MBA631 CVP Practice Problems (Ch 2)
1. Northern Pacific Fixtures Company 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 in
sales dollars will be:
A) $15,077.
B) $18,200.
C) $9,800.
D) $28,000.
2. The following information pertains to Mete Co.:
Sales ..............................................................
$400,000
Variable expenses..........................................
80,000
Fixed expenses ..............................................
20,000
Mete's break-even point in sales dollars is:
A) $20,000.
B) $25,000.
C) $80,000.
D) $100,000.
3. Moon Company sells its product for $6 a unit. Next year, fixed expenses are expected
to be $200,000 and variable expenses are estimated at $4 a unit. How many units
must Moon sell to generate net operating income of $40,000?
A) 50,000
B) 60,000
C) 100,000
D) 120,000
4. Rider Company sells a single product. The product has a selling price of $40 per unit
and variable expenses of $15 per unit. The company's fixed expenses total $30,000
per year. The company's break-even point in terms of total dollar sales is:
A) $100,000.
B) $80,000.
C) $60,000.
D) $48,000.
5. Street Company's fixed expenses total $150,000, its variable expense ratio is 60% and
its variable expenses are $4.50 per unit. Based on this information, the break-even
point in units is:
A) 50,000.
B) 37,500.
C) 33,333.
D) 100,000.
6. The contribution margin ratio is 30% for the Honeyville Company and the break-even
point in sales is $150,000. If the company's target net operating income is $60,000,
sales would have to be:
A) $700,000.
B) $650,000.
C) $300,000.
D) $210,000.
7. Last year, Flynn Company reported a profit of $70,000 when sales totaled $520,000
and the contribution margin ratio was 40%. If fixed expenses increase by $10,000
next year, what will sales have to be for the company to earn a profit of $80,000?
A) $600,000
B) $570,000
C) $562,500
D) $625,000
8. Rothe Company manufactures and sells a single product that it sells for $90 per unit
and has a contribution margin ratio of 35%. The company's fixed expenses are
$46,800. If Rothe desires a monthly target net operating income equal to 15% of
sales, sales in units will have to be:
A) 1,486 units.
B) 3,467 units.
C) 1,040 units.
D) 2,600 units.
9. The following monthly data in contribution format are available for the MN Company
and its only product, Product SD:
Total Per Unit
Sales ..............................................................................................................
$83,700
$279
Variable expenses..........................................................................................
32,700
109
Contribution margin ......................................................................................
51,000
$170
Fixed expenses ..............................................................................................
40,000
Net operating income ....................................................................................
$11,000
The company produced and sold 300 units during the month and had no
beginning or ending inventories.
Required:
a. Without resorting to calculations, what is the total contribution margin at the
break-even point?
b. Management is contemplating the use of plastic gearing rather than metal
gearing in Product SD. This change would reduce variable expenses by $18
per unit. The company's sales manager predicts that this would reduce the
overall quality of the product and thus would result in a decline in sales to a
level of 250 units per month. Should this change be made?
c. Assume that MN Company is currently selling 300 units of Product SD per
month. Management wants to increase sales and feels this can be done by
cutting the selling price by $22 per unit and increasing the advertising budget
by $20,000 per month. Management believes that these actions will increase
unit sales by 50 percent. Should these changes be made?
d. Assume that MN Company is currently selling 300 units of Product SD.
Management wants to automate a portion of the production process for
Product SD. The new equipment would reduce direct labor costs by $20 per
unit but would result in a monthly rental cost for the new robotic equipment of
$10,000. Management believes that the new equipment will increase the
reliability of Product SD thus resulting in an increase in monthly sales of 12%.
Should these changes be made?