sales to break even = expenses
CM ratio
$4,200
=
0.20
= $21,000
Question 15: Score 0/4
Your response
Correct response
Exercise 6-8 Compute the Margin of Safety [LO7]
Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data
concerning the next month's budget appear below:
Selling price
Variable expenses
Fixed expenses
Unit sales
$
30 per unit
$
20 per unit
$ 7,500 per month
units per
1,000
month
Selling price
Variable expenses
Fixed expenses
Unit sales
Requirement 1:
Compute the company's margin of safety. (Omit the "$" sign in your response.)
Margin of
safety
$
500
Exercise 6-8 Compute the Margin of Safety [LO7]
Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data
concerning the next month's budget appear below:
Requirement 1:
Compute the company's margin of safety. (Omit the "$" sign in your response.)
Margin of safety
(0%)
$
30 per unit
$
20 per unit
$ 7,500 per month
units per
1,000
month
$ 7,500
Total grade: 0.0×1/1 = 0%
Feedback:
To compute the margin of safety, we must first compute the break-even unit sales.
Profit = [Unit CM × Q] − Fixed expenses
$0 = [($30 − $20) × Q] − $7,500
$0 = [($10) × Q] − $7,500
$10Q = $7,500
Q = $7,500 ÷ $10
Q = 750 units
Sales (at the budgeted volume of
1,000 units)
Less break-even sales (at 750 units)
Margin of safety (in dollars)
$ 30,000
22,500
$ 7,500
Your response
Requirement 2:
Compute the company's margin of safety as a percentage of its sales. (Omit the "%"
sign in your response.)
Margin of safety as a percentage of
sales
5
(0%) %
Total grade: 0.0×1/1 = 0%
Feedback:
The margin of safety as a percentage of sales is as follows:
Margin of safety (in dollars)
÷ Sales
Margin of safety percentage
$ 7,500
$ 30,000
25%
Correct response
Requirement 2:
Compute the company's margin of safety as a percentage of its sales. (Omit the "%"
sign in your response.)
Margin of safety as a percentage of sales
25 %
Question 16: Score 0.19/4
Your response
Correct response
Exercise 6-9 Compute and Use the Degree of Operating Leverage [LO8]
Engberg Company installs lawn sod in home yards. The company's most recent monthly
contribution format income statement follows:
Sales
Variable expenses
Contribution
margin
Fixed expenses
Net operating
income
Percent
Amount of Sales
$ 80,000
100 %
32,000
40 %
48,000
Sales
Variable expenses
Contribution
margin
Fixed expenses
Net operating
income
60 %
38,000
$ 10,000
Requirement 1:
Compute the company's degree of operating leverage. (Round your answer to 1 decimal
place.)
Degree of operating
leverage
1000
Exercise 6-9 Compute and Use the Degree of Operating Leverage [LO8]
Engberg Company installs lawn sod in home yards. The company's most recent monthly
contribution format income statement follows:
Percent
Amount of Sales
$ 80,000
100 %
32,000
40 %
48,000
38,000
$ 10,000
Requirement 1:
Compute the company's degree of operating leverage. (Round your answer to 1 decimal
place.)
Degree of operating leverage
(0%)
60 %
4.8
Total grade: 0.0×1/1 = 0%
Feedback:
The company's degree of operating leverage would be computed as follows:
Contribution margin
÷ Net operating income
Degree of operating
leverage
$ 48,000
$ 10,000
4.8
Your response
Correct response
Requirement 2:
Using the degree of operating leverage, estimate the impact on net operating income of a
5% increase in sales. (Omit the "%" sign in your response.)
Requirement 2:
Using the degree of operating leverage, estimate the impact on net operating income of a
5% increase in sales. (Omit the "%" sign in your response.)
Estimated percent change in net operating
income
5
(0%) %
Total grade: 0.0×1/1 = 0%
Feedback:
A 5% increase in sales should result in a 24% increase in net operating income, computed
as follows:
Estimated percent change in net operating
income
24 %
Degree of operating leverage
× Percent increase in sales
Estimated percent increase in net operating
income
4.8
5%
24 %
Your response
Correct response
Requirement 3:
Verify your estimate from requirement (2) above by constructing a new contribution
format income statement for the company assuming a 5% increase in sales. (Omit the "$"
and "%" sign in your response.)
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income
Original net operating income
Percent change in net
operating income
$
$
$
Amount
(0%)
(0%)
48000
(0%)
38000 (14%)
10000
(0%)
5000
(0%)
80000
32000
100
Requirement 3:
Verify your estimate from requirement (2) above by constructing a new contribution
format income statement for the company assuming a 5% increase in sales. (Omit the "$"
and "%" sign in your response.)
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income
Original net operating income
Percent change in net operating income
(0%) %
Amount
$ 84,000
33,600
50,400
38000
$ 12,400
$ 10,000
24 %
Total grade: 0.0×1/7 + 0.0×1/7 + 0.0×1/7 + 1.0×1/7 + 0.0×1/7 + 0.0×1/7 + 0.0×1/7 = 0% + 0% + 0% + 14% + 0% + 0% + 0%
Question 17: Score 0/4
Your response
Correct response
Exercise 6-10 Compute the Break-Even Point for a Multiproduct Company [LO9]
Lucido Products markets two computer games: Claimjumper and Makeover. A
contribution format income statement for a recent month for the two games appears on the
following page:
Exercise 6-10 Compute the Break-Even Point for a Multiproduct Company [LO9]
Lucido Products markets two computer games: Claimjumper and Makeover. A
contribution format income statement for a recent month for the two games appears on the
following page:
Sales
Variable expenses
Contribution
margin
Fixed expenses
Net operating
income
Claimjumper
$
30,000
20,000
$
10,000
Makeover
$ 70,000
50,000
Total
$ 100,000
70,000
$ 20,000
30,000
24,000
$
6,000
Requirement 1:
Compute the overall contribution margin (CM) ratio for the company. (Omit the "%"
Sales
Variable expenses
Contribution
margin
Fixed expenses
Net operating
income
Claimjumper
$
30,000
20,000
$
10,000
Makeover
$ 70,000
50,000
Total
$ 100,000
70,000
$ 20,000
30,000
24,000
$
6,000
Requirement 1:
Compute the overall contribution margin (CM) ratio for the company. (Omit the "%"
sign in your response.)
Overall CM
ratio
5
sign in your response.)
Overall CM ratio
(0%) %
30 %
Total grade: 0.0×1/1 = 0%
Feedback:
The overall contribution margin ratio can be computed as follows:
Your response
Correct response
Requirement 2:
Compute the overall break-even point for the company in sales dollars. (Omit the "$"
sign in your response.)
Overall breakeven
$
500
Requirement 2:
Compute the overall break-even point for the company in sales dollars. (Omit the "$"
sign in your response.)
Overall break-even
(0%)
$ 80,000
Total grade: 0.0×1/1 = 0%
Feedback:
The overall break-even point in sales dollars can be computed as follows:
Your response
Correct response
Requirement 3:
Verify the overall break-even point for the company by constructing a contribution format
income statement showing the appropriate levels of sales for the two products. (Round
your answers to the nearest dollar amount. Do not round your interim calculation.
Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" and
"%" sign in your response.)
Requirement 3:
Verify the overall break-even point for the company by constructing a contribution format
income statement showing the appropriate levels of sales for the two products. (Round
your answers to the nearest dollar amount. Do not round your interim calculation.
Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" and
"%" sign in your response.)
Claimjumper
Original dollar
sales
Sales at breakeven
Makeover
Total
$
50
(0%)
$
500
(0%)
$
5000
(0%)
$
2
(0%)
$
10
(0%)
$
100
(0%)
Claimjumper
Makeover
Total
Original dollar sales
Sales at break-even
Sales
Variable expenses
Claimjumper
30,000
$
24,000
$
Makeover
$ 70,000
$ 56,000
Claimjumper
24,000
$
Makeover
$ 56,000
16,000
40,000
Total
$ 100,000
$ 80,000
Total
$ 80,000
56,000
Sales
Variable
expenses
Contribution
margin
Fixed
expenses
Net operating
income
$
$
50
(0%)
20
(0%)
30
(0%)
$
$
500
(0%)
30
470
$
5000
(0%)
(0%)
400
(0%)
(0%)
4600
(0%)
500
(0%)
4100
(0%)
$
Contribution margin
Fixed expenses
Net operating income
8,000
$
$ 16,000
24,000
24,000
0
$
Total grade: 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 = 0% + 0% + 0% + 0% + 0% + 0%
+ 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%
Feedback:
Claimjumper variable expenses: ($24,000/$30,000) × $20,000 = $16,000
Makeover variable expenses: ($56,000/$70,000) × $50,000 = $40,000
Question 18: Score 1/4
Your response
Exercise 6-11 Using a Contribution Format Income Statement [LO1, LO4]
Miller Company's most recent contribution format income statement is shown below:
Sales (20,000 units)
Variable expenses
Contribution margin
Fixed expenses
Net operating income
Total
$ 300,000
180,000
120,000
70,000
$ 50,000
Per Unit
$ 15.00
9.00
$ 6.00
Correct response
Exercise 6-11 Using a Contribution Format Income Statement [LO1, LO4]
Miller Company's most recent contribution format income statement is shown below:
Sales (20,000 units)
Variable expenses
Contribution margin
Fixed expenses
Net operating income
Total
$ 300,000
180,000
120,000
70,000
$ 50,000
Per Unit
$ 15.00
9.00
$ 6.00
Required:
Prepare a new contribution format income statement under each of the following
conditions (consider each case independently): (Round your per unit values to 2 decimal
places. Omit the "$" sign in your response.)
Required:
Prepare a new contribution format income statement under each of the following
conditions (consider each case independently): (Round your per unit values to 2 decimal
places. Omit the "$" sign in your response.)
(a) The number of units sold increases by 15%.
(a) The number of units sold increases by 15%.
Total
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income
$
$
300000
180000
(0%)
(0%)
120000
(0%)
70000 (13%)
50000
(0%)
Per Unit
$ 15 (13%)
9 (13%)
$ 6 (13%)
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income
Total
$ 345,000
207,000
138,000
$
70000
68,000
Total grade: 0.0×1/8 + 1.0×1/8 + 0.0×1/8 + 1.0×1/8 + 0.0×1/8 + 1.0×1/8 + 1.0×1/8 + 0.0×1/8 = 0% + 13% + 0% + 13% + 0% + 13% + 13% + 0%
Per Unit
15
$
$
9
6
Feedback:
Sales (20,000 units × 1.15 = 23,000 units)
Your response
(b)
Correct response
The selling price decreases by $1.50 per unit, and the number of units sold increases by
25%.
Total
Sales
Variable expenses
Contribution
margin
Fixed expenses
Net operating
income
$
300000
180000
(0%)
(0%)
Per Unit
$ 15 (0%)
9 (13%)
120000
(0%)
$
70000
$
50000
6
(0%)
(13%)
(0%)
(b)
The selling price decreases by $1.50 per unit, and the number of units sold increases by
25%.
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income
Total
$ 337,500
225,000
112,500
$
Per Unit
$ 13.5
$
9
4.5
70000
42,500
Total grade: 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 1.0×1/8 + 0.0×1/8 + 0.0×1/8 + 1.0×1/8 + 0.0×1/8 = 0% + 0% + 0% + 13% + 0% + 0% + 13% + 0%
Feedback:
Sales (20,000 units × 1.25 = 25,000 units)
Your response
Correct response
(c) The selling price increases by $1.50 per unit, fixed expenses increase by $20,000, and
the number of units sold decreases by 5%.
Total
Sales
Variable expenses
Contribution
margin
Fixed expenses
Net operating
income
$
$
300000
180000
(0%)
(0%)
$
120000
(0%)
$
70000
(0%)
50000
(0%)
Per Unit
15
(0%)
9 (13%)
6
(0%)
(c) The selling price increases by $1.50 per unit, fixed expenses increase by $20,000, and
the number of units sold decreases by 5%.
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income
Total
$ 313,500
171,000
142,500
$
Per Unit
$ 16.5
$
9
7.5
90,000
52,500
Total grade: 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 1.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 = 0% + 0% + 0% + 13% + 0% + 0% + 0% + 0%
Feedback:
Sales (20,000 units × 0.95 = 19,000 units)
Your response
Correct response
(d) The selling price increases by 12%, variable expenses increase by 60 cents per unit,
and the number of units sold decreases by 10%.
Total
Sales
Variable expenses
Contribution
margin
$
300000
180000
(0%)
(0%)
$
120000
(0%)
$
Per Unit
15
(0%)
9
(0%)
6
(0%)
(d) The selling price increases by 12%, variable expenses increase by 60 cents per unit,
and the number of units sold decreases by 10%.
Sales
Variable expenses
Contribution margin
Fixed expenses
Total
$ 302,400
172,800
129,600
70000
Per Unit
$ 16.8
$
9.6
7.2
Fixed expenses
Net operating
income
70000
$
(13%)
50000
$ 59,600
Net operating income
(0%)
Total grade: 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 1.0×1/8 + 0.0×1/8 = 0% + 0% + 0% + 0% + 0% + 0% + 13% + 0%
Feedback:
Sales (20,000 units × 0.90 = 18,000 units)
Question 19: Score 0/4
Your response
Exercise 6-12 Target Profit and Break-Even Analysis; Margin of Safety; CM Ratio
[LO1, LO3, LO5, LO6, LO7]
Menlo Company distributes a single product. The company's sales and expenses for last
month follow:
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income
Total
$ 450,000
180,000
270,000
216,000
$ 54,000
Per
Unit
$ 30
12
$ 18
Requirement 1:
What is the monthly break-even point in units sold and in sales dollars? (Omit the "$"
sign in your response.)
Monthly breakeven point
Sales
5
$
50000
(0%) units
(0%)
Correct response
Exercise 6-12 Target Profit and Break-Even Analysis; Margin of Safety; CM Ratio
[LO1, LO3, LO5, LO6, LO7]
Menlo Company distributes a single product. The company's sales and expenses for last
month follow:
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income
Total
$ 450,000
180,000
270,000
216,000
$ 54,000
Per
Unit
$ 30
12
$ 18
Requirement 1:
What is the monthly break-even point in units sold and in sales dollars? (Omit the "$"
sign in your response.)
12,000 units
Monthly break-even point
Sales
$ 360,000
Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%
Feedback:
Profit = Unit CM × Q − Fixed expenses
$0Q = ($30 − $12) × Q − $216,000
$0Q = ($18) × Q − $216,000
$18Q = $216,000
Q = $216,000 ÷ $18
Q = 12,000 units, or at $30 per unit, $360,000
Your response
Correct response
Requirement 2:
Without resorting to computations, what is the total contribution margin at the break-even
point? (Omit the "$" sign in your response.)
Total contribution margin at the breakeven point
$
500
(0%)
Requirement 2:
Without resorting to computations, what is the total contribution margin at the break-even
point? (Omit the "$" sign in your response.)
Total contribution margin at the break-even
point
$ 216,000
Total grade: 0.0×1/1 = 0%
Feedback:
The contribution margin is $216,000 because the contribution margin is equal to the fixed
expenses at the break-even point.
Your response
Requirement 3:
How many units would have to be sold each month to earn a target profit of $90,000? Use
the formula method.
Units
sold
(0%) units
500
Correct response
Requirement 3:
How many units would have to be sold each month to earn a target profit of $90,000? Use
the formula method.
Units sold
17,000 units
Total grade: 0.0×1/1 = 0%
Feedback:
Your response
Requirement 4:
Refer to the original data. Compute the company's margin of safety in both dollar and
percentage terms. (Omit the "$" and "%" signs in your response.)
Dollars
Margin of
safety
$
50
Correct response
Requirement 4:
Refer to the original data. Compute the company's margin of safety in both dollar and
percentage terms. (Omit the "$" and "%" signs in your response.)
Percentage
(0%)
5
Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%
Feedback:
Margin of safety in dollar terms:
Margin of safety in percentage terms:
(0%) %
Margin of safety
Dollars
$ 90,000
Percentage
20 %
Your response
Correct response
Requirement 5:
What is the company's CM ratio? If sales increase by $50,000 per month and there is no
change in fixed expenses, by how much would you expect monthly net operating income
to increase? (Omit the "$" and "%" signs in your response.)
Requirement 5:
What is the company's CM ratio? If sales increase by $50,000 per month and there is no
change in fixed expenses, by how much would you expect monthly net operating income
to increase? (Omit the "$" and "%" signs in your response.)
CM ratio
Increase in net operating income $
5
500
(0%) %
(0%)
CM ratio
Increase in net operating income
60 %
$ 30,000
Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%
Feedback:
The CM ratio is 60%.
Expected total contribution margin:
($500,000 × 60%)
Present total contribution margin: ($450,000
× 60%)
Increase in contribution margin
$ 300,000
270,000
$ 30,000
Given that the company's fixed expenses will not change, monthly net operating income
will also increase by $30,000.
Alternative solution:
$50,000 incremental sales × 60% CM ratio = $30,000
Question 20: Score 0/4
Your response
Correct response
Exercise 6-13 Target Profit and Break-Even Analysis [LO3, LO4, LO5, LO6]
Lindon Company is the exclusive distributor for an automotive product that sells for $40
per unit and has a CM ratio of 30%. The company's fixed expenses are $180,000 per year.
The company plans to sell 16,000 units this year.
Exercise 6-13 Target Profit and Break-Even Analysis [LO3, LO4, LO5, LO6]
Lindon Company is the exclusive distributor for an automotive product that sells for $40
per unit and has a CM ratio of 30%. The company's fixed expenses are $180,000 per year.
The company plans to sell 16,000 units this year.
Requirement 1:
What are the variable expenses per unit? (Omit the "$" sign in your response.)
Requirement 1:
What are the variable expenses per unit? (Omit the "$" sign in your response.)
Variable expenses per unit $
40
Variable expenses per unit
(0%)
$ 28
Total grade: 0.0×1/1 = 0%
Feedback:
Variable expenses: $40 × (100% – 30%) = $28.
Your response
Requirement 2:
Use the equation method for the following:
Requirement 2:
Use the equation method for the following:
(a) What is the break-even point in units and sales dollars? (Omit the "$" sign in your
response.)
Break-even point in units
Break-even point in sales
dollars
40
$
400
Correct response
(0%) units
(0%)
(a) What is the break-even point in units and sales dollars? (Omit the "$" sign in your
response.)
Break-even point in units
Break-even point in sales dollars
15,000
$ 600,000
units
Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%
Feedback:
Selling price
Variable expenses
Contribution margin
Profit
$0
$12Q
Q
Q
=
=
=
=
=
$ 40
28
$ 12
100 %
70 %
30 %
Unit CM × Q − Fixed expenses
$12 × Q − $180,000
$180,000
$180,000 ÷ $12
15,000 units
In sales dollars: 15,000 units × $40 per unit = $600,000
Your response
(b) What sales level in units and in sales dollars is required to earn an annual profit of
$60,000? (Omit the "$" sign in your response.)
Sales level in units
Sales level in dollars
$
50
5000
(0%) units
(0%)
Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%
Feedback:
Profit = [Unit CM × Q] − Fixed expenses
$60,000 = [$12 × Q] − $180,000
$12Q = $60,000 + $180,000
$12Q = $240,000
Q = $240,000 ÷ $12
Q = 20,000 units
In sales dollars: 20,000 units × $40 per unit = $800,000
Correct response
(b) What sales level in units and in sales dollars is required to earn an annual profit of
$60,000? (Omit the "$" sign in your response.)
Sales level in units
Sales level in dollars
20,000
800,000
$
units
Your response
Correct response
(c) Assume that by using a more efficient shipper, the company is able to reduce its
variable expenses by $4 per unit. What is the company's new break-even point in units
and sales dollars? (Omit the "$" sign in your response.)
New break-even point in units
New break-even point in sales
dollars
(0%) units
50
$
5000
(c) Assume that by using a more efficient shipper, the company is able to reduce its
variable expenses by $4 per unit. What is the company's new break-even point in units
and sales dollars? (Omit the "$" sign in your response.)
New break-even point in units
New break-even point in sales dollars
(0%)
11,250
$ 450,000
units
Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%
Feedback:
The company's new cost/revenue relation will be:
Selling price
Variable expenses ($28 –
$4)
Contribution margin
Profit
$0
$16Q
Q
Q
=
=
=
=
=
$ 40
100 %
24
60 %
$ 16
40 %
[Unit CM × Q] − Fixed expenses
[($40 − $24) × Q] − $180,000
$180,000
$180,000 ÷ $16
11,250 units
In sales dollars: 11,250 units × $40 per unit = $450,000
Question 21: Score 0.25/4
Your response
Correct response
Exercise 6-14 Missing Data; Basic CVP Concepts [LO1, LO9]
Fill in the missing amounts in each of the eight case situations below. Each case is
independent of the others. (Hint: One way to find the missing amounts would be to prepare
a contribution format income statement for each case, enter the known data, and then
compute the missing items.)
Exercise 6-14 Missing Data; Basic CVP Concepts [LO1, LO9]
Fill in the missing amounts in each of the eight case situations below. Each case is
independent of the others. (Hint: One way to find the missing amounts would be to prepare
a contribution format income statement for each case, enter the known data, and then
compute the missing items.)
Requirement 1:
Assume that only one product is being sold in each of the four following case situations:
(Omit the "$" sign in your response.)
Requirement 1:
Assume that only one product is being sold in each of the four following case situations:
(Omit the "$" sign in your response.)
Case #1
15,000
Units Sold
Sales
Variable
Expenses
Contributio
n Margin
Fixed
$
180,000 $
Case #2
12000
(0%)
100,000 $
110000
Case #3
10,000
250000
(0%
$
)
Case #4
6,000
300,000
50000
(0%
)
70,000
60,000
40,000
130,000
90,000
50,000
32,000
(0%)
100,000
120,000
25000
(0%
)
Units Sold
Sales
Variable Expenses
Contribution Margin
Fixed expenses
Net Operating Income (Loss)
Contribution Margin per Unit
Case #1 Case #2
4,000
15,000
$ 180,000 $ 100,000
120,000 60,000
60,000
40,000
50,000
32,000
10,000
8,000
4 $
$
10
Case #3 Case #4
10,000
6,000
$ 200,000 $ 300,000
70,000 210,000
130,000
90,000
118,000 100,000
12,000 (10,000)
15
$
13 $
expenses
Net
Operating
Income
(Loss)
Contributio
n Margin
per Unit
5000
$
5
(0%
)
8,000
(0%) $
12,000
10 $
(10,000)
13 $
15
(13%)
Total grade: 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 1.0×1/8 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 13%
Feedback:
Case #1
Case #2
Number of units
15,000 *
4,000
sold
Sales
$ 180,000 * $ 12 $ 100,000 * $ 25
Variable Expenses
120,000 *
8
60,000
15
Contribution
60,000
$ 4
40,000
$ 10 *
margin
Fixed Expenses
50,000 *
32,000 *
Net operating
$ 10,000
$ 8,000 *
income
Number of units sold
Sales
Variable Expenses
Contribution margin
Fixed Expenses
Net operating
income
Case #3
10,000 *
$ 200,000
$ 20
70,000 *
7
130,000
$ 13 *
118,000
Case #4
6,000*
$ 300,000* $ 50
210,000
35
90,000
$ 15
100,000*
$ 12,000 *
$ (10,000)*
* Given
Your response
Correct response
Requirement 2:
Assume that more than one product is being sold in each of the four following case
situations: (Omit the "$" and "%" signs in your response.)
Requirement 2:
Assume that more than one product is being sold in each of the four following case
situations: (Omit the "$" and "%" signs in your response.)
Sales
$
Variable
Expenses
Contribution
Margin
Fixed
expenses
Case #1
500,000
200000
(0%)
100,000
70000
(0%)
$
Case #2
400,000
260,000
140,000
100,000
$
Case #3
300000
(0%)
320000
Case #4
600,000
420,000
(0%)
150,000
130,000
180,000
160000
(0%)
Sales
$
Variable Expenses
Contribution Margin
Fixed expenses
Net Operating Income (Loss)
$
Average Contribution Margin Ratio
Case #1
500,000
$
400,000
100,000
93,000
7,000
$
20 %
Case #2
400,000
260,000
140,000
100,000
40,000
35
Case #3
$
$
%
250,000
100,000
150,000
130,000
20,000
$
60 %
Case #4
600,000
420,000
180,000
185,000
(5,000)
30
%
Net
Operating
$
Income
(Loss)
Average
Contribution
Margin
Ratio
7,000
$
20 %
13500
40
(0%)
$
(0%) %
20,000
$
60 %
(5,000)
80
(0%) %
Total grade: 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%
Feedback:
Case #1
Case #2
Sales
$ 500,000 * 100 % $ 400,000 * 100%
Variable Expenses
400,000
80
260,000 *
65
Contribution
100,000
20 %*
140,000
35%
margin
Fixed Expenses
93,000
100,000 *
Net operating
$ 7,000 *
$ 40,000
income
Sales
Variable Expenses
Contribution
margin
Fixed Expenses
Net operating
income
Case #3
$ 250,000
100 %
100,000
40
150,000
130,000 *
$ 20,000 *
60 %*
Case #4
$ 600,000* 100 %
420,000*
70
180,000
30 %
185,000
$ (5,000)*
* Given
Question 22: Score 1/4
Your response
Correct response
Exercise 6-15 Operating Leverage [LO4, LO8]
Magic Realm, Inc., has developed a new fantasy board game. The company sold 15,000
games last year at a selling price of $20 per game. Fixed costs associated with the game
total $182,000 per year, and variable costs are $6 per game. Production of the game is
entrusted to a printing contractor. Variable costs consist mostly of payments to this
contractor.
Exercise 6-15 Operating Leverage [LO4, LO8]
Magic Realm, Inc., has developed a new fantasy board game. The company sold 15,000
games last year at a selling price of $20 per game. Fixed costs associated with the game
total $182,000 per year, and variable costs are $6 per game. Production of the game is
entrusted to a printing contractor. Variable costs consist mostly of payments to this
contractor.
Requirement 1:
(a) Prepare a contribution format income statement for the game last year. (Omit the "$"
sign in your response.)
Requirement 1:
(a) Prepare a contribution format income statement for the game last year. (Omit the "$"
sign in your response.)
Total
$ 300000 (20%)
90000 (20%)
210000 (20%)
182000 (20%)
$ 28000 (20%)
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income(loss)
Your response
50
90000
210000
182000
$ 28000
Correct response
(b) Compute the degree of operating leverage. (Round your answer to 1 decimal place.)
Degree of operating
leverage
Total
$ 300000
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income(loss)
(b) Compute the degree of operating leverage. (Round your answer to 1 decimal place.)
Degree of operating leverage
(0%)
7.5
Total grade: 0.0×1/1 = 0%
Feedback:
The degree of operating leverage is:
Your response
Correct response
Requirement 2:
Management is confident that the company can sell 18,000 games next year (an increase of
3,000 games, or 20%, over last year).
Requirement 2:
Management is confident that the company can sell 18,000 games next year (an increase of
3,000 games, or 20%, over last year).
(a) Compute the expected percentage increase in net operating income for next year.
(Omit the "%" sign in your response.)
(a) Compute the expected percentage increase in net operating income for next year.
(Omit the "%" sign in your response.)
Expected percentage increase in net operating
income
5
(0%) %
Expected percentage increase in net operating
income
150 %
Total grade: 0.0×1/1 = 0%
Feedback:
Sales of 18,000 games represent a 20% increase over last year's sales. Because the degree
of operating leverage is 7.5, net operating income should increase by 7.5 times as much, or
by 150% (7.5 × 20%).
Your response
Correct response
(b) Compute the expected total dollar net operating income(loss) for next year. (Do not
prepare an income statement; use the degree of operating leverage to compute
your answer. Omit the "$" sign in your response.)
(b) Compute the expected total dollar net operating income(loss) for next year. (Do not
prepare an income statement; use the degree of operating leverage to compute
your answer. Omit the "$" sign in your response.)
Total expected net operating income(loss) $
Total grade: 0.0×1/1 = 0%
50000
(0%)
Total expected net operating income(loss) $ 70,000
Feedback:
The expected total dollar amount of net operating income for next year would be:
Last year's net operating income(loss)
Expected increase in net operating income next year (150% ×
$28,000)
Total expected net operating income(loss)
$ 28,000
42,000
$ 70,000
Question 23: Score 0/4
Your response
Exercise 6-16 Target Profit and Break-Even Analysis [LO4, LO5, LO6]
Outback Outfitters sells recreational equipment. One of the company's products, a small
camp stove, sells for $50 per unit. Variable expenses are $32 per stove, and fixed expenses
associated with the stove total $108,000 per month.
Requirement 1:
Compute the break-even point in number of stoves and in total sales dollars. (Omit the
"$" sign in your response.)
Number of
stoves
Total sales
$
50
(0%)
50000
(0%)
Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%
Feedback:
Profit = [Unit CM × Q] − Fixed expenses
$0 = [($50 − $32) × Q] − $108,000
$0 = [($18) × Q] − $108,000
$18Q = $180,000
Q = $180,000 ÷ $18
6,000 stoves, or at $50 per stove, $300,000 in
Q=
sales
Requirement 2:
If the variable expenses per stove increase as a percentage of the selling price, will it result
in a higher or a lower break-even point? (Assume that the fixed expenses remain
unchanged.)
Your Answer:
Choic
Selecte
Correc
Correct response
Exercise 6-16 Target Profit and Break-Even Analysis [LO4, LO5, LO6]
Outback Outfitters sells recreational equipment. One of the company's products, a small
camp stove, sells for $50 per unit. Variable expenses are $32 per stove, and fixed expenses
associated with the stove total $108,000 per month.
Requirement 1:
Compute the break-even point in number of stoves and in total sales dollars. (Omit the
"$" sign in your response.)
Number of stoves
Total sales
$
6,000
300,000
e
d
t
Lower
Higher
An increase in variable expenses as a percentage of the selling price would result in a
higher break-even point. If variable expenses increase as a percentage of sales, then the
contribution margin will decrease as a percentage of sales. With a lower CM ratio, more
stoves would have to be sold to generate enough contribution margin to cover the fixed
costs.
Feedback:
Your response
Correct response
Requirement 3:
At present, the company is selling 8,000 stoves per month. The sales manager is convinced
that a 10% reduction in the selling price would result in a 25% increase in monthly sales of
stoves. Prepare two contribution format income statements, one under present operating
conditions, and one as operations would appear after the proposed changes. Show both
total and per unit data on your statements. (Omit the "$" sign in your response.)
Sales
$
Variable
expenses
Contribution
margin
Fixed
expenses
Net
operating
$
income
Present: 8,000 stoves
Total
Per Unit
500000
(0%) $ 500 (0%) $
30000
470000
5000
465000
30
(0%)
(0%) $
470
Proposed:
Total
50000
3000
(0%)
470000
(0%)
5000
(0%)
$
(0%)
465000
50
(0%) stoves
Per Unit
(0%) $
50
(0%)
(0%)
(0%) $
30
470
Requirement 3:
At present, the company is selling 8,000 stoves per month. The sales manager is convinced
that a 10% reduction in the selling price would result in a 25% increase in monthly sales of
stoves. Prepare two contribution format income statements, one under present operating
conditions, and one as operations would appear after the proposed changes. Show both
total and per unit data on your statements. (Omit the "$" sign in your response.)
(0%)
(0%)
(0%)
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income
$
Present: 8,000 stoves
Proposed: 10,000 stoves
Total
Per Unit
Total
Per Unit
400,000 $
50 $
450,000 $
45
256,000
144,000
$
$
108,000
36,000
32
18
320,000
130,000
$
$
32
13
108,000
22,000
(0%)
Total grade: 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 = 0% + 0% + 0% + 0% + 0% + 0%
+ 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%
Feedback:
Proposed: 8,000 stoves × 1.25 = 10,000 stoves
Sales: $50 × 0.9 = $45
As shown above, a 25% increase in volume is not enough to offset a 10% reduction in the
selling price; thus, net operating income decreases.
Your response
Correct response
Requirement 4:
At present, the company is selling 8,000 stoves per month. The sales manager is convinced
that a 10% reduction in the selling price would result in a 25% increase in monthly sales of
stoves. How many stoves would have to be sold at the new selling price to yield a
minimum net operating income of $35,000 per month?
Requirement 4:
At present, the company is selling 8,000 stoves per month. The sales manager is convinced
that a 10% reduction in the selling price would result in a 25% increase in monthly sales of
stoves. How many stoves would have to be sold at the new selling price to yield a
minimum net operating income of $35,000 per month?
Number of Stoves
50
(0%)
Number of Stoves
11,000
Total grade: 0.0×1/1 = 0%
Feedback:
Profit = Unit CM × Q − Fixed expenses
$35,000 = ($45 − $32) × Q − $108,000
$35,000 = ($13) × Q − $108,000
$13 ×
= $143,000
Q
Q = $143,000 ÷ $13
Q = $11,000 stoves
Question 24: Score 0/4
Your response
Correct response
Exercise 6-18 Multiproduct Break-Even Analysis [LO9]
Olongapo Sports Corporation is the distributor in the Philippines of two premium golf
balls—the Flight Dynamic and the Sure Shot. Monthly sales, expressed in pesos (P), and
the contribution margin ratios for the two products follow:
Product
Flight
Dynamic
Sure Shot
P 150,000
P 250,000
80%
36%
Sales
CM ratio
Exercise 6-18 Multiproduct Break-Even Analysis [LO9]
Olongapo Sports Corporation is the distributor in the Philippines of two premium golf
balls—the Flight Dynamic and the Sure Shot. Monthly sales, expressed in pesos (P), and
the contribution margin ratios for the two products follow:
Total
P 400,000
?
Product
Fixed expenses total P183,750 per month.
Sales
CM ratio
Requirement 1:
Prepare a contribution format income statement for the company as a whole. (Round your
percentage values to one decimal place, e.g., .1234 as 12.3. Omit the "P" and "%"
signs in your response.)
Sales
Variable
expenses
Contributio
n margin
Fixed
expenses
Net
operating
income
P
P
Flight Dynamic
Amount
%
500000
(0
50
(0
P
%)
%)
250000
(0
50
(0
%)
%)
250000
(0
50
(0
P
%)
%)
Sure Shot
Amount
500000
(0
%)
250000
(0
%)
250000
(0
%)
%
50
(0
P
%)
50
(0
%)
50
(0
%)
P
Flight
Dynamic
P 150,000
80%
Sure Shot
P 250,000
36%
Total
P 400,000
?
Fixed expenses total P183,750 per month.
Total Company
Amount
1000000
(0
%)
500000
(0%
)
500000
(0%
)
5000
(0%)
450000
(0%
)
%
50
(0
%)
50
(0
%)
50
(0
%)
Requirement 1:
Prepare a contribution format income statement for the company as a whole. (Round your
percentage values to one decimal place, e.g., .1234 as 12.3. Omit the "P" and "%"
signs in your response.)
Flight Dynamic
Amount
%
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income
P 150,000
30,000
P 120,000
100
20
80
Sure Shot
Amount
%
P 250,000
160,000
P 90,000
100
64
36
Total Company
Amount
%
P 400,000
190,000
210,000
183,750
P 26,250
100
47.5
52.5
Total grade: 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 =
0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%
Feedback:
Total contribution margin percentage: (P210,000 ÷ P400,000) = 52.5%.
Your response
Correct response
Requirement 2:
Compute the break-even point for the company based on the current sales mix. (Round
your answer to the nearest peso amount. Omit the "P" sign in your response.)
Requirement 2:
Compute the break-even point for the company based on the current sales mix. (Round
your answer to the nearest peso amount. Omit the "P" sign in your response.)
Break-even point
P
50
Break-even point
(0%)
P 350,000
Total grade: 0.0×1/1 = 0%
Feedback:
The break-even point for the company as a whole be:
Your response
Correct response
Requirement 3:
If sales increase by P100,000 a month, by how much would you expect net operating
income to increase? (Round your answer to the nearest peso amount. Omit the "P"
sign in your response.)
Expected increase in net operating
income
P
500
(0%)
Requirement 3:
If sales increase by P100,000 a month, by how much would you expect net operating
income to increase? (Round your answer to the nearest peso amount. Omit the "P"
sign in your response.)
Expected increase in net operating income
P 52,500
Total grade: 0.0×1/1 = 0%
Feedback:
The additional contribution margin from the additional sales is computed as follows:
P100,000 × 52.5% CM ratio = P52,500
Assuming no change in fixed expenses, all of this additional contribution margin of
P52,500 should drop to the bottom line as increased net operating income.
This answer assumes no change in selling prices, variable costs per unit, fixed expense,
or sales mix.
Question 25: Score 0/4
Your response
Correct response
Problem 6-19 Basics of CVP Analysis [LO1, LO3, LO4, LO6, LO8]
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $20 per
unit. Variable costs are $8 per unit, and fixed costs total $180,000 per year.
Problem 6-19 Basics of CVP Analysis [LO1, LO3, LO4, LO6, LO8]
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $20 per
unit. Variable costs are $8 per unit, and fixed costs total $180,000 per year.
Requirement 1:
What is the product's CM ratio? (Omit the "%" sign in your response.)
Requirement 1:
What is the product's CM ratio? (Omit the "%" sign in your response.)
CM ratio
5
(0%) %
CM ratio
60 %
Total grade: 0.0×1/1 = 0%
Feedback:
Sales price
Variable expenses
Contribution margin
$ 20
8
$ 12
100 %
40 %
60 %
Your response
Requirement 2:
Use the CM ratio to determine the break-even point in sales dollars. (Omit the "$" sign in
your response.)
Break-even point in
sales
$
50
Correct response
Requirement 2:
Use the CM ratio to determine the break-even point in sales dollars. (Omit the "$" sign in
your response.)
Break-even point in sales
(0%)
$ 300,000
Total grade: 0.0×1/1 = 0%
Feedback:
Your response
Correct response
Requirement 3:
Due to an increase in demand, the company estimates that sales will increase by $75,000
during the next year. By how much should net operating income increase (or net loss
decrease) assuming that fixed costs do not change? (Omit the "$" sign in your response.)
Requirement 3:
Due to an increase in demand, the company estimates that sales will increase by $75,000
during the next year. By how much should net operating income increase (or net loss
decrease) assuming that fixed costs do not change? (Omit the "$" sign in your response.)
Increase in net operating income $
5000
(0%)
Increase in net operating income
$ 45,000
Total grade: 0.0×1/1 = 0%
Feedback:
$75,000 increased sales × 0.60 CM ratio = $45,000 increased contribution margin. Because
the fixed costs will not change, net operating income should also increase by $45,000.
Your response
Correct response
Requirement 4:
Assume that the operating results for last year were:
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income
Requirement 4:
Assume that the operating results for last year were:
$ 400,000
160,000
240,000
180,000
$ 60,000
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income
(a) Compute the degree of operating leverage at the current level of sales.
Degree of operating
leverage
50
$ 400,000
160,000
240,000
180,000
$ 60,000
(a) Compute the degree of operating leverage at the current level of sales.
4
Degree of operating leverage
(0%)
Total grade: 0.0×1/1 = 0%
Feedback:
Your response
Correct response
(b) The president expects sales to increase by 20% next year. By what percentage should
net operating income increase? (Omit the "%" sign in your response.)
Increase in net operating
income
5
(0%) %
(b) The president expects sales to increase by 20% next year. By what percentage should
net operating income increase? (Omit the "%" sign in your response.)
Increase in net operating income
80 %
Total grade: 0.0×1/1 = 0%
Feedback:
4 × 20% = 80% increase in net operating income. In dollars, this increase would be 80% ×
$60,000 = $48,000.
Your response
Correct response
Requirement 5:
Refer to the original data. Assume that the company sold 18,000 units last year. The sales
manager is convinced that a 10% reduction in the selling price, combined with a $30,000
increase in advertising, would cause annual sales in units to increase by one-third.
Requirement 5:
Refer to the original data. Assume that the company sold 18,000 units last year. The sales
manager is convinced that a 10% reduction in the selling price, combined with a $30,000
increase in advertising, would cause annual sales in units to increase by one-third.
(a) Prepare two contribution format income statements, one showing the results of last
year's operations and one showing the results of operations if these changes are made.
Show both total and per unit data on your statements. (Omit the "$" sign in your
response.)
(a) Prepare two contribution format income statements, one showing the results of last
year's operations and one showing the results of operations if these changes are made.
Show both total and per unit data on your statements. (Omit the "$" sign in your
response.)
Last Year:
18,000 units
Amount
Per Unit
Proposed:
24,000 units
Amount
Per Unit
Last Year:
18,000 units
Amount
Per Unit
Proposed:
24,000 units
Amount
Per Unit
Sales
Variable
expenses
Contribution
margin
Fixed expenses
Net operating
income
$
$
500000
(0%)
200000
(0%)
300000
(0%)
50000
(0%)
295000
(0%)
$
$
50
(0%)
20
30
$
50000
(0%)
(0%)
20000
(0%)
(0%)
30000
(0%)
5000
(0%)
25000
(0%)
$
$
$
5
(0%)
2
(0%)
3
(0%)
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income
$
$
360,000
144,000
216,000
$
$
180,000
36,000
20
8
12
$
$
432,000
192,000
240,000
$
$
18
8
10
210,000
30,000
Total grade: 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%
+ 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%
Feedback:
18,000 units + 6,000 units = 24,000
units
$20 × 0.9 = $18
(b) Would you recommend that the company do as the sales manager suggests?
Your Answer:
Choic
e
Selecte
d
Correc
t
Yes
No
Feedback:
No, the changes should not be made.
Your response
Correct response
Requirement 6:
Refer to the original data. Assume again that the company sold 18,000 units last year. The
president does not want to change the selling price. Instead, he wants to increase the sales
commission by $1 per unit. He thinks that this move, combined with some increase in
advertising, would increase annual sales by 25%. By how much could advertising be
increased with profits remaining unchanged? (Do not prepare an income statement; use
the incremental analysis approach. Omit the "$" sign in your response.)
The amount by which advertising can be
increased
$
50000
(0%)
Total grade: 0.0×1/1 = 0%
Feedback:
Expected total contribution margin:
18,000 units × 1.25 × $11 per unit*
$ 247,500
Present total contribution margin:
18,000 units × $12 per unit
216,000
Incremental contribution margin, and the amount by which
advertising can be increased with net operating income $ 31,500
Requirement 6:
Refer to the original data. Assume again that the company sold 18,000 units last year. The
president does not want to change the selling price. Instead, he wants to increase the sales
commission by $1 per unit. He thinks that this move, combined with some increase in
advertising, would increase annual sales by 25%. By how much could advertising be
increased with profits remaining unchanged? (Do not prepare an income statement; use
the incremental analysis approach. Omit the "$" sign in your response.)
The amount by which advertising can be increased
$ 31,500
remaining unchanged
*$20 – ($8 + $1) = $11