TBChap 005

LO4: Effects of changes in parameters
LO2: CVP and profit graphs
Professional exam adapted

LO6: Target profit analysis
LO5: Break-even analysis
LO8: Operating leverage
LO9: Multiproduct CVP

LO7: Margin of safety
LO1: CVP concepts
LO3: CM ratio
Question Type Difficulty
1 T/F M x
2 T/F M x
3 T/F E x
4 T/F M x
5 T/F M x
6 T/F M x
7 T/F M x
8 T/F M x
9 T/F M x
10 T/F E x
11 T/F M x
12 T/F M x
13 T/F M x x
14 T/F E x
15 T/F M x
16 T/F M x
17 T/F H x
18 T/F H x
19 T/F M x
20 T/F M x
21 T/F H x
22 Conceptual M/C E x
23 Conceptual M/C M x
25 Conceptual M/C H x x x
5-1
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
31 Single Part M/C E x
35 Single Part M/C M x
37 Single Part M/C H x x
43 Single Part M/C H x x x
44 Single Part M/C H x x x
55 Single Part M/C H x
66 Single Part M/C M x x
67 Single Part M/C H x
5-2
70 Single Part M/C H x CMA
86 Single Part M/C H x CMA
CH05-Ref1 92-93 Multipart M/C E x
CH05-Ref4 98-100 Multipart M/C E-M x x
CH05-Ref5 101-103 Multipart M/C E-M x x
CH05-Ref6 104-106 Multipart M/C E-M x x x
CH05-Ref10 116-119 Multipart M/C E-M x
5-3
152 Problem E x
153 Problem E x
154 Problem E x
155 Problem E x
156 Problem E x x x x x x
157 Problem E x
158 Problem E x
159 Problem E x
160 Problem E x
161 Problem E x
162 Problem E x
163 Problem E x
164 Problem E x
165 Problem E x
166 Problem E x
167 Problem E x
168 Problem E x
169 Problem E x
170 Problem E x
171 Problem E x
172 Problem E x
173 Problem E x
174 Problem E x
175 Problem E x
176 Problem E x
177 Problem E x
178 Problem E x
179 Problem E x
180 Problem E x
181 Problem E x
182 Problem E x
183 Problem E x
5-4
184 Problem E x
185 Problem E x
186 Problem E x
187 Problem E x
5-5
Chapter 05
Cost-Volume-Profit Relationships
True / False Questions
1. Incremental analysis is generally the most complicated and least direct approach to decision
making.
True False
2. One assumption in CVP analysis is that the number of units produced and sold does not change.
True False
3. Reynold Enterprises sells a single product for $25. The variable expense per unit is $15 and the
fixed expense per unit is $5 at the current level of sales. The company's net operating income will
increase by $10 if one more unit is sold.
True False
4. One way to compute the total contribution margin is to deduct total fixed expenses from net
operating income.
True False
5-6
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
5. On a cost-volume-profit graph, the revenue line will be shown below the total expense line for any
activity level above the break-even point.
True False
6. If sales volume decreases, and all other factors remain unchanged, the contribution margin ratio
will decrease.
True False
7. The impact on net operating income of a given dollar change in sales can be computed by
multiplying the contribution margin by the dollar change in sales.
True False
8. In two companies making the same product and with the same total sales and total expenses, the
contribution margin ratio will be higher in the company with a higher proportion of fixed expenses
in its cost structure.
True False
9. At the break-even point, the total contribution margin and fixed expenses are equal.
True False
10. All other things the same, an increase in total fixed expenses will increase the break-even point.
True False
5-7
11. All other things the same, a reduction in the variable expense per unit will decrease the break-even
point.
True False
12. All other things the same, an increase in variable expense per unit will reduce the break-even
point.
True False
13. For a capital intensive, automated company the break-even point will tend to be higher and the
margin of safety will be lower than for a less capital intensive company with the same sales.
True False
14. The unit sales volume necessary to reach a target profit is determined by dividing the sum of the
fixed expenses and the target profit by the contribution margin per unit.
True False
15. The margin of safety in dollars equals the excess of actual sales over budgeted sales.
True False
16. All other things the same, if the fixed expenses increase in a company then one would expect the
margin of safety to increase.
True False
5-8
17. As total sales increase beyond the break-even point, the degree of operating leverage will
decrease.
True False
18. If two companies produce the same product and have the same total sales and same total
expenses, operating leverage will be higher in the company with a higher proportion of fixed
expenses in its cost structure.
True False
19. The degree of operating leverage in a company is largest at the break-even point and decreases
as sales rise.
True False
20. All other things the same, in periods of increasing sales, net operating income will tend to increase
more rapidly in a company with high fixed costs and low variable costs than in a company with
high variable costs and low fixed costs.
True False
21. The overall contribution margin ratio for a company producing three products may be obtained by
adding the contribution margin ratios for the three products and dividing the total by three.
True False
Multiple Choice Questions
5-9
22. Contribution margin is the amount remaining after:
A. variable expenses have been deducted from sales revenue.
B. fixed expenses have been deducted from sales revenue.
C. fixed expenses have been deducted from variable expenses.
D. cost of goods sold has been deducted from sales revenues.
23. If a company decreases the variable expense per unit while increasing the total fixed expenses, the
total expense line relative to its previous position will:
A. shift downward and have a steeper slope.
B. shift downward and have a flatter slope.
C. shift upward and have a flatter slope.
D. shift upward and have a steeper slope.
24. The contribution margin ratio is equal to:
A. Total manufacturing expenses/Sales.
B. (Sales - Variable expenses)/Sales.
C. 1 - (Gross Margin/Sales).
D. 1 - (Contribution Margin/Sales).
5-10
25. Garth Corporation sells a single product. If the selling price per unit and the variable expense per
unit both increase by 10% and fixed expenses do not change, then:
A. Option A
B. Option B
C. Option C
D. Option D
26. Assume a company sells a single product. If Q equals the level of output, P is the selling price per
unit, V is the variable expense per unit, and F is the fixed expense, then the break-even point in
sales dollars is:
A. F/(P-V).
B. F/[Q(P-V)].
C. F/[Q(P-V)/P].
D. F/[(P-V)/P].
27. The break-even in units sold will decrease if there is an increase in:
A. unit sales volume.
B. total fixed expenses.
C. unit variable expenses.
D. selling price.
5-11
28. Which of the following is NOT a correct definition of the break-even point?
A. the point where total sales equals total expenses.
B. the point where total profit equals total fixed expenses.
C. the point where total contribution margin equals total fixed expenses.
D. the point where total profit equals zero.
29. The margin of safety is:
A. the excess of budgeted or actual sales over budgeted or actual variable expenses.
B. the excess of budgeted or actual sales over budgeted or actual fixed expenses.
C. the excess of budgeted or actual sales over the break-even volume of sales.
D. the excess of budgeted net operating income over actual net operating income.
30. If Q equals the level of output, P is the selling price per unit, V is the variable expense per unit, and
F is the fixed expense, then the degree of operating leverage is equal to:
A. Q/(P-V).
B. F/(P-V).
C. F/[(P-V)/P].
D. [(P-V)Q]/[(P-V)Q-F].
5-12
31. Brees Inc., a company that produces and sells a single product, has provided its contribution
format income statement for April.
If the company sells 5,800 units, its total contribution margin should be closest to:
A. $55,800
B. $52,200
C. $6,642
D. $47,000
32. Ofarrell Corporation, a company that produces and sells a single product, has provided its
contribution format income statement for March.
If the company sells 5,400 units, its net operating income should be closest to:
A. $19,008
B. $17,600
C. $24,000
D. $34,000
5-13
33. The records of the Dodge Corporation show the following results for the most recent year:
Given these data, the unit contribution margin was:
A. $16
B. $4
C. $2
D. $6
34. Florek Inc. produces and sells a single product. The company has provided its contribution format
income statement for March.
A. $14,000
B. $10,600
C. $18,600
D. $10,972
5-14
35. Spartan Systems reported total sales of $300,000, at a price of $20 and per unit variable expenses
of $12, for the sales of their single product.
What is the amount of contribution margin if sales volume increases by 30%?
A. $19,500
B. $15,000
C. $156,000
D. $120,000
36. Lepage Corporation has provided its contribution format income statement for January. The
company produces and sells a single product.
A. $83,600
B. $18,373
C. $89,300
D. $98,000
5-15
37. At a break-even point of 800 units sold, White Corporation's variable expenses are $8,000 and its
fixed expenses are $4,000. What will the Corporation's net operating income be at a volume of 801
units?
A. $15
B. $10
C. $5
D. $20
38. Maack Corporation's contribution margin ratio is 16% and its fixed monthly expenses are $44,000.
If the company's sales for a month are $299,000, what is the best estimate of the company's net
operating income? Assume that the fixed monthly expenses do not change.
A. $207,160
B. $3,840
C. $255,000
D. $47,840
39. Bowe Corporation's fixed monthly expenses are $21,000 and its contribution margin ratio is 61%.
Assuming that the fixed monthly expenses do not change, what is the best estimate of the
company's net operating income in a month when sales are $74,000?
A. $7,860
B. $45,140
C. $24,140
D. $53,000
5-16
40. Bolding Inc.'s contribution margin ratio is 61% and its fixed monthly expenses are $42,000.
A. $76,860
B. $7,140
C. $34,860
D. $84,000
41. Solen Corporation's break-even-point in sales is $900,000, and its variable expenses are 75% of
sales. If the company lost $32,000 last year, sales must have amounted to:
A. $868,000
B. $804,000
C. $772,000
D. $628,000
42. Minist Corporation sells a single product for $15 per unit. Last year, the company's sales revenue
was $225,000 and its net operating income was $18,000. If fixed expenses totaled $72,000 for the
year, the break-even point in unit sales was:
A. 15,000
B. 9,900
C. 14,100
D. 12,000
5-17
43. Last year Easton Corporation reported sales of $720,000, a contribution margin ratio of 30% and a
net loss of $24,000. Based on this information, the break-even point was:
A. $640,000
B. $880,000
C. $744,000
D. $800,000
44. Arthur Corporation has a margin of safety percentage of 25% based on its actual sales. The break-
even point is $300,000 and the variable expenses are 45% of sales. Given this information, the
actual profit is:
A. $75,000
B. $55,000
C. $15,000
D. $41,250
45. Fost Corporation's contribution margin ratio is 20%. If the degree of operating leverage is 15 at the
$225,000 sales level, net operating income at the $225,000 sales level must equal:
A. $2,250
B. $6,750
C. $3,000
D. $5,063
5-18
46. Hartung Corporation produces and sells a single product. Data concerning that product appear
below:
Fixed expenses are $147,000 per month. The company is currently selling 2,000 units per month.
The marketing manager would like to introduce sales commissions as an incentive for the sales
staff. The marketing manager has proposed a commission of $13 per unit. In exchange, the sales
staff would accept a decrease in their salaries of $22,000 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 400 units. What should be the overall effect on the company's
monthly net operating income of this change?
A. increase of $16,800
B. increase of $226,000
C. increase of $30,000
D. decrease of $14,000
5-19
47. Data concerning Wythe Corporation's single product appear below:
The marketing manager would like to cut the selling price by $15 and increase the advertising
budget by $5,000 per month. The marketing manager predicts that these two changes would
increase monthly sales by 800 units. What should be the overall effect on the company's monthly
net operating income of this change?
B. decrease of $31,000
D. increase of $1,000
5-20
48. Joly Corporation produces and sells a single product. Data concerning that product appear below:
A. decrease of $59,800
5-21
49. Data concerning Massing Corporation's single product appear below:
The company is currently selling 9,000 units per month. Fixed expenses are $837,000 per month.
The marketing manager believes that a $16,000 increase in the monthly advertising budget would
result in a 150 unit increase in monthly sales. What should be the overall effect on the company's
C. decrease of $1,250
5-22
50. Data concerning Hinkson Corporation's single product appear below:
51. The Clyde Corporation's variable expenses are 35% of sales. Clyde Corporation is contemplating
an advertising campaign that will cost $25,000. If sales increase by $75,000, the company's net
operating income will increase by:
A. $26,250
B. $23,750
C. $1,250
D. $65,000
5-23
52. Dybala Corporation produces and sells a single product. Data concerning that product appear
below:
5-24
53. Salley Corporation produces and sells a single product. Data concerning that product appear
below:
Fixed expenses are $1,133,000 per month. The company is currently selling 9,000 units per month.
Management is considering using a new component that would increase the unit variable cost by
$7. Since the new component would increase the features of 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?
5-25
54. Data concerning Bunck Corporation's single product appear below:
55. Steeler Corporation is planning to sell 100,000 units for $2.00 per unit and will break even at this
level of sales. Fixed expenses will be $75,000. What are the company's variable expenses per unit?
A. $0.75
B. $1.00
C. $1.25
D. $1.10
5-26
56. Garcia Veterinary Clinic expects the following operating results next year:
What is Garcia's break-even point next year in sales dollars?
A. $240,000
B. $375,000
C. $400,000
D. $420,000
57. Holdt Inc. produces and sells a single product. The selling price of the product is $230.00 per unit
and its variable cost is $66.70 per unit. The fixed expense is $212,290 per month. The break-even in
monthly unit sales is closest to:
A. 1,300
B. 3,183
C. 1,802
D. 923
58. Carlton Corporation sells a single product at a selling price of $40 per unit. Variable expenses are
$22 per unit and fixed expenses are $82,800. Carlton's break-even point is:
A. 4,600 units
B. 3,764 units
C. 5,000 units
D. 2,070 units
5-27
59. Lore Corporation has provided the following information:
Lore's break-even point in dollar sales is:
A. $50,000
B. $10,000
C. $12,500
D. $40,000
60. Darwin Inc. sells a particular textbook for $20. Variable expenses are $14 per book. At the current
volume of 50,000 books sold per year the company is just breaking even. Given these data, the
annual fixed expenses associated with the textbook total:
A. $300,000
B. $1,000,000
C. $1,300,000
D. $700,000
5-28
61. Blane Corporation produces and sells a single product. Data concerning that product appear
below:
The break-even in monthly unit sales is closest to:
A. 4,401
B. 2,360
C. 3,470
D. 7,374
62. Data concerning Wang Corporation's single product appear below:
The break-even in monthly dollar sales is closest to:
A. $207,000
B. $255,321
C. $138,690
D. $420,273
5-29
63. Wyly Inc. produces and sells a single product. The selling price of the product is $170.00 per unit
and its variable cost is $62.90 per unit. The fixed expense is $356,643 per month.
A. $963,900
B. $628,881
C. $566,100
D. $356,643
64. Preyer Corporation produces and sells a single product. Data concerning that product appear
below:
A. $2,344,795
B. $492,407
C. $623,300
D. $1,153,501
5-30
65. Data concerning Nazario Corporation's single product appear below:
A. 819
B. 2,214
C. 1,300
D. 1,444
66. The following monthly data are available for the Wyatt Corporation and its only product:
The margin of safety for the company during May was:
A. $27,000
B. $56,000
C. $6,000
D. $106,000
5-31
67. Frank Corporation manufacturers a single product that has a selling price of $20.00 per unit. Fixed
expenses total $45,000 per year, and the company must sell 5,000 units to break even. If the
company has a target profit of $13,500, sales in units must be:
A. 6,000
B. 5,750
C. 6,500
D. 7,925
68. Chibu Corporation is a single product firm with the following cost formula for all of its costs for
next year, where X is the number of units sold and Y is total cost:
Y = $225,000 + $30X
Chibu sells its product for $120 per unit. What would Chibu's total sales dollars have to be next
year in order to generate $270,000 of net operating income?
A. $618,750
B. $660,000
C. $1,080,000
D. $1,980,000
5-32
69. Data concerning Cutshall Enterprises Corporation's single product appear below:
The unit sales to attain the company's monthly target profit of $16,000 is closest to:
A. 3,872
B. 2,320
C. 4,834
D. 4,462
70. The Breiden Corporation sells rodaks for $6.00 per unit. Fixed expenses total $37,500 per month
and variable expenses are $2.00 per unit. The number of units that must be sold each month to
realize a profit of 15% of sales is closest to:
A. 9,375 units
B. 11,029 units
C. 12,097 units
D. 9,740 units
71. The contribution margin ratio of Baginski Corporation's only product is 53%. The company's
monthly fixed expense is $617,980 and the company's monthly target profit is $23,000. The dollar
sales to attain that target profit is closest to:
A. $1,166,000
B. $1,209,396
C. $339,719
D. $327,529
5-33
72. Havely International Corporation's only product sells for $200.00 per unit and its variable expense
is $70.00. The company's monthly fixed expense is $390,000 per month. The unit sales to attain the
company's monthly target profit of $10,000 is closest to:
A. 5,714
B. 3,077
C. 3,597
D. 2,000
73. Moonen Corporation produces and sells a single product whose contribution margin ratio is 57%.
The company's monthly fixed expense is $487,350 and the company's monthly target profit is
$10,000. The dollar sales to attain that target profit is closest to:
A. $855,000
B. $277,790
C. $872,544
D. $283,490
5-34
74. Sanes Corporation produces and sells a single product. Data concerning that product appear
below:
A. 3,426
B. 5,833
C. 3,806
D. 2,158
75. A product sells for $10 per unit and has variable expenses of $6 per unit. Fixed expenses total
$45,000 per month. How many units of the product must be sold each month to yield a monthly
profit of $15,000?
A. 6,000 units
B. 3,750 units
C. 15,000 units
D. 10,000 units
5-35
76. Palomo Corporation sells a product for $170 per unit. The product's current sales are 35,200 units
and its break-even sales are 25,344 units. The margin of safety as a percentage of sales is closest
to:
A. 72%
B. 39%
C. 28%
D. 61%
77. Malley Corporation has provided the following data concerning its only product:
What is the margin of safety in dollars?
A. $1,390,000
B. $562,950
C. $2,085,000
D. $1,522,050
5-36
78. Renfrew Corporation has provided the following data concerning its only product:
The margin of safety as a percentage of sales is closest to:
A. 29%
B. 59%
C. 71%
D. 41%
79. Morganti Corporation sells a product for $140 per unit. The product's current sales are 40,700 units
and its break-even sales are 31,339 units.
A. $3,798,667
B. $5,698,000
C. $4,387,460
D. $1,310,540
80. Sales in North Corporation increased from $60,000 per year to $63,000 per year while net
operating income increased from $10,000 to $12,000. Given this data, the company's degree of
operating leverage must have been:
A. 4.0
B. 1.5
C. 5.0
D. 21.0
5-37
81. Alpha Corporation reported the following data for its most recent year: sales, $500,000; variable
expenses, $300,000; and fixed expenses, $150,000. The company's degree of operating leverage is:
A. 10
B. 2
C. 4
D. 2.5
82. Tribley Inc. has an operating leverage of 8.0. If the company's sales increase by 19%, its net
operating income should increase by about:
A. 152.0%
B. 19.0%
C. 8.0%
D. 42.1%
83. Cleckley Corporation's operating leverage is 5.9. If the company's sales increase by 19%, its net
A. 5.9%
B. 31.1%
C. 19.0%
D. 112.1%
5-38
84. Brown Corporation has sales of 2,000 units at $70 per unit. Variable expenses are 40% of the
selling price. If total fixed expenses are $44,000, the degree of operating leverage is:
A. 0.79
B. 1.40
C. 3.50
D. 2.10
85. Seiersen Corporation's contribution format income statement for February appears below:
The degree of operating leverage is closest to:
A. 10.98
B. 0.22
C. 0.09
D. 4.48
5-39
86. Mason Enterprises has prepared the following budget for the month of July:
Assuming that total fixed expenses will be $150,000 and the sales mix remains constant, the break-
even point would be closest to:
A. $276,008
B. $235,292
C. $294,545
D. $141,278
87. The Agate Corporation manufactures and sells two types of bookcases, standard and deluxe.
Agate expects the following operating results next year for each type of bookcase:
Agate expects to have a total of $57,600 in fixed expenses next year. What is Agate's break-even
point next year in sales dollars?
A. $72,000
B. $144,000
C. $96,000
D. $240,000
5-40
88. Macmullen Corporation produces and sells two products. Data concerning those products for the
most recent month appear below:
The fixed expenses of the entire company were $30,970. If the sales mix were to shift toward
Product D08Q with total dollar sales remaining constant, the overall break-even point for the
entire company:
A. would increase.
B. would decrease.
C. would not change.
D. could increase or decrease.
89. Closser Corporation produces and sells two products. In the most recent month, Product M50S
had sales of $39,000 and variable expenses of $12,870. Product H50G had sales of $12,000 and
variable expenses of $4,980. The fixed expenses of the entire company were $33,050. The break-
even point for the entire company is closest to:
A. $50,846
B. $50,900
C. $17,950
D. $33,050
5-41
90. Comings Corporation produces and sells two products. In the most recent month, Product R19J
had sales of $30,000 and variable expenses of $9,000. Product O37G had sales of $34,000 and
variable expenses of $10,840. The fixed expenses of the entire company were $35,560. If the sales
mix were to shift toward Product R19J with total dollar sales remaining constant, the overall break-
even point for the entire company:
A. would increase.
B. would not change.
C. could increase or decrease.
D. would decrease.
91. Hitchens Inc. produces and sells two products. Data concerning those products for the most recent
month appear below:
The fixed expenses of the entire company were $24,010. The break-even point for the entire
company is closest to:
A. $33,817
B. $10,990
C. $34,160
D. $24,010
5-42
Sammis Inc, which produces and sells a single product, has provided its contribution format
income statement for January.
92. If the company sells 2,600 units, its total contribution margin should be closest to:
A. $107,100
B. $117,000
C. $31,290
D. $130,500
93. If the company sells 2,500 units, its net operating income should be closest to:
A. $34,900
B. $16,900
C. $3,700
D. $30,086
Lasseter Corporation has provided its contribution format income statement for August. The
5-43
A. $16,227
B. $59,200
C. $60,800
D. $62,100
A. $15,800
B. $21,600
C. $19,000
D. $16,654
Grisham Corporation produces and sells a single product. The company has provided its
contribution format income statement for February.
A. $148,000
B. $128,800
C. $135,700
D. $21,493
5-44
A. $20,400
B. $22,700
C. $20,764
D. $26,800
A cement manufacturer has supplied the following data:
98. What is the company's unit contribution margin?
A. $4.20 per unit
B. $0.45 per unit
C. $1.90 per unit
D. $2.10 per unit
99. The company's contribution margin ratio is closest to:
A. 40.0%
B. 50.0%
C. 60.0%
D. 10.7%
5-45
100. If the company increases its unit sales volume by 5% without increasing its fixed expenses, then
total net operating income should be closest to:
A. $5,000
B. $123,100
C. $105,000
D. $102,500
A tile manufacturer has supplied the following data:
A. $0.23 per unit
B. $4.90 per unit
C. $3.10 per unit
D. $1.80 per unit
A. 29.4%
B. 4.7%
C. 63.3%
D. 36.7%
5-46
A. $6,600
B. $184,200
C. $134,422
D. $138,600
A company that makes organic fertilizer has supplied the following data:
104. The company's margin of safety in units is closest to:
A. 140,000 units
B. 202,238 units
C. 125,714 units
D. 32,105 units
105. The company's unit contribution margin is closest to:
A. $4.10 per unit
B. $3.80 per unit
C. $4.55 per unit
D. $7.15 per unit
5-47
106. The company's degree of operating leverage is closest to:
A. 1.97
B. 15.54
C. 1.25
D. 7.48
A manufacturer of premium wire strippers has supplied the following data:
A. 135,429 units
B. 16,923 units
C. 223,333 units
D. 320,317 units
A. $2.60 per unit
B. $4.60 per unit
C. $3.50 per unit
D. $6.30 per unit
5-48
A. 20.09
B. 7.73
C. 1.86
D. 55.64
A manufacturer of cedar shingles has supplied the following data:
110. The company's break-even in unit sales is closest to:
A. 130,149
B. 81,081
C. 25,038
D. 240,000
A. 66.2%
B. 73.0%
C. 27.0%
D. 33.8%
5-49
A. 2.80
B. 7.00
C. 2.29
D. 20.72
A manufacturer of tiling grout has supplied the following data:
A. 43,774
B. 237,143
C. 76,615
D. 80,606
A. 67.7%
B. 74.2%
C. 32.3%
D. 25.8%
5-50
A. 14.77
B. 2.65
C. 4.77
D. 2.27
Data concerning Marchman Corporation's single product appear below:
Consider each of the following questions independently.
116. This question is to be considered independently of all other questions relating to Marchman
Corporation.
Refer to the original data when answering this question.
5-51
Corporation.
A. decrease of $240
C. increase of $240
Corporation.

5-52
Corporation.
Bohlen Corporation produces and sells a single product. Data concerning that product appear
below:
5-53
120. This question is to be considered independently of all other questions relating to Bohlen
Corporation.
Corporation.

5-54
Corporation.
increase monthly sales by 1,000 units. What should be the overall effect on the company's monthly
Corporation.
5-55
Boenisch Corporation produces and sells a single product with the following characteristics:
124. This question is to be considered independently of all other questions relating to Boenisch
Corporation.
5-56
Corporation.
Corporation.

5-57
Corporation.
staff would accept a decrease in their salaries of $102,000 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 700 units. What should be the overall effect on the
company's monthly net operating income of this change?
Smee Inc. produces and sells a single product. The selling price of the product is $130.00 per unit
and its variable cost is $52.00 per unit. The fixed expense is $281,580 per month.
128. The break-even in monthly unit sales is closest to:
A. 3,730 units
B. 5,415 units
C. 2,166 units
D. 3,610 units
5-58
129. The break-even in monthly dollar sales is closest to:
A. $281,580
B. $484,943
C. $703,950
D. $469,300
Blackner Corporation produces and sells a single product. Data concerning that product appear
below:
A. 3,290 units
B. 6,991 units
C. 4,173 units
D. 2,237 units
A. $723,800
B. $918,060
C. $1,538,020
D. $492,140
5-59
Data concerning Kuralt Corporation's single product appear below:
A. 1,413 units
B. 2,920 units
C. 5,436 units
D. 1,910 units
A. $310,860
B. $1,195,920
C. $420,200
D. $642,400
Moccio Enterprises, Inc., produces and sells a single product whose selling price is $120.00 per unit
and whose variable expense is $37.20 per unit. The company's monthly fixed expense is $356,040.
134. Assume the company's target profit is $14,000. The unit sales to attain that target profit is closest
to:
A. 3,084 units
B. 4,469 units
C. 5,833 units
D. 9,947 units
5-60
135. Assume the company's target profit is $15,000. The dollar sales to attain that target profit is closest
to:
A. $371,040
B. $537,739
C. $701,894
D. $1,196,903
Data concerning Matsumoto Corporation's single product appear below:
to:
A. 5,496 units
B. 2,198 units
C. 3,786 units
D. 3,664 units
to:
A. $288,800
B. $497,378
C. $481,333
D. $722,000
5-61
Upchurch Corporation produces and sells a single product. Data concerning that product appear
below:
to:
A. 3,242 units
B. 4,912 units
C. 9,535 units
D. 5,896 units
to:
A. $326,180
B. $593,248
C. $494,212
D. $959,353
Callicott Corporation produces a product that sells for $120 per unit. The product's current sales
are 25,400 units and its break-even sales are 18,542 units.
5-62
140. What is the margin of safety in dollars?
A. $822,960
B. $2,032,000
C. $3,048,000
D. $2,225,040
141. The margin of safety as a percentage of sales is closest to:
A. 27%
B. 37%
C. 63%
D. 73%
Mcallister Corporation has provided the following data concerning its only product:
A. $1,256,850
B. $4,728,150
C. $3,990,000
D. $5,985,000
5-63
A. 73%
B. 79%
C. 21%
D. 27%
The July contribution format income statement of Raiche Corporation appears below:
144. The degree of operating leverage is closest to:
A. 6.72
B. 13.44
C. 0.15
D. 0.07
145. If the company's sales increase by 5%, its net operating income should increase by about:
A. 34%
B. 67%
C. 5%
D. 7%
5-64
Stoppkotte Corporation has provided its contribution format income statement for April.
A. 3.46
B. 0.11
C. 0.29
D. 9.40
A. 10.00%
B. 10.64%
C. 34.60%
D. 93.98%
Froio Corporation produces and sells two products. Data concerning those products for the most
recent month appear below:
Fixed expenses for the entire company were $26,570.
5-65
148. The break-even point for the entire company is closest to:
A. $43,557
B. $26,570
C. $22,430
D. $45,680
149. If the sales mix were to shift toward Product M06M with total sales remaining constant, the overall
break-even point for the entire company:
A. would increase.
B. could increase or decrease.
D. would decrease.
Gilpatric Corporation produces and sells two products. In the most recent month, Product Q71M
had sales of $28,000 and variable expenses of $7,840. Product V04P had sales of $49,000 and
variable expenses of $27,580. The fixed expenses of the entire company were $34,630.
A. $70,050
B. $64,130
C. $34,630
D. $42,370
5-66
151. If the sales mix were to shift toward Product Q71M with total sales remaining constant, the overall
break-even point for the entire company:
A. would increase.
D. would decrease.
Essay Questions
152. In December, Mccullum Corporation sold 2,900 units of its only product. Its total sales were
$281,300, its total variable expenses were $130,500, and its total fixed expenses were $122,600.
Required:
a. Construct the company's contribution format income statement for December.

b. Redo the company's contribution format income statement assuming that the company sells
3,100 units.
5-67
153. Marano Corporation produces and sells a single product. In October, the company sold 6,200
units. Its total sales were $223,200, its total variable expenses were $105,400, and its total fixed
expenses were $100,400.
Required:
a. Construct the company's contribution format income statement for October.

6,400 units.
5-68
154. Gonyo Inc., which produces and sells a single product, has provided the following contribution
format income statement for December:
Required:
Redo the company's contribution format income statement assuming that the company sells 3,400
units.
5-69
155. Buentello Corporation produces and sells a single product. The company's contribution format
income statement for January appears below:
Required:
Redo the company's contribution format income statement assuming that the company sells 1,600
units.
5-70
156. The following is Arkadia Corporation's contribution format income statement for last month:
The company has no beginning or ending inventories and produced and sold 20,000 units during
the month.
Required:
a. What is the company's contribution margin ratio?

b. What is the company's break-even in units?
c. If sales increase by 100 units, by how much should net operating income increase?
d. How many units would the company have to sell to attain a target profit of $125,000?
e. What is the company's margin of safety in dollars?
f. What is the company's degree of operating leverage?
5-71
157. The management of Pacubas Corporation expects sales in July to be $121,000. The company's
contribution margin ratio is 64% and its fixed monthly expenses are $40,000.
Required:
Estimate the company's net operating income for July, assuming that the fixed monthly expenses
do not change. Show your work!
158. Bianchini Corporation's contribution margin ratio is 58% and its fixed monthly expenses are
$94,000. Assume that the company's sales for May are expected to be $178,000.
Required:
Estimate the company's net operating income for May, assuming that the fixed monthly expenses
do not change. Show your work!
5-72
159. Gaskey Inc. expects its sales in February to be $173,000. The company's contribution margin ratio is
58% and its fixed monthly expenses are $94,000.
Required:
Estimate the company's net operating income for February, assuming that the fixed monthly
expenses do not change. Show your work!
5-73
160. Larita Corporation produces and sells a single product. Data concerning that product appear
below:
Required:
monthly net operating income of this change? Show your work!
5-74
161. Wrobbel Corporation produces and sells a single product. Data concerning that product appear
below:
Required:
$2. Since the new component would improve the company's product, the marketing manager
predicts that monthly sales would increase by 200 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!
5-75
162. Data concerning Ulwelling Corporation's single product appear below:
Required:
staff would accept an overall decrease in their salaries of $73,000 per month. The marketing
manager predicts that introducing this sales incentive would increase monthly sales by 300 units.
What should be the overall effect on the company's monthly net operating income of this change?
Show your work!
5-76
163. Data concerning Kurek Corporation's single product appear below:
Required:
net operating income of this change? Show your work!
5-77
164. Moallankamp Corporation produces and sells a single product. Data concerning that product
appear below:
Required:
manager predicts that introducing this sales incentive would increase monthly sales by 400 units.
What should be the overall effect on the company's monthly net operating income of this change?
Show your work!
5-78
165. Grable Corporation produces and sells a single product. Data concerning that product appear
below:
Required:
net operating income of this change? Show your work!
5-79
166. Data concerning Phung Corporation's single product appear below:
Required:
5-80
167. Data concerning Sumter Corporation's single product appear below:
Required:
$6. Since the new component would improve the company's product, the marketing manager
predicts that monthly sales would increase by 300 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!
5-81
168. Pultz Corporation produces and sells a single product. Data concerning that product appear
below:
Required:
Determine the monthly break-even in total dollar sales. Show your work!
169. Shauer, Inc., produces and sells a single product whose selling price is $150.00 per unit and whose
variable expense is $33.00 per unit. The company's fixed expense is $436,410 per month.
Required:
Determine the monthly break-even in either unit or total dollar sales. Show your work!
5-82
170. Torbert, Inc., produces and sells a single product. The product sells for $190.00 per unit and its
variable expense is $72.20 per unit. The company's monthly fixed expense is $353,400.
Required:
Determine the monthly break-even in unit sales. Show your work!
171. Buccheri Corporation produces and sells a single product. Data concerning that product appear
below:
Required:
5-83
172. Maddaloni International, Inc., produces and sells a single product. The product sells for $160.00 per
unit and its variable expense is $46.40 per unit. The company's monthly fixed expense is $219,248.
Required:
173. Hirz Corporation produces and sells a single product. Data concerning that product appear below:
Required:
5-84
174. The contribution margin ratio of Donath Corporation's only product is 65%. The company's
monthly fixed expense is $573,300 and the company's monthly target profit is $9,100.
Required:
Determine the dollar sales to attain the company's target profit. Show your work!
5-85
175. Gauani Corporation produces and sells a single product. Data concerning that product appear
below:
Required:
a. Assume the company's monthly target profit is $21,600. Determine the unit sales to attain that
target profit. Show your work!
b. Assume the company's monthly target profit is $54,000. Determine the dollar sales to attain that
5-86
176. Alcina Corporation produces and sells a single product whose contribution margin ratio is 80%.
$43,200.
Required:
177. Liest Corporation produces and sells a single product whose selling price is $100.00 per unit and
whose variable expense is $48.00 per unit. The company's monthly fixed expense is $244,400.
Required:

b. Assume the company's monthly target profit is $26,000. Determine the dollar sales to attain that
5-87
178. The selling price of Roscioli Corporation's only product is $210.00 per unit and its variable expense
is $75.60 per unit. The company's monthly fixed expense is $537,600.
Required:
Assume the company's monthly target profit is $13,440. Determine the unit sales to attain that
5-88
179. Lopp Corporation produces and sells a single product. Data concerning that product appear
below:
Required:
180. Koelsch Corporation's only product sells for $170 per unit. Its current sales are 43,600 units and its
break-even sales are 39,240 units.
Required:
Compute the margin of safety in both dollars and as a percentage of sales.
5-89
181. Xiong Corporation makes a product that sells for $130 per unit. The product's current sales are
14,000 units and its break-even sales are 10,220 units.
Required:
182. Brower Inc. has provided the following data concerning its only product:
Required:
5-90
183. In the most recent month, Shoemaker Corporation's total contribution margin was $29,600 and its
net operating income $3,000.
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 10% increase in sales.
5-91
184. Eickhoff Corporation's contribution format income statement for the most recent month follows:
Required:
5-92
185. Mahaxay Corporation has provided its contribution format income statement for April.
Required:
5-93
186. Hargenrader Inc. produces and sells two products. During the most recent month, Product P02S's
sales were $24,000 and its variable expenses were $7,920. Product O50U's sales were $41,000 and
its variable expenses were $14,180. The company's fixed expenses were $40,350.
Required:
a. Determine the overall break-even point for the company in total sales dollars. Show your work!
b. If the sales mix shifts toward Product P02S with no change in total sales, what will happen to the
break-even point for the company? Explain.
5-94
187. Crumbley Inc. produces and sells two products. Data concerning those products for the most
Required:
a. Determine the overall break-even point for the company in total sales dollars. Show your work!
b. If the sales mix shifts toward Product W43J with no change in total sales, what will happen to the
break-even point for the company? Explain.
5-95
Chapter 05 Cost-Volume-Profit Relationships Answer Key
True / False Questions
1. Incremental analysis is generally the most complicated and least direct approach to decision
making.
FALSE
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 05-01 Explain how changes in activity affect contribution margin and net operating income.
2. One assumption in CVP analysis is that the number of units produced and sold does not
change.
FALSE
AACSB: Analytic
Blooms: Understand
5-96
3. Reynold Enterprises sells a single product for $25. The variable expense per unit is $15 and the
fixed expense per unit is $5 at the current level of sales. The company's net operating income
will increase by $10 if one more unit is sold.
TRUE
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
4. One way to compute the total contribution margin is to deduct total fixed expenses from net
operating income.
FALSE
AACSB: Analytic
Blooms: Understand
5-97
5. On a cost-volume-profit graph, the revenue line will be shown below the total expense line for
any activity level above the break-even point.
FALSE
AACSB: Analytic
Blooms: Understand
Learning Objective: 05-02 Prepare and interpret a cost-volume-profit (CVP) graph and a profit graph.
6. If sales volume decreases, and all other factors remain unchanged, the contribution margin
ratio will decrease.
FALSE
AACSB: Analytic
Blooms: Understand
Learning Objective: 05-03 Use the contribution margin ratio (CM ratio) to compute changes in contribution margin and net
operating income resulting from changes in sales volume.
5-98
7. The impact on net operating income of a given dollar change in sales can be computed by
multiplying the contribution margin by the dollar change in sales.
FALSE
AACSB: Analytic
Blooms: Understand
8. In two companies making the same product and with the same total sales and total expenses,
the contribution margin ratio will be higher in the company with a higher proportion of fixed
TRUE
AACSB: Analytic
Blooms: Understand
5-99
9. At the break-even point, the total contribution margin and fixed expenses are equal.
TRUE
AACSB: Analytic
Blooms: Understand
Learning Objective: 05-05 Determine the break-even point.
10. All other things the same, an increase in total fixed expenses will increase the break-even point.
TRUE
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
11. All other things the same, a reduction in the variable expense per unit will decrease the break-
even point.
TRUE
AACSB: Analytic
Blooms: Understand
5-100
12. All other things the same, an increase in variable expense per unit will reduce the break-even
point.
FALSE
AACSB: Analytic
Blooms: Understand
13. For a capital intensive, automated company the break-even point will tend to be higher and the
margin of safety will be lower than for a less capital intensive company with the same sales.
TRUE
AACSB: Analytic
Blooms: Analyze
Learning Objective: 05-07 Compute the margin of safety and explain its significance.
14. The unit sales volume necessary to reach a target profit is determined by dividing the sum of
the fixed expenses and the target profit by the contribution margin per unit.
TRUE
AACSB: Reflective Thinking

Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 05-06 Determine the level of sales needed to achieve a desired target profit.
5-101
15. The margin of safety in dollars equals the excess of actual sales over budgeted sales.
FALSE

Blooms: Remember
16. All other things the same, if the fixed expenses increase in a company then one would expect
the margin of safety to increase.
TRUE
AACSB: Analytic
Blooms: Understand
17. As total sales increase beyond the break-even point, the degree of operating leverage will
decrease.
TRUE
AACSB: Analytic
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 05-08 Compute the degree of operating leverage at a particular level of sales and explain how it can be used
to predict changes in net operating income.
5-102
18. If two companies produce the same product and have the same total sales and same total
expenses, operating leverage will be higher in the company with a higher proportion of fixed
TRUE
AACSB: Analytic
Blooms: Understand
Difficulty: 3 Hard
19. The degree of operating leverage in a company is largest at the break-even point and
decreases as sales rise.
TRUE
AACSB: Analytic
Blooms: Understand
5-103
20. All other things the same, in periods of increasing sales, net operating income will tend to
increase more rapidly in a company with high fixed costs and low variable costs than in a
company with high variable costs and low fixed costs.
TRUE
AACSB: Analytic
Blooms: Understand
21. The overall contribution margin ratio for a company producing three products may be obtained
by adding the contribution margin ratios for the three products and dividing the total by three.
FALSE

Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 05-09 Compute the break-even point for a multiproduct company and explain the effects of shifts in the
sales mix on contribution margin and the break-even point.
Multiple Choice Questions
5-104
22. Contribution margin is the amount remaining after:
A. variable expenses have been deducted from sales revenue.
B. fixed expenses have been deducted from sales revenue.
C. fixed expenses have been deducted from variable expenses.
D. cost of goods sold has been deducted from sales revenues.

Blooms: Remember
Difficulty: 1 Easy
23. If a company decreases the variable expense per unit while increasing the total fixed expenses,
the total expense line relative to its previous position will:
A. shift downward and have a steeper slope.
B. shift downward and have a flatter slope.
C. shift upward and have a flatter slope.
D. shift upward and have a steeper slope.
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 05-02 Prepare and interpret a cost-volume-profit (CVP) graph and a profit graph.
5-105
24. The contribution margin ratio is equal to:
A. Total manufacturing expenses/Sales.
B. (Sales - Variable expenses)/Sales.
C. 1 - (Gross Margin/Sales).
D. 1 - (Contribution Margin/Sales).

Blooms: Understand
5-106
25. Garth Corporation sells a single product. If the selling price per unit and the variable expense
per unit both increase by 10% and fixed expenses do not change, then:
A. Option A
B. Option B
C. Option C
D. Option D

Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 05-04 Show the effects on net operating income of changes in variable costs; fixed costs; selling price; and
volume.
5-107
26. Assume a company sells a single product. If Q equals the level of output, P is the selling price
per unit, V is the variable expense per unit, and F is the fixed expense, then the break-even
point in sales dollars is:
A. F/(P-V).
B. F/[Q(P-V)].
C. F/[Q(P-V)/P].
D. F/[(P-V)/P].

Blooms: Understand
27. The break-even in units sold will decrease if there is an increase in:
A. unit sales volume.
B. total fixed expenses.
C. unit variable expenses.
D. selling price.
AACSB: Analytic
Blooms: Analyze
5-108
28. Which of the following is NOT a correct definition of the break-even point?
A. the point where total sales equals total expenses.
B. the point where total profit equals total fixed expenses.
C. the point where total contribution margin equals total fixed expenses.
D. the point where total profit equals zero.

Blooms: Remember
Difficulty: 1 Easy
29. The margin of safety is:
A. the excess of budgeted or actual sales over budgeted or actual variable expenses.
B. the excess of budgeted or actual sales over budgeted or actual fixed expenses.
C. the excess of budgeted or actual sales over the break-even volume of sales.
D. the excess of budgeted net operating income over actual net operating income.

Blooms: Remember
Difficulty: 1 Easy
5-109
30. If Q equals the level of output, P is the selling price per unit, V is the variable expense per unit,
and F is the fixed expense, then the degree of operating leverage is equal to:
A. Q/(P-V).
B. F/(P-V).
C. F/[(P-V)/P].
D. [(P-V)Q]/[(P-V)Q-F].

Blooms: Understand
5-110
31. Brees Inc., a company that produces and sells a single product, has provided its contribution
format income statement for April.
A. $55,800
B. $52,200
C. $6,642
D. $47,000
Selling price per unit = Sales ÷ Quantity sold
= $136,400 ÷ 6,200 units = $22 per unit
Variable expenses per unit = Variable expenses ÷ Quantity sold
Variable expenses per unit = $80,600 ÷ 6,200 units = $13 per unit
Unit CM = Selling price per unit - Variable expenses per unit

= $22 per unit - $13 per unit = $9 per unit
Total CM = Unit CM × Quantity sold
= $9 per unit × 5,800 units = $52,200
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-111
32. Ofarrell Corporation, a company that produces and sells a single product, has provided its
contribution format income statement for March.
A. $19,008
B. $17,600
C. $24,000
D. $34,000

= $205,000 ÷ 5,000 units = $41 per unit
= $125,000 ÷ 5,000 units = $25 per unit
Profit = (Unit CM × Q) - Fixed expenses

= ($16 per unit × 5,400 units) - $62,400 = $86,400 - $62,400 = $24,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-112
33. The records of the Dodge Corporation show the following results for the most recent year:
Given these data, the unit contribution margin was:
A. $16
B. $4
C. $2
D. $6
Selling price per unit = $256,000 ÷ 16,000 units = $16 per unit
Variable expense per unit = $160,000 ÷ 16,000 units = $10 per unit
Unit CM = Selling price per unit - Variable expense per unit
Unit CM = $16 per unit - $10 per unit = $6 per unit
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-113
34. Florek Inc. produces and sells a single product. The company has provided its contribution
format income statement for March.
A. $14,000
B. $10,600
C. $18,600
D. $10,972
= $228,000 ÷ 5,700 units = $40 per unit
= $131,100 ÷ 5,700 units = $23 per unit


= ($17 per unit × 5,900 units) - $86,300 = $100,300 - $86,300 = $14,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-114
35. Spartan Systems reported total sales of $300,000, at a price of $20 and per unit variable
expenses of $12, for the sales of their single product.
What is the amount of contribution margin if sales volume increases by 30%?
A. $19,500
B. $15,000
C. $156,000
D. $120,000
CM ratio = Contribution margin ÷ Sales = $120,000 ÷ $300,000 = 0.40

Contribution margin = CM ratio × Sales
Contribution margin = 0.40 × (1.3 × $300,000) = $156,000
AACSB: Analytic
Blooms: Apply
5-115
36. Lepage Corporation has provided its contribution format income statement for January. The
A. $83,600
B. $18,373
C. $89,300
D. $98,000
= $211,200 ÷ 4,400 units = $48 per unit
= $127,600 ÷ 4,400 units = $29 per unit

Total CM = Unit CM × Quantity sold

= $19 per unit × 4,700 units = $89,300
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-116
37. At a break-even point of 800 units sold, White Corporation's variable expenses are $8,000 and
its fixed expenses are $4,000. What will the Corporation's net operating income be at a volume
of 801 units?
A. $15
B. $10
C. $5
D. $20
$0 = (Unit CM × 800 units) - $4,000

Unit CM = $4,000 ÷ 800 units = $5 per unit
Profit = ($5 per unit × 801 units) - $4,000 = $5
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
5-117
38. Maack Corporation's contribution margin ratio is 16% and its fixed monthly expenses are
$44,000. If the company's sales for a month are $299,000, what is the best estimate of the
company's net operating income? Assume that the fixed monthly expenses do not change.
A. $207,160
B. $3,840
C. $255,000
D. $47,840
Profit = (CM ratio × Sales) - Fixed expenses
= (0.16 × $299,000) - $44,000

= $47,840 - $44,000
= $3,840
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-118
39. Bowe Corporation's fixed monthly expenses are $21,000 and its contribution margin ratio is
61%. Assuming that the fixed monthly expenses do not change, what is the best estimate of the
A. $7,860
B. $45,140
C. $24,140
D. $53,000
= (0.61 × $74,000) - $21,000

= $45,140 - $21,000
= $24,140
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-119
40. Bolding Inc.'s contribution margin ratio is 61% and its fixed monthly expenses are $42,000.
A. $76,860
B. $7,140
C. $34,860
D. $84,000
= (0.61 × $126,000) - $42,000

= $76,860 - $42,000
= $34,860
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-120
41. Solen Corporation's break-even-point in sales is $900,000, and its variable expenses are 75% of
sales. If the company lost $32,000 last year, sales must have amounted to:
A. $868,000
B. $804,000
C. $772,000
D. $628,000
CM ratio = 1 - Variable expense ratio

CM ratio = 1 - 0.75 = 0.25
Dollar sales to break even = Fixed expenses ÷ CM ratio

$900,000 = Fixed expenses ÷ 0.25
Fixed expenses = $900,000 × 0.25 = $225,000

-$32,000 = (0.25 × Sales) - $225,000
Sales = ($225,000 - $32,000) ÷ 0.25 = $772,000
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
5-121
42. Minist Corporation sells a single product for $15 per unit. Last year, the company's sales
revenue was $225,000 and its net operating income was $18,000. If fixed expenses totaled
$72,000 for the year, the break-even point in unit sales was:
A. 15,000
B. 9,900
C. 14,100
D. 12,000
Profit = (Sales - Variable expenses) - Fixed expenses
$18,000 = ($225,000 - Variable expenses) - $72,000

Variable expenses = $225,000 - $72,000 - $18,000 = $135,000
CM ratio = Contribution margin ÷ Sales = ($225,000 - $135,000) ÷ $225,000 = 0.40
Dollar sales to break even = Fixed expenses ÷ CM ratio = $72,000 ÷ 0.40 = $180,000
Unit sales to break even = $180,000 ÷ $15 per unit = 12,000 units
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
5-122
43. Last year Easton Corporation reported sales of $720,000, a contribution margin ratio of 30%
and a net loss of $24,000. Based on this information, the break-even point was:
A. $640,000
B. $880,000
C. $744,000
D. $800,000

-$24,000 = (0.30 × $720,000) - Fixed expenses
Fixed expenses = (0.30 × $720,000) + $24,000 = $240,000
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
5-123
44. Arthur Corporation has a margin of safety percentage of 25% based on its actual sales. The
break-even point is $300,000 and the variable expenses are 45% of sales. Given this
information, the actual profit is:
A. $75,000
B. $55,000
C. $15,000
D. $41,250
CM ratio = 1 - Variable expense ratio
= 1 - 0.45 = 0.55
$300,000 = Fixed expenses ÷ 0.55

Fixed expenses = $300,000 × 0.55 = $165,000
Margin of safety in dollars = Total actual sales - Break-even sales
Margin of safety percentage = Margin of safety in dollars ÷ Total actual sales

Margin of safety percentage = (Total actual sales - Break-even sales) ÷ Total actual sales
Margin of safety percentage = 1 - Break-even sales ÷ Total actual sales

Break-even sales ÷ Total actual sales = 1 - Margin of safety percentage
Total actual sales = Break-even sales ÷ (1 - Margin of safety percentage)

= $300,000 ÷ (1 - 0.25) = $400,000
= (0.55 × $400,000) - $165,000 = $55,000
5-124
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
45. Fost Corporation's contribution margin ratio is 20%. If the degree of operating leverage is 15 at
the $225,000 sales level, net operating income at the $225,000 sales level must equal:
A. $2,250
B. $6,750
C. $3,000
D. $5,063
Contribution margin = CM ratio × Sales

= 0.20 × $225,000 = $45,000
Degree of operating leverage = Contribution margin ÷ Net operating income
15 = $45,000 ÷ Net operating income

Net operating income = $45,000 ÷ 15 = $3,000
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
5-125
46. Hartung Corporation produces and sells a single product. Data concerning that product appear
below:
Fixed expenses are $147,000 per month. The company is currently selling 2,000 units per
month. The marketing manager would like to introduce sales commissions as an incentive for
the sales staff. The marketing manager has proposed a commission of $13 per unit. In
exchange, the sales staff would accept a decrease in their salaries of $22,000 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 400 units. What should be the
Net operating income would increase by $30,000.
5-126
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
volume.
5-127
47. Data concerning Wythe Corporation's single product appear below:
month. The marketing manager would like to cut the selling price by $15 and increase the
advertising budget by $5,000 per month. The marketing manager predicts that these two
changes would increase monthly sales by 800 units. What should be the overall effect on the
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
volume.
5-128
48. Joly Corporation produces and sells a single product. Data concerning that product appear
below:
increase monthly sales by 800 units. What should be the overall effect on the company's
Net operating income decreases by $20,200.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
volume.
5-129
49. Data concerning Massing Corporation's single product appear below:
The company is currently selling 9,000 units per month. Fixed expenses are $837,000 per
month. The marketing manager believes that a $16,000 increase in the monthly advertising
budget would result in a 150 unit increase in monthly sales. What should be the overall effect
on the company's monthly net operating income of this change?
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
volume.
5-130
50. Data concerning Hinkson Corporation's single product appear below:
month. 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 a decrease in their salaries of $60,000 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
Net operating income decreases by $1,700.
5-131
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
volume.
51. The Clyde Corporation's variable expenses are 35% of sales. Clyde Corporation is
contemplating an advertising campaign that will cost $25,000. If sales increase by $75,000, the
company's net operating income will increase by:
A. $26,250
B. $23,750
C. $1,250
D. $65,000
CM ratio = 1 - Variable expense ratio = 1 - 0.35 = 0.65
Increase in net operating income = (CM ratio × Increase in sales) - Increase in fixed expenses
= (0.65 × $75,000) - $25,000 = $48,750 - $25,000 = $23,750
AACSB: Analytic
Blooms: Apply
volume.
5-132
52. Dybala Corporation produces and sells a single product. Data concerning that product appear
below:
The marketing manager believes that a $6,000 increase in the monthly advertising budget
would result in a 170 unit increase in monthly sales. What should be the overall effect on the
Net operating income would decrease by $1,480.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
volume.
5-133
53. Salley Corporation produces and sells a single product. Data concerning that product appear
below:
Fixed expenses are $1,133,000 per month. The company is currently selling 9,000 units per
month. Management is considering using a new component that would increase the unit
variable cost by $7. Since the new component would increase the features of 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?
Net operating income increases by $5,500
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
volume.
5-134
54. Data concerning Bunck Corporation's single product appear below:
month. Management is considering using a new component that would increase the unit
variable cost by $18. 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?
Net operating income would decrease by $11,200
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
volume.
5-135
55. Steeler Corporation is planning to sell 100,000 units for $2.00 per unit and will break even at this
level of sales. Fixed expenses will be $75,000. What are the company's variable expenses per
unit?
A. $0.75
B. $1.00
C. $1.25
D. $1.10
Unit sales to break even = Fixed expenses ÷ Unit CM
100,000 units = $75,000 ÷ Unit CM

Unit CM = $75,000 ÷ 100,000 units = $0.75 per unit
$0.75 per unit = $2.00 per unit - Variable expenses per unit
Variable expenses per unit = $2.00 per unit - $0.75 per unit = $1.25 per unit
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
5-136
56. Garcia Veterinary Clinic expects the following operating results next year:
What is Garcia's break-even point next year in sales dollars?
A. $240,000
B. $375,000
C. $400,000
D. $420,000
Contribution margin = Sales - Variable expenses

= $600,000 - $120,000 = $480,000
CM ratio = Contribution margin ÷ Sales
= $480,000 ÷ $600,000 = 0.8

= $300,000 ÷ 0.8 = $375,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-137
57. Holdt Inc. produces and sells a single product. The selling price of the product is $230.00 per
unit and its variable cost is $66.70 per unit. The fixed expense is $212,290 per month. The
break-even in monthly unit sales is closest to:
A. 1,300
B. 3,183
C. 1,802
D. 923
= $212,290 ÷ ($230.00 per unit - $66.70 per unit)

= $212,290 ÷ $163.30 per unit
= 1,300 units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-138
58. Carlton Corporation sells a single product at a selling price of $40 per unit. Variable expenses
are $22 per unit and fixed expenses are $82,800. Carlton's break-even point is:
A. 4,600 units
B. 3,764 units
C. 5,000 units
D. 2,070 units

= $82,800 ÷ ($40 per unit - $22 per unit)
= $82,800 ÷ $18 per unit

= 4,600 units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-139
59. Lore Corporation has provided the following information:
Lore's break-even point in dollar sales is:
A. $50,000
B. $10,000
C. $12,500
D. $40,000

= ($200,000 - $40,000) ÷ $200,000 = 0.8

= $10,000 ÷ 0.8 = $12,500
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-140
60. Darwin Inc. sells a particular textbook for $20. Variable expenses are $14 per book. At the
current volume of 50,000 books sold per year the company is just breaking even. Given these
data, the annual fixed expenses associated with the textbook total:
A. $300,000
B. $1,000,000
C. $1,300,000
D. $700,000
= $20 per book - $14 per book = $6 per book
50,000 books = Fixed expenses ÷ $6 per book

Fixed expenses = 50,000 books × $6 per book = $300,000
AACSB: Analytic
Blooms: Apply
5-141
61. Blane Corporation produces and sells a single product. Data concerning that product appear
below:
A. 4,401
B. 2,360
C. 3,470
D. 7,374

= $230.00 per unit - $73.60 per unit = $156.40 per unit
= $542,708 ÷ $156.40 per unit = 3,470 units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-142
62. Data concerning Wang Corporation's single product appear below:
A. $207,000
B. $255,321
C. $138,690
D. $420,273
CM ratio = Unit contribution margin ÷ Unit selling price

= ($150.00 per unit - $49.50 per unit) ÷ $150.00 per unit
= $100.50 per unit ÷ $150.00 per unit = 0.67
= $138,690 ÷ 0.67
= $207,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-143
63. Wyly Inc. produces and sells a single product. The selling price of the product is $170.00 per
unit and its variable cost is $62.90 per unit. The fixed expense is $356,643 per month.
A. $963,900
B. $628,881
C. $566,100
D. $356,643

= $107.10 per unit ÷ $170.00 per unit = 0.63
= $356,643 ÷ 0.63
= $566,100
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-144
64. Preyer Corporation produces and sells a single product. Data concerning that product appear
below:
A. $2,344,795
B. $492,407
C. $623,300
D. $1,153,501

= $181.70 per unit ÷ $230.00 per unit = 0.79

= $492,407 ÷ 0.79
= $623,300
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-145
65. Data concerning Nazario Corporation's single product appear below:
A. 819
B. 2,214
C. 1,300
D. 1,444

= $188,370 ÷ ($230.00 per unit - $85.10 per unit)
= $188,370 ÷ $144.90 per unit
= 1,300 units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-146
66. The following monthly data are available for the Wyatt Corporation and its only product:
The margin of safety for the company during May was:
A. $27,000
B. $56,000
C. $6,000
D. $106,000

= $50,000 ÷ ($36 per unit - $28 per unit) = 6,250 units
Margin of safety in dollars = Total budgeted (or actual) sales - Break-even sales
= ($36 per unit × 7,000 units) - ($36 per unit × 6,250 units)
= $252,000 - $225,000
= $27,000
AACSB: Analytic
Blooms: Apply
5-147
67. Frank Corporation manufacturers a single product that has a selling price of $20.00 per unit.
Fixed expenses total $45,000 per year, and the company must sell 5,000 units to break even. If
the company has a target profit of $13,500, sales in units must be:
A. 6,000
B. 5,750
C. 6,500
D. 7,925
5,000 units = $45,000 ÷ Unit CM

Unit CM = $45,000 ÷ 5,000 units = $9 per unit
Unit sales to attain a target profit = (Target profit + Fixed expenses) ÷ Unit CM
= ($13,500 + $45,000) ÷ $9 per unit
= $58,500 ÷ $9 per unit

= 6,500 units
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
5-148
68. Chibu Corporation is a single product firm with the following cost formula for all of its costs for
next year, where X is the number of units sold and Y is total cost:
Y = $225,000 + $30X
Chibu sells its product for $120 per unit. What would Chibu's total sales dollars have to be next
year in order to generate $270,000 of net operating income?
A. $618,750
B. $660,000
C. $1,080,000
D. $1,980,000
= ($120 per unit - $30 per unit) ÷ $120 per unit = $90 per unit ÷ $120 per unit = 0.75
Dollar sales to attain a target profit = (Target profit + Fixed expenses) ÷ CM ratio
= ($270,000 + $225,000) ÷ 0.75 = $660,000
AACSB: Analytic
Blooms: Apply
5-149
69. Data concerning Cutshall Enterprises Corporation's single product appear below:
A. 3,872
B. 2,320
C. 4,834
D. 4,462

= $190.00 per unit - $91.20 per unit
= $98.80 per unit
= ($16,000 + $424,840) ÷ $98.80 per unit

= $440,840 ÷ $98.80 per unit
= 4,462 units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-150
70. The Breiden Corporation sells rodaks for $6.00 per unit. Fixed expenses total $37,500 per month
and variable expenses are $2.00 per unit. The number of units that must be sold each month to
realize a profit of 15% of sales is closest to:
A. 9,375 units
B. 11,029 units
C. 12,097 units
D. 9,740 units
Q = [(0.15 × $6 per unit × Q) + $37,500] ÷ ($6 per unit - $2 per unit)

Q = [(0.15 × $6 per unit × Q) + $37,500] ÷ $4 per unit
$4.00 per unit × Q = ($0.90 per unit × Q) + $37,500
$3.10 per unit × Q = $37,500
Q = $37,500 ÷ $3.10 per unit = 12,097 units
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
Source: CMA, adapted
5-151
71. The contribution margin ratio of Baginski Corporation's only product is 53%. The company's
monthly fixed expense is $617,980 and the company's monthly target profit is $23,000. The
dollar sales to attain that target profit is closest to:
A. $1,166,000
B. $1,209,396
C. $339,719
D. $327,529
= ($23,000 + $617,980) ÷ 0.53

= $640,980 ÷ 0.53
= $1,209,396
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-152
72. Havely International Corporation's only product sells for $200.00 per unit and its variable
expense is $70.00. The company's monthly fixed expense is $390,000 per month. The unit sales
to attain the company's monthly target profit of $10,000 is closest to:
A. 5,714
B. 3,077
C. 3,597
D. 2,000
= $200.00 per unit - $70.00 per unit

= $130.00 per unit
= ($10,000 + $390,000) ÷ $130.00 per unit
= $400,000 ÷ $130.00 per unit

= 3,077 units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-153
73. Moonen Corporation produces and sells a single product whose contribution margin ratio is
57%. The company's monthly fixed expense is $487,350 and the company's monthly target
profit is $10,000. The dollar sales to attain that target profit is closest to:
A. $855,000
B. $277,790
C. $872,544
D. $283,490
= ($10,000 + $487,350) ÷ 0.57

= $497,350 ÷ 0.57
= $872,544
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-154
74. Sanes Corporation produces and sells a single product. Data concerning that product appear
below:
A. 3,426
B. 5,833
C. 3,806
D. 2,158
= $240.00 per unit - $88.80 per unit
= $151.20 per unit
= ($19,000 + $498,960) ÷ $151.20 per unit
= $517,960 ÷ $151.20 per unit
= 3,426 units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-155
75. A product sells for $10 per unit and has variable expenses of $6 per unit. Fixed expenses total
$45,000 per month. How many units of the product must be sold each month to yield a
monthly profit of $15,000?
A. 6,000 units
B. 3,750 units
C. 15,000 units
D. 10,000 units
= ($15,000 + $45,000) ÷ ($10 per unit - $6 per unit)

= $60,000 ÷ $4 per unit
= 15,000 units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-156
76. Palomo Corporation sells a product for $170 per unit. The product's current sales are 35,200
units and its break-even sales are 25,344 units. The margin of safety as a percentage of sales is
closest to:
A. 72%
B. 39%
C. 28%
D. 61%
Margin of safety in dollars = Total sales - Break-even sales
= $170 per unit × 35,200 units - $170 per unit × 25,344 units
= $5,984,000 - $4,308,480 = $1,675,520
Margin of safety percentage = Margin of safety in dollars ÷ Total sales

= $1,675,520 ÷ $5,984,000 = 0.28
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-157
77. Malley Corporation has provided the following data concerning its only product:
A. $1,390,000
B. $562,950
C. $2,085,000
D. $1,522,050

= (13,900 units × $150 per unit) - (10,147 units × $150 per unit)
= $2,085,000 - $1,522,050 = $562,950
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-158
78. Renfrew Corporation has provided the following data concerning its only product:
The margin of safety as a percentage of sales is closest to:
A. 29%
B. 59%
C. 71%
D. 41%
Margin of safety in dollars = Total actual sales - Break-even sales

= (22,400 units × $110 per unit) - (15,904 units × $110 per unit)
= $2,464,000 - $1,749,440 = $714,560
Margin of safety percentage = Margin of safety in dollars ÷ Total actual sales
= $714,560 ÷ $2,464,000 = 29%
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-159
79. Morganti Corporation sells a product for $140 per unit. The product's current sales are 40,700
units and its break-even sales are 31,339 units.
A. $3,798,667
B. $5,698,000
C. $4,387,460
D. $1,310,540
= ($140 per unit × 40,700 units) - ($140 per unit × 31,339 units)
= $5,698,000 - $4,387,460 = $1,310,540
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-160
80. Sales in North Corporation increased from $60,000 per year to $63,000 per year while net
operating income increased from $10,000 to $12,000. Given this data, the company's degree of
operating leverage must have been:
A. 4.0
B. 1.5
C. 5.0
D. 21.0
Percentage change in sales = ($63,000/$60,000) - 1.00 = 5%
Percentage change in net operating income = ($12,000/$10,000) - 1.00 = 20%
Percentage change in net operating income = Degree of operating leverage × Percentage
change in sales
20% = Degree of operating leverage × 5%
Degree of operating leverage = 20% ÷ 5% = 4
AACSB: Analytic
Blooms: Apply
5-161
81. Alpha Corporation reported the following data for its most recent year: sales, $500,000; variable
expenses, $300,000; and fixed expenses, $150,000. The company's degree of operating leverage
is:
A. 10
B. 2
C. 4
D. 2.5
= $500,000 - $300,000 = $200,000
Profit = Contribution margin - Fixed expenses
= $200,000 - $150,000 = $50,000

= $200,000 ÷ $50,000 = 4
AACSB: Analytic
Blooms: Apply
5-162
82. Tribley Inc. has an operating leverage of 8.0. If the company's sales increase by 19%, its net
A. 152.0%
B. 19.0%
C. 8.0%
D. 42.1%

change in sales
= 8.0 × 19% = 152.0%
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-163
83. Cleckley Corporation's operating leverage is 5.9. If the company's sales increase by 19%, its net
A. 5.9%
B. 31.1%
C. 19.0%
D. 112.1%

change in sales
= 5.9 ×19% = 112.1%
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-164
84. Brown Corporation has sales of 2,000 units at $70 per unit. Variable expenses are 40% of the
selling price. If total fixed expenses are $44,000, the degree of operating leverage is:
A. 0.79
B. 1.40
C. 3.50
D. 2.10

= (2,000 units × $70 per unit) - (2,000 units × 0.40 × $70 per unit)
= $140,000 - $56,000 = $84,000
Net operating income = Contribution margin - Fixed expenses
= $84,000 - $44,000 = $40,000

= $84,000 ÷ $40,000 = 2.1
AACSB: Analytic
Blooms: Apply
5-165
85. Seiersen Corporation's contribution format income statement for February appears below:
The degree of operating leverage is closest to:
A. 10.98
B. 0.22
C. 0.09
D. 4.48

= $392,000 ÷ $87,500 = 4.48
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-166
86. Mason Enterprises has prepared the following budget for the month of July:
Assuming that total fixed expenses will be $150,000 and the sales mix remains constant, the
break-even point would be closest to:
A. $276,008
B. $235,292
C. $294,545
D. $141,278
Overall CM ratio = $275,000 ÷ $540,000 = 0.509
Dollar sales to break even = Fixed expenses ÷ Overall CM ratio
= $150,000 ÷ 0.509 = $294,695
$294,545 is a more exact answer that involves less rounding.
5-167
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
Source: CMA, adapted
5-168
87. The Agate Corporation manufactures and sells two types of bookcases, standard and deluxe.
Agate expects the following operating results next year for each type of bookcase:
Agate expects to have a total of $57,600 in fixed expenses next year. What is Agate's break-
even point next year in sales dollars?
A. $72,000
B. $144,000
C. $96,000
D. $240,000
Overall CM ratio = Contribution margin ÷ Sales = $300,000 ÷ $500,000 = 0.60
Dollar sales to break even = Fixed expenses ÷ Overall CM ratio
= $57,600 ÷ 0.60 = $96,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-169
88. Macmullen Corporation produces and sells two products. Data concerning those products for
the most recent month appear below:
The fixed expenses of the entire company were $30,970. If the sales mix were to shift toward
Product D08Q with total dollar sales remaining constant, the overall break-even point for the
entire company:
A. would increase.
B. would decrease.
D. could increase or decrease.
Since Product D08Q has a higher contribution margin ratio, a shift in sales to that product
would decrease the break-even point of the entire company.
AACSB: Analytic
Blooms: Apply
5-170
89. Closser Corporation produces and sells two products. In the most recent month, Product M50S
had sales of $39,000 and variable expenses of $12,870. Product H50G had sales of $12,000 and
variable expenses of $4,980. The fixed expenses of the entire company were $33,050. The
break-even point for the entire company is closest to:
A. $50,846
B. $50,900
C. $17,950
D. $33,050
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-171
90. Comings Corporation produces and sells two products. In the most recent month, Product R19J
had sales of $30,000 and variable expenses of $9,000. Product O37G had sales of $34,000 and
variable expenses of $10,840. The fixed expenses of the entire company were $35,560. If the
sales mix were to shift toward Product R19J with total dollar sales remaining constant, the
overall break-even point for the entire company:
A. would increase.
B. would not change.
C. could increase or decrease.
D. would decrease.
Since Product R19J has a higher contribution margin ratio, a shift in sales to that product would
decrease the break-even point of the entire company.
AACSB: Analytic
Blooms: Apply
5-172
91. Hitchens Inc. produces and sells two products. Data concerning those products for the most
The fixed expenses of the entire company were $24,010. The break-even point for the entire
company is closest to:
A. $33,817
B. $10,990
C. $34,160
D. $24,010
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-173
Sammis Inc, which produces and sells a single product, has provided its contribution format
income statement for January.
A. $107,100
B. $117,000
C. $31,290
D. $130,500
Contribution margin = $45 per unit × 2,600 units = $117,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-174
A. $34,900
B. $16,900
C. $3,700
D. $30,086

= ($45 per unit × 2,500 units) - $95,600 = $112,500 - $95,600 = $16,900
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
Lasseter Corporation has provided its contribution format income statement for August. The
5-175
A. $16,227
B. $59,200
C. $60,800
D. $62,100
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-176
A. $15,800
B. $21,600
C. $19,000
D. $16,654

= ($16 per unit × 3,900 units) - $43,400 = $62,400 - $43,400 = $19,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
Grisham Corporation produces and sells a single product. The company has provided its
contribution format income statement for February.
5-177
A. $148,000
B. $128,800
C. $135,700
D. $21,493
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-178
A. $20,400
B. $22,700
C. $20,764
D. $26,800

= ($23 per unit × 5,700 units) - $108,400 = $131,100 - $108,400 = $22,700
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
A cement manufacturer has supplied the following data:
5-179
A. $4.20 per unit
B. $0.45 per unit
C. $1.90 per unit
D. $2.10 per unit
Unit contribution margin = Selling price per unit - Variable expenses per unit
= ($924,000 ÷ 220,000 units) - (($297,000 + $165,000) ÷ 220,000 units)

= ($924,000 ÷ 220,000 units) - ($462,000 ÷ 220,000 units)
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-180
A. 40.0%
B. 50.0%
C. 60.0%
D. 10.7%
= $924,000 - ($297,000 + $165,000) = $924,000 - $462,000 = $462,000
= $462,000 ÷ $924,000 = 0.50
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-181
A. $5,000
B. $123,100
C. $105,000
D. $102,500
Unit sales = 220,000 units × 1.05 = 231,000 units

Unit selling price = $924,000 ÷ 220,000 units = $4.20 per unit
Variable manufacturing expense per unit = $297,000 ÷ 220,000 units = $1.35 per unit
Variable selling and administrative expense per unit = $165,000 ÷ 220,000 units = $0.75 per
unit
AACSB: Analytic
Blooms: Apply
5-182
A tile manufacturer has supplied the following data:
A. $0.23 per unit
B. $4.90 per unit
C. $3.10 per unit
D. $1.80 per unit
Unit contribution margin = Selling price per unit - Variable expenses per unit
= ($2,842,000 ÷ 580,000 units) - (($1,653,000 + $145,000) ÷ 580,000 units)
= ($2,842,000 ÷ 580,000 units) - ($1,798,000 ÷ 580,000 units)
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-183
A. 29.4%
B. 4.7%
C. 63.3%
D. 36.7%
= $2,842,000 - ($1,653,000 + $145,000) = $2,842,000 - $1,798,000 = $1,044,000
= $1,044,000 ÷ $2,842,000 = 0.367
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-184
A. $6,600
B. $184,200
C. $134,422
D. $138,600
Unit sales = 580,000 units × 1.05 = 609,000 units

Unit selling price = $2,842,000 ÷ 580,000 units = $4.90 per unit
Variable manufacturing expense per unit = $1,653,000 ÷ 580,000 units = $2.85 per unit
Variable selling and administrative expense per unit = $145,000 ÷ 580,000 units = $0.25 per
unit
AACSB: Analytic
Blooms: Apply
5-185
A company that makes organic fertilizer has supplied the following data:
5-186
A. 140,000 units
B. 202,238 units
C. 125,714 units
D. 32,105 units
Selling price per unit = $1,896,000 ÷ 240,000 units = $7.90 per unit
Variable expense per unit = ($804,000 + $180,000) ÷ 240,000 units

= $984,000 ÷ 240,000 units = $4.10 per unit

Fixed expenses = ($520,000 + $270,000) = $790,000
= $790,000 ÷ $3.80 per unit = 207,895 units
Margin of safety = Total actual sales - Break-even sales
= 240,000 units - 207,895 units = 32,105
AACSB: Analytic
Blooms: Apply
5-187
A. $4.10 per unit
B. $3.80 per unit
C. $4.55 per unit
D. $7.15 per unit
Selling price per unit = $1,896,000 ÷ 240,000 units = $7.90 per unit
Variable expense per unit = ($804,000 + $180,000) ÷ 240,000 units

= $984,000 ÷ 240,000 units = $4.10 per unit

AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-188
A. 1.97
B. 15.54
C. 1.25
D. 7.48
= $912,000 ÷ $122,000 = 7.48
AACSB: Analytic
Blooms: Apply
A manufacturer of premium wire strippers has supplied the following data:
5-189
A. 135,429 units
B. 16,923 units
C. 223,333 units
D. 320,317 units
= $2,448,000 - ($1,258,000 + $306,000)

= $2,448,000 - $1,564,000 = $884,000
Unit CM = Contribution margin ÷ Unit sales

= $884,000 ÷ 340,000 units = $2.60 per unit
= ($716,000 + $124,000) ÷ $2.60 per unit

= $840,000 ÷ $2.60 per unit = 323,077 units
Margin of safety in units = Total budgeted (or actual) sales - Unit sales to break even
= 340,000 units - 323,077 units = 16,923 units
AACSB: Analytic
Blooms: Apply
5-190
A. $2.60 per unit
B. $4.60 per unit
C. $3.50 per unit
D. $6.30 per unit
= $2,448,000 - ($1,258,000 + $306,000)

= $2,448,000 - $1,564,000 = $884,000
Unit CM = Contribution margin ÷ Unit sales

= $884,000 ÷ 340,000 units = $2.60 per unit
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-191
A. 20.09
B. 7.73
C. 1.86
D. 55.64
= $2,448,000 - ($1,258,000 + $306,000)

= $2,448,000 - $1,564,000 = $884,000

= $884,000 ÷ $44,000 = 20.09
AACSB: Analytic
Blooms: Apply
A manufacturer of cedar shingles has supplied the following data:
5-192
A. 130,149
B. 81,081
C. 25,038
D. 240,000
= $2,072,000 - ($1,134,000 + $238,000)

= $2,072,000 - $1,372,000 = $700,000
Unit CM = $700,000 ÷ 280,000 bundles = $2.50 per bundle
= $2,072,000 - ($1,134,000 + $280,000)
= $600,000 ÷ $2.50 per bundle = 240,000 bundles
AACSB: Analytic
Blooms: Apply
5-193
A. 66.2%
B. 73.0%
C. 27.0%
D. 33.8%
= $2,072,000 - ($1,134,000 + $238,000)

= $2,072,000 - $1,372,000 = $700,000

= $700,000 ÷ $2,072,000 = 0.338
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-194
A. 2.80
B. 7.00
C. 2.29
D. 20.72
= $2,072,000 - ($1,134,000 + $238,000)

= $2,072,000 - $1,372,000 = $700,000

= $700,000 ÷ $100,000
= 7.00
AACSB: Analytic
Blooms: Apply
A manufacturer of tiling grout has supplied the following data:
5-195
A. 43,774
B. 237,143
C. 76,615
D. 80,606
= $1,950,000 - ($960,000 + $360,000)

= $1,950,000 - $1,320,000 = $630,000
Unit CM = $630,000 ÷ 300,000 kilograms = $2.10 per kilogram
= $498,000 ÷ $2.10 per kilogram = 237,143 kilograms
AACSB: Analytic
Blooms: Apply
5-196
A. 67.7%
B. 74.2%
C. 32.3%
D. 25.8%
= $1,950,000 - ($960,000 + $360,000)

= $1,950,000 - $1,320,000 = $630,000
CM ratio = Contribution margin ÷ Sales = $630,000 ÷ $1,950,000 = 0.323
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-197
A. 14.77
B. 2.65
C. 4.77
D. 2.27
= $1,950,000 - ($960,000 + $360,000)

= $1,950,000 - $1,320,000 = $630,000

= $630,000 ÷ $132,000 = 4.77
AACSB: Analytic
Blooms: Apply
Data concerning Marchman Corporation's single product appear below:
month. Consider each of the following questions independently.
5-198
Corporation.
Management is considering using a new component that would increase the unit variable cost
by $2. Since the new component would increase the features of the company's product, the
marketing manager predicts that monthly sales would increase by 200 units. What should be
the overall effect on the company's monthly net operating income of this change?
Overall net operating income will increase by $1,200
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
volume.
5-199
Corporation.
A. decrease of $240
C. increase of $240
Overall net operating income will increase by $240
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
volume.
5-200
Corporation.
staff would accept a decrease in their salaries of $27,000 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
Overall net operating income will decrease by $1,000
AACSB: Analytic
Blooms: Apply
volume.
5-201
Corporation.
AACSB: Analytic
Blooms: Apply
volume.
5-202
Bohlen Corporation produces and sells a single product. Data concerning that product appear
below:
5-203
Corporation.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
volume.
5-204
Corporation.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
volume.
5-205
Corporation.
increase monthly sales by 1,000 units. What should be the overall effect on the company's
AACSB: Analytic
Blooms: Apply
volume.
5-206
Corporation.
staff. The marketing manager has proposed a commission of $16 per unit. In exchange, the
sales staff would accept a decrease in their salaries of $84,000 per month. (This is the
AACSB: Analytic
Blooms: Apply
volume.
5-207
Boenisch Corporation produces and sells a single product with the following characteristics:
month. Consider each of the following questions independently.
5-208
Corporation.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
volume.
5-209
Corporation.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
volume.
5-210
Corporation.
AACSB: Analytic
Blooms: Apply
volume.
5-211
Corporation.
sales staff would accept a decrease in their salaries of $102,000 per month. (This is the
AACSB: Analytic
Blooms: Apply
volume.
Smee Inc. produces and sells a single product. The selling price of the product is $130.00 per
unit and its variable cost is $52.00 per unit. The fixed expense is $281,580 per month.
5-212
A. 3,730 units
B. 5,415 units
C. 2,166 units
D. 3,610 units

= $281,580 ÷ $78.00 per unit = 3,610 units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-213
A. $281,580
B. $484,943
C. $703,950
D. $469,300

CM ratio = Unit contribution margin ÷ Unit selling price = $78.00 per unit ÷ $130.00 per unit =
0.60
= $281,580 ÷ 0.60 = $469,300
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
Blackner Corporation produces and sells a single product. Data concerning that product appear
below:
5-214
A. 3,290 units
B. 6,991 units
C. 4,173 units
D. 2,237 units

= $492,184 ÷ $149.60 per unit = 3,290 units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-215
A. $723,800
B. $918,060
C. $1,538,020
D. $492,140

CM ratio = Unit CM ÷ Unit selling price = $149.60 per unit ÷ $220.00 per unit = 0.68

= $492,184 ÷ 0.68 = $723,800
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
Data concerning Kuralt Corporation's single product appear below:
5-216
A. 1,413 units
B. 2,920 units
C. 5,436 units
D. 1,910 units

= $310,948 ÷ $162.80 per unit = 1,910 units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-217
A. $310,860
B. $1,195,920
C. $420,200
D. $642,400


= $310,948 ÷ 0.74 = $420,200
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
Moccio Enterprises, Inc., produces and sells a single product whose selling price is $120.00 per
unit and whose variable expense is $37.20 per unit. The company's monthly fixed expense is
$356,040.
5-218
134. Assume the company's target profit is $14,000. The unit sales to attain that target profit is
closest to:
A. 3,084 units
B. 4,469 units
C. 5,833 units
D. 9,947 units

= ($356,040 + $14,000) ÷ $82.80 per unit
= $370,040 ÷ $82.80 per unit = 4,469 units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-219
135. Assume the company's target profit is $15,000. The dollar sales to attain that target profit is
closest to:
A. $371,040
B. $537,739
C. $701,894
D. $1,196,903

CM ratio = Unit contribution margin ÷ Unit selling price = $82.80 per unit ÷ $120.00 per unit =
0.69
= ($15,000 + $356,040) ÷ 0.69
= $371,040 ÷ 0.69 = $537,739
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
Data concerning Matsumoto Corporation's single product appear below:
5-220
to:
A. 5,496 units
B. 2,198 units
C. 3,786 units
D. 3,664 units

= ($5,000 + $280,800) ÷ $78.00 per unit
= $285,800 ÷ $78.00 per unit = 3,664 units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-221
closest to:
A. $288,800
B. $497,378
C. $481,333
D. $722,000

= ($8,000 + $280,800) ÷ 0.60

= $288,800 ÷ 0.60 = $481,333
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
Upchurch Corporation produces and sells a single product. Data concerning that product
appear below:
5-222
138. Assume the company's target profit is $12,000. The unit sales to attain that target profit is
closest to:
A. 3,242 units
B. 4,912 units
C. 9,535 units
D. 5,896 units

= ($12,000 + $312,180) ÷ $66.00 per unit
= $324,180 ÷ $66.00 per unit = 4,912 units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-223
closest to:
A. $326,180
B. $593,248
C. $494,212
D. $959,353

= ($14,000 + $312,180) ÷ 0.66

= $326,180÷ 0.66
= $494,212
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
Callicott Corporation produces a product that sells for $120 per unit. The product's current sales
are 25,400 units and its break-even sales are 18,542 units.
5-224
A. $822,960
B. $2,032,000
C. $3,048,000
D. $2,225,040
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-225
A. 27%
B. 37%
C. 63%
D. 73%
Margin of safety percentage = Margin of safety in dollars ÷ Total sales
= $822,960 ÷ $3,048,000 = 27%
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
Mcallister Corporation has provided the following data concerning its only product:
5-226
A. $1,256,850
B. $4,728,150
C. $3,990,000
D. $5,985,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-227
A. 73%
B. 79%
C. 21%
D. 27%
Margin of safety percentage = Margin of safety in dollars ÷ Total budgeted (or actual) sales
= $1,256,850 ÷ $5,985,000 = 21%
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
The July contribution format income statement of Raiche Corporation appears below:
5-228
A. 6.72
B. 13.44
C. 0.15
D. 0.07
= $255,300 ÷ $38,000 = 6.72
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-229
A. 34%
B. 67%
C. 5%
D. 7%
= $255,300 ÷ $38,000 = 6.72

change in sales
= 6.72 × 5% = 33.59%
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
Stoppkotte Corporation has provided its contribution format income statement for April.
5-230
A. 3.46
B. 0.11
C. 0.29
D. 9.40
= $259,000 ÷ $74,800 = 3.46
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-231
A. 10.00%
B. 10.64%
C. 34.60%
D. 93.98%
= $259,000 ÷ $74,800 = 3.46

change in sales
= 3.46 × 10% = 34.60%
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
Froio Corporation produces and sells two products. Data concerning those products for the
most recent month appear below:
5-232
A. $43,557
B. $26,570
C. $22,430
D. $45,680
CM ratio = Contribution margin ÷ Sales revenue = $29,890 ÷ $49,000 = 0.61
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-233
149. If the sales mix were to shift toward Product M06M with total sales remaining constant, the
A. would increase.
D. would decrease.
The overall break-even point for the entire company would decrease if the sales mix shifts
toward Product M06M because Product M06M has a higher contribution margin (78.0%) than
Product Q20I (56.1%).
AACSB: Analytic
Blooms: Apply
Gilpatric Corporation produces and sells two products. In the most recent month, Product
Q71M had sales of $28,000 and variable expenses of $7,840. Product V04P had sales of $49,000
and variable expenses of $27,580. The fixed expenses of the entire company were $34,630.
5-234
A. $70,050
B. $64,130
C. $34,630
D. $42,370
CM ratio = Contribution margin ÷ Sales revenue = $41,580 ÷ $77,000 = 0.54
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-235
151. If the sales mix were to shift toward Product Q71M with total sales remaining constant, the
A. would increase.
D. would decrease.
The overall break-even point for the entire company would decrease if the sales mix shifts
toward Product Q71M because Product Q71M has a higher contribution margin (72.0%) than
Product V04P (43.7%).
AACSB: Analytic
Blooms: Apply
Essay Questions
5-236
152. In December, Mccullum Corporation sold 2,900 units of its only product. Its total sales were
$281,300, its total variable expenses were $130,500, and its total fixed expenses were $122,600.
Required:
a. Construct the company's contribution format income statement for December.

3,100 units.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-237
153. Marano Corporation produces and sells a single product. In October, the company sold 6,200
units. Its total sales were $223,200, its total variable expenses were $105,400, and its total fixed
expenses were $100,400.
Required:
a. Construct the company's contribution format income statement for October.
6,400 units.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-238
154. Gonyo Inc., which produces and sells a single product, has provided the following contribution
format income statement for December:
Required:
Redo the company's contribution format income statement assuming that the company sells
3,400 units.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-239
155. Buentello Corporation produces and sells a single product. The company's contribution format
income statement for January appears below:
Required:
Redo the company's contribution format income statement assuming that the company sells
1,600 units.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-240
5-241
156. The following is Arkadia Corporation's contribution format income statement for last month:
The company has no beginning or ending inventories and produced and sold 20,000 units
during the month.
Required:
a. What is the company's contribution margin ratio?

b. What is the company's break-even in units?
c. If sales increase by 100 units, by how much should net operating income increase?
d. How many units would the company have to sell to attain a target profit of $125,000?
e. What is the company's margin of safety in dollars?
f. What is the company's degree of operating leverage?
a. CM ratio

= $400,000 ÷ $1,200,000 = 0.333
b. Break-even units
Selling price = $1,200,000 ÷ 20,000 units = $60 per unit
Variable expenses per unit = $800,000 ÷ 20,000 units = $40 per unit
Unit CM = $60 per unit - $40 per unit

= $300,000 ÷ $20 per unit = 15,000 units
c. Increase in net operating income from additional sales of 100 units
5-242
d. Unit sales to attain target profit = (Target profit + Fixed expenses) ÷ Unit CM = ($125,000 +
$300,000) ÷ $20 per unit = $425,000 ÷ $20 per unit = 21,250 units
e. Margin of safety in dollars

Break-even sales = $60 per unit × 15,000 units = $900,000
Margin of safety in dollars = Total budgeted (or actual) sales - Break-even sales
= $1,200,000 - $900,000 = $300,000
f. Degree of operating leverage = Contribution margin ÷ Net operating income

= $400,000 ÷ $100,000 = 4.0
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-243
157. The management of Pacubas Corporation expects sales in July to be $121,000. The company's
contribution margin ratio is 64% and its fixed monthly expenses are $40,000.
Required:
Estimate the company's net operating income for July, assuming that the fixed monthly

= (64% × $121,000) - $40,000
= $77,440 - $40,000 = $37,440
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-244
158. Bianchini Corporation's contribution margin ratio is 58% and its fixed monthly expenses are
$94,000. Assume that the company's sales for May are expected to be $178,000.
Required:
Estimate the company's net operating income for May, assuming that the fixed monthly

= (58% × $178,000) - $94,000
= $103,240 - $94,000 = $9,240
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-245
159. Gaskey Inc. expects its sales in February to be $173,000. The company's contribution margin
ratio is 58% and its fixed monthly expenses are $94,000.
Required:
Estimate the company's net operating income for February, assuming that the fixed monthly

= (58% × $173,000) - $94,000
= $100,340 - $94,000 = $6,340
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-246
160. Larita Corporation produces and sells a single product. Data concerning that product appear
below:
month.
Required:
company's monthly net operating income of this change? Show your work!
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
volume.
5-247
161. Wrobbel Corporation produces and sells a single product. Data concerning that product appear
below:
month.
Required:
by $2. Since the new component would improve the company's product, the marketing
manager predicts that monthly sales would increase by 200 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!
Because fixed expenses are not affected by this change, the change in net operating income
will be equal to the change in total contribution margin.
5-248
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
volume.
5-249
162. Data concerning Ulwelling Corporation's single product appear below:
month.
Required:
manager predicts that introducing this sales incentive would increase monthly sales by 300
units. What should be the overall effect on the company's monthly net operating income of this
change? Show your work!
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
volume.
5-250
163. Data concerning Kurek Corporation's single product appear below:
month.
Required:
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
volume.
5-251
164. Moallankamp Corporation produces and sells a single product. Data concerning that product
appear below:
month.
Required:
sales staff would accept an overall decrease in their salaries of $117,000 per month. The
marketing manager predicts that introducing this sales incentive would increase monthly sales
by 400 units. What should be the overall effect on the company's monthly net operating
income of this change? Show your work!
5-252
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
volume.
5-253
165. Grable Corporation produces and sells a single product. Data concerning that product appear
below:
month.
Required:
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
volume.
5-254
166. Data concerning Phung Corporation's single product appear below:
month.
Required:
company's monthly net operating income of this change? Show your work!
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
volume.
5-255
167. Data concerning Sumter Corporation's single product appear below:
month.
Required:
by $6. Since the new component would improve the company's product, the marketing
manager predicts that monthly sales would increase by 300 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!
Because fixed expenses are not affected by this change, the change in net operating income
will be equal to the change in total contribution margin.
5-256
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
volume.
168. Pultz Corporation produces and sells a single product. Data concerning that product appear
below:
Required:
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-257
169. Shauer, Inc., produces and sells a single product whose selling price is $150.00 per unit and
whose variable expense is $33.00 per unit. The company's fixed expense is $436,410 per month.
Required:
Unit sales to break even = Fixed expenses ÷ Unit CM = $436,410 ÷ $117 per unit = 3,730 units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-258
170. Torbert, Inc., produces and sells a single product. The product sells for $190.00 per unit and its
variable expense is $72.20 per unit. The company's monthly fixed expense is $353,400.
Required:
= $353,400 ÷ $117.80 per unit = 3,000 units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-259
171. Buccheri Corporation produces and sells a single product. Data concerning that product appear
below:
Required:
= $293,706 ÷ $132.30 per unit = 2,220 units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-260
172. Maddaloni International, Inc., produces and sells a single product. The product sells for $160.00
per unit and its variable expense is $46.40 per unit. The company's monthly fixed expense is
$219,248.
Required:
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-261
173. Hirz Corporation produces and sells a single product. Data concerning that product appear
below:
Required:
Unit sales to break even = Fixed expenses ÷ Unit CM = $102,714 ÷ $100.70 per unit = 1,020
units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-262
174. The contribution margin ratio of Donath Corporation's only product is 65%. The company's
monthly fixed expense is $573,300 and the company's monthly target profit is $9,100.
Required:
Dollar sales to attain target profit = (Target profit + Fixed expenses) ÷ CM ratio
= ($573,300 + $9,100) ÷ 0.65 = $896,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-263
175. Gauani Corporation produces and sells a single product. Data concerning that product appear
below:
Required:
a. Assume the company's monthly target profit is $21,600. Determine the unit sales to attain
that target profit. Show your work!

b. Assume the company's monthly target profit is $54,000. Determine the dollar sales to attain
a. Unit sales to attain target profit = (Target profit + Fixed expenses) ÷ Unit CM
= ($421,200 + $21,600) ÷ $108.00 per unit = 4,100 units
b. Dollar sales to attain target profit = (Target profit + Fixed expenses) ÷ CM ratio
= ($421,200 + $54,000) ÷ 0.72 = $660,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-264
176. Alcina Corporation produces and sells a single product whose contribution margin ratio is 80%.
$43,200.
Required:
Dollar sales to attain target profit = (Target profit + Fixed expenses) ÷ CM ratio
= ($576,000 + $43,200) ÷ 0.80 = $774,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-265
177. Liest Corporation produces and sells a single product whose selling price is $100.00 per unit
and whose variable expense is $48.00 per unit. The company's monthly fixed expense is
$244,400.
Required:

b. Assume the company's monthly target profit is $26,000. Determine the dollar sales to attain
a. Unit sales to attain target profit = (Target profit + Fixed expenses) ÷ Unit CM
= ($244,400 + $5,200) ÷ $52.00 per unit = 4,800 units
b. Dollar sales to attain target profit = (Target profit + Fixed expenses) ÷ CM ratio
= ($244,400 + $26,000) ÷ 0.52 = $520,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-266
178. The selling price of Roscioli Corporation's only product is $210.00 per unit and its variable
expense is $75.60 per unit. The company's monthly fixed expense is $537,600.
Required:
Unit sales to attain target profit = (Target profit + Fixed expenses) ÷ Unit CM
= ($537,600 + $13,440) ÷ $134.40 per unit = 4,100 units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-267
179. Lopp Corporation produces and sells a single product. Data concerning that product appear
below:
Required:
Unit sales to attain target profit = (Target profit + Fixed expenses) ÷ Unit CM
= ($612,480 + $38,280) ÷ $127.60 per unit = 5,100 units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-268
180. Koelsch Corporation's only product sells for $170 per unit. Its current sales are 43,600 units and
its break-even sales are 39,240 units.
Required:
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-269
181. Xiong Corporation makes a product that sells for $130 per unit. The product's current sales are
14,000 units and its break-even sales are 10,220 units.
Required:
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-270
182. Brower Inc. has provided the following data concerning its only product:
Required:
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-271
183. In the most recent month, Shoemaker Corporation's total contribution margin was $29,600 and
its net operating income $3,000.
Required:

a. Degree of operating leverage = Contribution margin ÷ Net operating income
= $29,600 ÷ $3,000 = 9.87

b. Percent increase in net operating income = Percent increase in sales × Degree of operating
leverage
= 10% × 9.87 = 98.70%
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-272
184. Eickhoff Corporation's contribution format income statement for the most recent month
follows:
Required:


= $141,000 ÷ $31,800 = 4.43
leverage
= 1% × 4.43 = 4.43%
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-273
185. Mahaxay Corporation has provided its contribution format income statement for April.
Required:


= $72,000 ÷ $8,400 = 8.57
leverage
= 9% × 8.57 = 77.13%
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-274
186. Hargenrader Inc. produces and sells two products. During the most recent month, Product
P02S's sales were $24,000 and its variable expenses were $7,920. Product O50U's sales were
$41,000 and its variable expenses were $14,180. The company's fixed expenses were $40,350.
Required:
a. Determine the overall break-even point for the company in total sales dollars. Show your
work!
b. If the sales mix shifts toward Product P02S with no change in total sales, what will happen to
the break-even point for the company? Explain.
Overall CM ratio = Total contribution margin ÷ Total sales
= $42,900 ÷ $65,000 = 0.66

Break-even point in total sales dollars = Fixed expenses ÷ Overall CM ratio
= $40,350 ÷ 0.66 = $61,136
Because Product P02S's CM ratio is greater than Product O50U's, a shift in the sales mix toward
Product P02S will result in a decrease in the company's overall break-even point.
5-275
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-276
187. Crumbley Inc. produces and sells two products. Data concerning those products for the most
Required:
a. Determine the overall break-even point for the company in total sales dollars. Show your
work!
b. If the sales mix shifts toward Product W43J with no change in total sales, what will happen to
the break-even point for the company? Explain.
Overall CM ratio = Total contribution margin ÷ Total sales

= $50,560 ÷ $64,000 = 0.79
Break-even point in total sales dollars = Fixed expenses ÷ Overall CM ratio

= $42,760 ÷ 0.79 = $54,127
Because Product W43J's CM ratio is less than Product P24R's, a shift in the sales mix toward
Product W43J will result in an increase in the company's overall break-even point.
5-277
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
5-278

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LO4: Effects of changes in parameters

LO2: CVP and profit graphs

Professional exam adapted

LO8: Operating leverage

LO9: Multiproduct CVP

True / False Questions

activity level above the break-even point.

multiplying the contribution margin by the dollar change in sales.

in its cost structure.

margin of safety to increase.

high variable costs and low fixed costs.

Multiple Choice Questions

A. variable expenses have been deducted from sales revenue.

B. fixed expenses have been deducted from sales revenue.

C. fixed expenses have been deducted from variable expenses.

D. cost of goods sold has been deducted from sales revenues.

total expense line relative to its previous position will:

A. shift downward and have a steeper slope.

B. shift downward and have a flatter slope.

C. shift upward and have a flatter slope.

D. shift upward and have a steeper slope.

24. The contribution margin ratio is equal to:

A. Total manufacturing expenses/Sales.

B. (Sales - Variable expenses)/Sales.

sales dollars is:

A. unit sales volume.

B. total fixed expenses.

C. unit variable expenses.

A. the point where total sales equals total expenses.

B. the point where total profit equals total fixed expenses.

D. the point where total profit equals zero.

29. The margin of safety is:

format income statement for April.

contribution format income statement for March.

Given these data, the unit contribution margin was:

of $12, for the sales of their single product.

What is the amount of contribution margin if sales volume increases by 30%?

actual profit is:

monthly net operating income of this change?

net operating income of this change?

monthly net operating income of this change?

monthly net operating income of this change?

What is Garcia's break-even point next year in sales dollars?

monthly unit sales is closest to:

Lore's break-even point in dollar sales is:

annual fixed expenses associated with the textbook total:

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

62. Data concerning Wang Corporation's single product appear below:

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

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

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

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

The margin of safety for the company during May was:

realize a profit of 15% of sales is closest to:

What is the margin of safety in dollars?

The margin of safety as a percentage of sales is closest to:

What is the margin of safety in dollars?