Test bank Managerial Accounting by Garrison (13e) Chapter 06 Course - Accounting | Trường Đại học Hà Nội

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Chapter 6 Cost-Volume-Profit Relationships True/False Questions
One way to compute the total contribution margin is to add total fixed expenses to net operating income. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
23 On a CVP graph for a profitable company, the total revenue line will be steeper than the total cost line. Ans: True AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy
23 In two companies making the same product and with the same total sales and total
expenses, the contribution margin ratio will be lower in the company with a
higher proportion of fixed expenses in its cost structure. Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium
23 If the variable expense per unit increases, and all other factors remain constant,
the contribution margin ratio will increase. Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium
23 The impact on net operating income of any given dollar change in total sales can
be estimated by multiplying the CM ratio by the dollar change in total sales. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy
23 A company with sales of $70,000 and variable expenses of $40,000 should spend
$10,000 on increased advertising if the increased advertising will increase sales by $20,000. Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Medium
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-7 lOMoARcPSD|46958826
Chapter 6 Cost-Volume-Profit Relationships
23 The formula for the break-even point is the same as the formula to attain a given
target profit for the special case where the target profit is zero. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5; 6 Level: Medium
23 An increase in total fixed expenses will not affect the break-even point so long as
the contribution margin ratio remains unchanged. Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium
23 All other things the same, a reduction in the variable expense per unit will cause the break-even point to rise. Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium
23 The unit sales volume necessary to reach a target profit is determined by dividing
the target profit by the contribution margin per unit. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium
23 All other things the same, the margin of safety in dollars at a given level of sales
will tend to be lower for a capital-intensive company than for a labor-intensive
company with high variable expenses. Ans: True AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium
23 The margin of safety in dollars equals the excess of budgeted (or actual) sales over
the break-even volume of sales. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Easy
23 A company with high operating leverage will experience a lower reduction in
net operating income in a period of declining sales than will a company with low operating leverage. Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 8 Level: Medium 6-8
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition lOMoARcPSD|46958826
Chapter 6 Cost-Volume-Profit Relationships
23 If Q is the quantity of a product sold, P is the price per unit, V is the variable expense
per unit, and F is the total fixed expense, then the degree of operating leverage is
equal to: [Q(P-V)] ÷ [Q(P-V)-F] Ans: True AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 8 Level: Hard
23 A shift in the sales mix from products with high contribution margin ratios toward
products with low contribution margin ratios will raise the break-even point. Ans: True AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 9 Level: Medium
Multiple Choice Questions
23 Contribution margin can be defined as:
the amount of sales revenue necessary to cover variable expenses.
sales revenue minus fixed expenses.
the amount of sales revenue necessary to cover fixed and variable expenses.
sales revenue minus variable expenses. Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy
23 Which of the following statements is correct with regard to a CVP graph?
A CVP graph shows the maximum possible profit.
A CVP graph shows the break-even point as the intersection of the total sales
revenue line and the total expense line.
A CVP graph assumes that total expense varies in direct proportion to unit sales.
A CVP graph shows the operating leverage as the gap between total sales
revenue and total expense at the actual level of sales. Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy
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Chapter 6 Cost-Volume-Profit Relationships
23 If both the fixed and variable expenses associated with a product decrease, what will be
the effect on the contribution margin ratio and the break-even point, respectively? Contribution margin ratio Break-even point A) Decrease Increase B) Increase Decrease C) Decrease Decrease D) Increase Increase Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3; 5 Level: Medium Source: CMA; adapted
Which of the following is true regarding the contribution margin ratio of a single product company? 0
As fixed expenses decrease, the contribution margin ratio increases. 1
The contribution margin ratio multiplied by the selling price per unit equals
the contribution margin per unit. 2
The contribution margin ratio will decline as unit sales decline. 3
The contribution margin ratio equals the selling price per unit less the variable expense ratio. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium
If a company is operating at the break-even point: 0
its contribution margin will be equal to its variable expenses. 1
its margin of safety will be equal to zero. 2
its fixed expenses will be equal to its variable expenses. 3
its selling price will be equal to its variable expense per unit. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5; 7 Level: Medium At the break-even point: 0
sales would be equal to contribution margin. 1
contribution margin would be equal to fixed expenses. 2
contribution margin would be equal to net operating income. 3
sales would be equal to fixed expenses. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium 6-10
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition lOMoARcPSD|46958826
Chapter 6 Cost-Volume-Profit Relationships
The break-even point would be increased by: 0
a decrease in total fixed expenses. 1
a decrease in the ratio of variable expenses to sales. 2
an increase in the contribution margin ratio. 3 none of these. Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium
23. Which of the following strategies could be used to reduce the break-even point? Fixed expenses Contribution margin A) Increase Increase B) Decrease Decrease C) Decrease Increase D) Increase Decrease Ans: C
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy
Break-even analysis assumes that: 0 Total revenue is constant. 1
Unit variable expense is constant. 2
Unit fixed expense is constant. 3
Selling prices must fall in order to generate more revenue. Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy
Target profit analysis is used to answer which of the following questions? 0
What sales volume is needed to cover all expenses? 1
What sales volume is needed to cover fixed expenses? 2
What sales volume is needed to earn a specific amount of net operating income? 3
What sales volume is needed to avoid a loss? Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Easy
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Chapter 6 Cost-Volume-Profit Relationships
The margin of safety can be calculated by: 0
Sales − (Fixed expenses/Contribution margin ratio). 1
Sales − (Fixed expenses/Variable expense per unit). 2
Sales − (Fixed expenses + Variable expenses). 3
Sales − Net operating income. Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium
If the degree of operating leverage is 4, then a one percent change in quantity sold
should result in a four percent change in: 0 unit contribution margin. 1 revenue. 2 variable expense. 3 net operating income. Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 8 Level: Easy Source: CMA; adapted
Which of the following is the correct calculation for the degree of operating leverage? 0
net operating income divided by total expenses. 1
net operating income divided by total contribution margin. 2
total contribution margin divided by net operating income. 3
variable expense divided by total contribution margin. Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 8 Level: Easy
Which of the following is an assumption underlying standard CVP analysis? 0
In multiproduct companies, the sales mix is constant. 1
In manufacturing companies, inventories always change. 2
The price of a product or service is expected to change as volume changes. 3
Fixed expenses will change as volume increases. Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 9 Level: Easy 6-12
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition lOMoARcPSD|46958826
Chapter 6 Cost-Volume-Profit Relationships
30. Hopi Corporation expects the following operating results for next year:
Sales...........................................................................$400,000
Margin of safety.....................................................$100,000
Contribution margin ratio...................................75%
Degree of operating leverage.............................4
What is Hopi expecting total fixed expenses to be next year? $75,000 $100,000 $200,000 $225,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1; 3; 8 Level: Hard Solution:
Current sales - Breakeven sales = Margin of safety
Substituting the given information into the above equation, we will have:
$400,000 − Breakeven sales = $100,000 Breakeven sales = $300,000
Breakeven sales = Fixed expenses ÷ Contribution margin ratio
Substituting the given information into the above equation, we will have:
$300,000 = Fixed expenses ÷ 0.75 Fixed expenses = $225,000
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Chapter 6 Cost-Volume-Profit Relationships
Escareno Corporation has provided its contribution format income statement for June.
The company produces and sells a single product.
Sales (8,400 units).......................... $764,400
Variable expenses........................... 445,200
Contribution margin....................... 319,200
Fixed expenses............................... 250,900
Net operating income..................... $ 68,300
If the company sells 8,200 units, its total contribution margin should be closest to: $301,000 $311,600 $319,200 $66,674 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution:
Current contribution margin ÷ Current sales in units = Contribution margin per
unit $319,200 ÷ 8,400 = $38 contribution margin per unit
If 8,200 units are sold, the total contribution margin will be 8,200 × $38, or $311,600.
Rovinsky Corporation, a company that produces and sells a single product, has
provided its contribution format income statement for November.
Sales (5,700 units).............. $319,200
Variable expenses............... 188,100 Contribution margin........... 131,100
Fixed expenses................... 106,500 Net operating income......... $ 24,600
If the company sells 5,300 units, its net operating income should be closest to: $24,600 $2,200 $22,874 $15,400 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 6-14
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition lOMoARcPSD|46958826
Chapter 6 Cost-Volume-Profit Relationships Solution:
Current sales dollars ÷ Current sales in units = Sales price per
unit $319,200 ÷ 5,700 = $56 sales price per unit
Current variable expenses ÷ Current sales in units = Variable expense per
unit $188,100 ÷ 5,700 = $33 variable expense per unit
Sales (5,300 units × $56)....................... $ 296,800
Variable expenses (5,300 units × $33)... 174,900
Contribution margin.............................. 121,900
Fixed expenses....................................... 106,500
Net operating income............................ $ 15,400
Sorin Inc., a company that produces and sells a single product, has provided its
contribution format income statement for January.
Sales (4,200 units).......................... $155,400
Variable expenses........................... 100,800
Contribution margin....................... 54,600
Fixed expenses............................... 42,400
Net operating income..................... $ 12,200
If the company sells 4,600 units, its total contribution margin should be closest to: $54,600 $59,800 $69,400 $13,362 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution:
Current contribution margin ÷ Current sales in units = Contribution margin per
unit $54,600 ÷ 4,200 = $13 contribution margin per unit
If 4,600 units are sold, the total contribution margin will be 4,600 × $13, or $59,800.
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Chapter 6 Cost-Volume-Profit Relationships
Decaprio Inc. produces and sells a single product. The company has provided its
contribution format income statement for June.
Sales (8,800 units).......................... $528,000
Variable expenses........................... 290,400
Contribution margin....................... 237,600
Fixed expenses............................... 211,700
Net operating income..................... $ 25,900
If the company sells 9,200 units, its net operating income should be closest to: $27,077 $49,900 $36,700 $25,900 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution:
Current sales dollars ÷ Current sales in units = Sales price per
unit $528,000 ÷ 8,800 = $60 sales price per unit
Current variable expenses ÷ Current sales in units = Variable expense per
unit $290,400 ÷ 8,800 = $33 variable expense per unit
Sales (9,200 units × $60 ).......................... $552,000
Variable expenses (9,200 units × $33)....... 303,600
Contribution margin................................... 248,400
Fixed expenses........................................... 211,700
Net operating income................................. $ 36,700 6-16
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition lOMoARcPSD|46958826
Chapter 6 Cost-Volume-Profit Relationships
35. The Bronco Birdfeed Company reported the following information:
Sales (400 cases)............................ $100,000
Variable expenses........................... 60,000
Contribution margin....................... 40,000
Fixed expenses............................... 35,000
Net operating income..................... $5,000
How much will the sale of one additional case add to Bronco's net operating income? $250.00 $100.00 $150.00 $12.50 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution:
Current contribution margin ÷ Current sales in cases = Contribution margin per
case $40,000 ÷ 400 = $100 contribution margin per case
If one additional case is sold, net operating income will increase by $100.
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Chapter 6 Cost-Volume-Profit Relationships
The margin of safety in the Flaherty Company is $24,000. If the company's sales are
$120,000 and its variable expenses are $80,000, its fixed expenses must be: 0 $8,000 1 $32,000 2 $24,000 3 $16,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3; 5; 7 Level: Hard Solution:
Current sales - Breakeven sales = Margin of safety
Substituting the given information into the above equation, we will have:
$120,000 - Breakeven sales = $24,000 Breakeven sales = $96,000
Sales - Variable expenses = Contribution margin $120,000 - $80,000 = $40,000
Contribution margin ratio = Contribution margin ÷
Sales Contribution margin ratio = $ 40,000 ÷ $120,000
Contribution margin ratio = 0.33333
Breakeven sales = Fixed costs ÷ Contribution margin ratio
Substituting the given information into the above equation, we will have:
$96,000 = Fixed costs ÷ 0.33333 Fixed costs = $32,000 6-18
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition lOMoARcPSD|46958826
Chapter 6 Cost-Volume-Profit Relationships
Dodero Company produces a single product which sells for $100 per unit. Fixed
expenses total $12,000 per month, and variable expenses are $60 per unit. The
company's sales average 500 units per month. Which of the following statements is correct? 0
The company's break-even point is $12,000 per month. 1
The fixed expenses remain constant at $24 per unit for any activity level within the relevant range. 2
The company's contribution margin ratio is 40%. 3
Responses A, B, and C are all correct. Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3; 5 Level: Medium Solution:
Answer A is not correct because:
Sales = Variable expenses + Fixed expenses +
Profit $100Q = $60Q + $12,000 + $0 $40Q = $12,000
Q = $12,000 ÷ $40 per unit = 300 units
300 units × $100 selling price per unit = $30,000 breakeven sales in dollars
Answer B is not correct because fixed costs change as activity level
changes Answer C is correct because:
Contribution margin per unit = Selling price per unit - Variable expenses per unit = $100 - $60 = $40
Contribution margin ratio = Contribution margin per unit ÷ Selling price per unit
Contribution margin ratio = $40 ÷ $100
Contribution margin ratio = 40%
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Chapter 6 Cost-Volume-Profit Relationships
Holt Company's variable expenses are 70% of sales. At a $300,000 sales level, the
degree of operating leverage is 10. If sales increase by $60,000, the degree of operating leverage will be: 0 12 1 10 2 6 3 4 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3; 8 Level: Hard Solution:
Sales.......................................................... $300,000
Variable expenses ($300,000 × 70%)....... 210,000
Contribution margin................................. 90,000
Fixed expenses.......................................... ?
Net operating income............................... $ ?
Current degree of operating leverage = Current contribution margin ÷ Current net operating income
10 = $90,000 ÷ Current net operating income
Current net operating income = $90,000 ÷ 10 = $9,000
Contribution margin = Fixed expenses - Net operating
income $90,000 = Fixed expenses - $9,000
Fixed expenses = $90,000 - $9,000 = $81,000
Sales ($300,000 + $60,000)...................... $360,000
Variable expenses ($360,000 × 70%)....... 252,000
Contribution margin................................. 108,000
Fixed expenses.......................................... 81,000
Net operating income............................... $ 27,000
Degree of operating leverage = Contribution margin ÷ Net operating
income = $108,000/$27,000 = 4.0 6-20
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition lOMoARcPSD|46958826
Chapter 6 Cost-Volume-Profit Relationships
Gayne Corporation's contribution margin ratio is 12% and its fixed monthly expenses are
$84,000. If the company's sales for a month are $738,000, what is the best estimate of
the company's net operating income? Assume that the fixed monthly expenses do not change. 0 $565,440 1 $654,000 2 $88,560 3 $4,560 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy Solution:
Sales.......................................................... $738,000
Variable expenses ($738,000 × 88%)....... 649,440
Contribution margin ($738,000 × 12%)... 88,560
Fixed expenses.......................................... 84,000
Net operating income............................... $ 4,560
Jilk Inc.'s contribution margin ratio is 58% and its fixed monthly expenses are $36,000.
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 $103,000? 0 $23,740 1 $59,740 2 $67,000 3 $7,260 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy Solution:
Sales........................................................... $103,000
Variable expenses ($103,000 × 42%)........ 43,260
Contribution margin ($103,000 × 58%).... 59,740
Fixed expenses........................................... 36,000
Net operating income................................. $ 23,740
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Chapter 6 Cost-Volume-Profit Relationships
Creswell Corporation's fixed monthly expenses are $29,000 and its contribution margin
ratio is 56%. 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 $95,000? 0 $12,800 1 $24,200 2 $53,200 3 $66,000 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy Solution:
Sales........................................................... $95,000
Variable expenses ($95,000 × 44%)........... 41,800
Contribution margin ($95,000 × 56%)....... 53,200
Fixed expenses........................................... 29,000
Net operating income................................. $24,200
Wilson Company prepared the following preliminary budget assuming no advertising expenditures:
Selling price....................... $10 per unit
Unit sales............................ 100,000
Variable expenses............... $600,000
Fixed expenses................... $300,000
Based on a market study, the company estimated that it could increase the unit
selling price by 15% and increase the unit sales volume by 10% if $100,000 were
spent on advertising. Assuming that these changes are incorporated in its budget,
what should be the budgeted net operating income? $175,000 $190,000 $205,000 $365,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Medium Source: CPA; adapted 6-22
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition lOMoARcPSD|46958826
Chapter 6 Cost-Volume-Profit Relationships Solution:
Sales (110,000 units × $11.50)..................... $ 1,265,000
Variable expenses (110,000 units × $6*)...... 660,000
Contribution margin...................................... 605,000
Fixed expenses ($300,000 + $100,000)........ 400,000
Net operating income.................................... $ 205,000
0 Current variable expenses ÷ Current sales in units = Variable expense per
unit $600,000 ÷ 100,000 = $6 variable expense per unit
Data concerning Kardas Corporation's single product appear below: Per Unit Percent of Sales
Selling price....................... $140 100%
Variable expenses............... 28 20% Contribution margin........... $112 80%
The company is currently selling 8,000 units per month. Fixed expenses are $719,000
per month. The marketing manager believes that a $20,000 increase in the monthly
advertising budget would result in a 180 unit increase in monthly sales. What should be
the overall effect on the company's monthly net operating income of this change? decrease of $160 increase of $20,160 decrease of $20,000 increase of $160 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy Solution: 8,000 units 8,180 units
Sales (8,000 units, 8,180 units × $140).......... $ 1,120,000 $ 1,145,200 Variable expenses
($1,120,000, $1,145,200 × 20%)................ 224,000 229,040
Contribution margin....................................... 896,000 916,160
Fixed expenses................................................ 719,000 739,000
Net operating income..................................... $ 177,000 $ 177,160
Increase in net operating income: $177,160 - $177,000 = $160
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Chapter 6 Cost-Volume-Profit Relationships
Kuzio Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales
Selling price....................... $130 100%
Variable expenses............... 78 60% Contribution margin........... $ 52 40%
The company is currently selling 6,000 units per month. Fixed expenses are $263,000
per month. The marketing manager believes that a $5,000 increase in the monthly
advertising budget would result in a 140 unit increase in monthly sales. What should be
the overall effect on the company's monthly net operating income of this change? increase of $2,280 increase of $7,280 decrease of $5,000 decrease of $2,280 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy Solution: 6,000 units 6,140 units
Sales (6,000 units, 6,140 units × $130)......... $780,000 $ 798,200 Variable expenses
($780,000, $798,200 × 60%)..................... 468,000 478,920
Contribution margin...................................... 312,000 319,280
Fixed expenses.............................................. 263,000 268,000
Net operating income.................................... $ 49,000 $ 51,280
Increase in net operating income: $51,280 - $49,000 = $2,280 6-24
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition lOMoARcPSD|46958826
Chapter 6 Cost-Volume-Profit Relationships
45. Data concerning Dorazio Corporation's single product appear below: Per Unit Percent of Sales
Selling price................................... $160 100%
Variable expenses........................... 48 30%
Contribution margin....................... $112 70%
Fixed expenses are $87,000 per month. The company is currently selling 1,000 units
per month. Management is considering using a new component that would increase
the unit variable cost by $28. 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? increase of $5,600 increase of $33,600 decrease of $5,600 decrease of $33,600 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy Solution: 1,000 units 1,400 units
Sales (1,000 units, 1,400 units × $160).............. $160,000 $ 224,000 Variable expenses
(1,000 units × $48, 1,400 units × $76)............ 48,000 106,400
Contribution margin............................................ 112,000 117,600
Fixed expenses.................................................... 87,000 87,000
Net operating income.......................................... $ 25,000 $ 30,600
Increase in net operating income: $30,600 - $25,000 = $5,600
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Chapter 6 Cost-Volume-Profit Relationships
Chovanec Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales
Selling price....................... $170 100%
Variable expenses............... 68 40% Contribution margin........... $102 60%
Fixed expenses are $521,000 per month. The company is currently selling 7,000 units
per month. Management is considering using a new component that would increase
the unit variable cost by $6. 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? decrease of $48,000 decrease of $6,000 increase of $48,000 increase of $6,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy Solution: 7,000 units 7,500 units
Sales (7,000 units, 7,500 units × $170)............ $ 1,190,000 $1,275,000 Variable expenses
(7,000 units × $68, 7,500 units × $74)......... 476,000 555,000
Contribution margin......................................... 714,000 720,000
Fixed expenses................................................. 521,000 521,000
Net operating income....................................... $ 193,000 $ 199,000
Increase in net operating income: $199,000 - $193,000 = $6,000 6-26
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition