Submit Homew ork for Ch tad9000 gfmcppeopigbdej Advanced Manag

Question 1: Score 0/4

Your response Correct response

Exercise 5-1 Fixed and Variable Cost Behavior [LO1]
Exercise 5-1 Fixed and Variable Cost Behavior [LO1]
Espresso Express operates a number of espresso coffee stands in busy suburban malls. The
Espresso Express operates a number of espresso coffee stands in busy suburban malls. The
fixed weekly expense of a coffee stand is $1,200 and the variable cost per cup of coffee
fixed weekly expense of a coffee stand is $1,200 and the variable cost per cup of coffee
served is $0.22.
served is $0.22.
Requirement 1:
Requirement 1:
Fill in the following table with your estimates of total costs and cost per cup of coffee at
Fill in the following table with your estimates of total costs and cost per cup of coffee at
the indicated levels of activity for a coffee stand. (Round average cost per cup of coffee
the indicated levels of activity for a coffee stand. (Round average cost per cup of coffee
to 3 decimal places. Omit the "$" sign in your response.)
to 3 decimal places. Omit the "$" sign in your response.)
Cups of Coffee Served in a Week
Cups of Coffee Served in a Week
2,000 2,100 2,200
2,000 2,100 2,200
Fixed cost $ 0.60 (0%) $ 0.571 (0%) $ 0.545 (0%)
Fixed cost $ 1,200 $ 1,200 $ 1,200
Variable cost 0.22 (0%) 0.22 (0%) 0.22 (0%) 440 462 484
Variable cost
Total cost $ 0.82 (0%) $ 0.791 (0%) $ 0.765 (0%) 1,640 1,662 1,684
Total cost $ $ $
Average cost per
$ 0.792 (0%) $ 0.792 (0%) $ 0.792 (0%) Average cost per cup of coffee served $ 0.82 $ 0.791 $ 0.765
cup of coffee served

Total grade: 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% +
0%
Feedback:
Average cost per cup of coffee served = Total cost ÷ cups of coffee served in a week

Requirement 2:
Does the average cost per cup of coffee served increase, decrease, or remain the same as
the number of cups of coffee served in a week increases?
Your Answer:
Choice Selected Correct
Increases
Decreases
Remains the
same
Feedback: The average cost of a cup of coffee declines as the number of cups of
coffee served increases because the fixed cost is spread over more cups of
coffee.

Question 2: Score 0/4

Your response Correct response

 Exercise 6-2 Prepare a Cost-Volume-Profit (CVP) Graph [LO2] Exercise 6-2 Prepare a Cost-Volume-Profit (CVP) Graph [LO2]
Karlik Enterprises distributes a single product whose selling price is $24 and whose Karlik Enterprises distributes a single product whose selling price is $24 and whose
variable expense is $18 per unit. The company's monthly fixed expense is $24,000. variable expense is $18 per unit. The company's monthly fixed expense is $24,000.
Requirement 1: Requirement 1:
Offline: Prepare a cost-volume-profit graph for the company up to a sales level of 8,000 Offline: Prepare a cost-volume-profit graph for the company up to a sales level of 8,000
units. units.
Requirement 2:
Estimate the company's break-even point in unit sales using your cost-volume-profit graph Requirement 2:
analysis. Estimate the company's break-even point in unit sales using your cost-volume-profit graph
analysis.
Break-even point in
16.67 (0%) units
sales Break-even point in sales 4,000 units

Total grade: 0.0×1/1 = 0%

Feedback:
The break-even point is the point where the total sales revenue and the total expense lines
intersect. This occurs at sales of 4,000 units. This can be verified as follows:

Question 3: Score 2.6/4

Your response Correct response

Exercise 5-3 High-Low Method [LO3] Exercise 5-3 High-Low Method [LO3]
The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total electrical The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total electrical
costs of the hotel and the number of occupancy-days over the last year. An occupancy-day costs of the hotel and the number of occupancy-days over the last year. An occupancy-day
represents a room rented out for one day. The hotel's business is highly seasonal, with represents a room rented out for one day. The hotel's business is highly seasonal, with
peaks occurring during the ski season and in the summer. peaks occurring during the ski season and in the summer.
Occupancy- Electrical Occupancy- Electrical
Month Days Costs Month Days Costs
January 1,736 $ 4,127 January 1,736 $ 4,127
February 1,904 $ 4,207 February 1,904 $ 4,207
March 2,356 $ 5,083 March 2,356 $ 5,083
April 960 $ 2,857 April 960 $ 2,857
May 360 $ 1,871 May 360 $ 1,871
June 744 $ 2,696 June 744 $ 2,696
July 2,108 $ 4,670 July 2,108 $ 4,670
August 2,406 $ 5,148 August 2,406 $ 5,148
September 840 $ 2,691 September 840 $ 2,691
 October 124 $ 1,588 October 124 $ 1,588
November 720 $ 2,454 November 720 $ 2,454
December 1,364 $ 3,529 December 1,364 $ 3,529

Requirement 1: Requirement 1:
Using the high-low method, estimate the variable cost of electricity per occupancy-day and Using the high-low method, estimate the variable cost of electricity per occupancy-day and
the fixed cost of electricity per month. (Round the fixed cost to the nearest whole dollar the fixed cost of electricity per month. (Round the fixed cost to the nearest whole dollar
and the variable cost to the nearest whole cent. Omit the "$" sign in your response.) and the variable cost to the nearest whole cent. Omit the "$" sign in your response.)

per occupancy Variable cost $ 1.56 per occupancy day

Variable cost $ 1.56 (50%)
day Fixed cost $ 1,395 per month
Fixed cost $ 1394 (0%) per month

Total grade: 1.0×1/2 + 0.0×1/2 = 50% + 0%

Feedback:
Occupancy- Electrical
Days Costs
High activity level
2,406 $ 5,148
(August)
Low activity level
124 1,588
(October)
Change 2,282 $ 3,560

Variable
= Change in cost ÷ Change in activity
cost
= $3,560 ÷ 2,282 occupancy-days
= $1.56 per occupancy-day

Total cost (August) $ 5,148

Variable cost element
($1.56 per occupancy-day × 2,406 occupancy-
days) 3,753
Fixed cost element $ 1,395

Requirement 2:
Which of the following statement(s) is true? (Select all that apply.)
Choice Selected Points

Electrical cost may reflect seasonal factors other than just the variation in occupancy days Yes +1
Fixed cost will not be affected by the number of days in a month No
Less systematic factors such as frugality of individual guests may also affect electrical costs Yes +1
Total correct answers: 2
Partial Grading Explained

Feedback: Electrical costs may reflect seasonal factors other than just the variation in occupancy
days. For example, common areas such as the reception area must be lighted for longer
 periods during the winter than in the summer. This will result in seasonal fluctuations in
the fixed electrical costs.

Additionally, fixed costs will be affected by the number of days in a month. In other
words, costs like the costs of lighting common areas are variable with respect to the
number of days in the month, but are fixed with respect to how many rooms are occupied
during the month.

Other, less systematic, factors may also affect electrical costs such as the frugality of
individual guests. Some guests will turn off lights when they leave a room. Others will
not.

Question 4: Score 2.48/4

Your response Correct response

Exercise 5-4 Contribution Format Income Statement [LO4] Exercise 5-4 Contribution Format Income Statement [LO4]
The Alpine House, Inc., is a large retailer of winter sports equipment. An income statement The Alpine House, Inc., is a large retailer of winter sports equipment. An income statement
for the company's Ski Department for a recent quarter is presented below: for the company's Ski Department for a recent quarter is presented below:
The Alpine House, Inc. The Alpine House, Inc.
Income Statement—Ski Department Income Statement—Ski Department
For the Quarter Ended March 31 For the Quarter Ended March 31
Sales $ 150,000 Sales $ 150,000
Cost of goods sold 90,000 Cost of goods sold 90,000
Gross margin 60,000 Gross margin 60,000
Selling and administrative expenses: Selling and administrative expenses:
Selling expenses $ 30,000 Selling expenses $ 30,000
Administrative expenses 10,000 40,000 Administrative expenses 10,000 40,000
Net operating income $ 20,000 Net operating income $ 20,000

Skis sell, on the average, for $750 per pair. Variable selling expenses are $50 per pair Skis sell, on the average, for $750 per pair. Variable selling expenses are $50 per pair
of skis sold. The remaining selling expenses are fixed. The administrative expenses are of skis sold. The remaining selling expenses are fixed. The administrative expenses are
20% variable and 80% fixed. The company does not manufacture its own skis; it purchases 20% variable and 80% fixed. The company does not manufacture its own skis; it purchases
them from a supplier for $450 per pair. them from a supplier for $450 per pair.
Requirement 1: Requirement 1:
Prepare a contribution format income statement for the quarter. (Omit the "$" sign in Prepare a contribution format income statement for the quarter. (Omit the "$" sign in
your response.) your response.)
The Alpine House, Inc. The Alpine House, Inc.
Income Statement—Ski Department Income Statement—Ski Department
For the Quarter Ended March 31 For the Quarter Ended March 31
Sales (6%) $ 150000 (6%) Sales $ 150000
Variable expenses: Variable expenses:
Cost of goods sold (6%) $ 90000 (6%) Cost of goods sold $ 90000
Selling expenses (6%) 10000 (6%) Selling expenses 10000
Administrative expenses (6%) 2000 (6%) 102000 (6%) Administrative expenses 2000 102000
Contribution margin (6%) 48000 (6%) Contribution margin 48000
 Fixed expenses: Fixed expenses:
Advertising expenses (0%) 90000 (0%) Selling expenses 20,000
Administrative expenses (6%) 8000 (6%) 98000 (0%) Administrative expenses 8000 28,000
- Net operating income $ 20,000
Net operating income (6%) $ 50000 (0%)

Total grade: 1.0×1/18 + 1.0×1/18 + 1.0×1/18 + 1.0×1/18 + 1.0×1/18 + 1.0×1/18 + 1.0×1/18 + 1.0×1/18 + 1.0×1/18 + 1.0×1/18 + 1.0×1/18 + 0.0×1/18 + 0.0×1/18 + 1.0×1/18 + 1.0×1/18 + 0.0×1/18 + 1.0×1/18 + 0.0×1/18 = 6% + 6% + 6% + 6% +
6% + 6% + 6% + 6% + 6% + 6% + 6% + 0% + 0% + 6% + 6% + 0% + 6% + 0%
Feedback:

Cost of goods sold (200 pairs* × $450 per pair) $ 90,000

Variable selling expenses (200 pairs × $50 per pair) 10,000
Variable administrative expenses (20% × $10,000) 2,000
Fixed selling expenses [$30,000 – (200 pairs × $50
20,000
per pair)]
Fixed administrative expenses (80% × $10,000) 8,000

*$150,000 ÷ $750 per pair = 200 pairs

Your response Correct response

Requirement 2: Requirement 2:
For every pair of skis sold during the quarter, what was the contribution toward covering For every pair of skis sold during the quarter, what was the contribution toward covering
fixed expenses and toward earning profits? (Omit the "$" sign in your response.) fixed expenses and toward earning profits? (Omit the "$" sign in your response.)
Contribution margin per pair $ 50 (0%) Contribution margin per pair $ 240

E5_4_id4 E5_4_id4

E5_4_id6 E5_4_id6

E5_4_id8 E5_4_id8

E5_4_id13 E5_4_id13

E5_4_id15 E5_4_id15

Total grade: 0.0×1/1 = 0%

Feedback:
Since 200 pairs of skis were sold and the contribution margin totaled $48,000 for the
quarter, the contribution of each pair of skis toward covering fixed costs and toward
earning of profits was $240 ($48,000 ÷ 200 pairs = $240 per pair). Another way to
compute the $240 is:

Selling price per pair $ 750

Variable expenses:
Cost per pair $ 450
Selling expenses 50
 Administrative expenses

($2,000 ÷ 200 pairs) 10 510

Contribution margin per pair $ 240

Question 5: Score 1.2/4

Your response Correct response

Exercise 5-5 Cost Behavior; Contribution Format Income Statement [LO1, LO4]
Harris Company manufactures and sells a single product.
Requirement 1:
A partially completed schedule of the company's total and per unit costs over the relevant
Exercise 5-5 Cost Behavior; Contribution Format Income Statement [LO1, LO4]
range of 30,000 to 50,000 units produced and sold annually is given. Complete the
Harris Company manufactures and sells a single product.
schedule of the company's total and unit costs below (Round the "total costs" to the
nearest dollar amount and the "cost per unit" to 2 decimal places. Omit the "$" sign Requirement 1:
in your response) : A partially completed schedule of the company's total and per unit costs over the relevant
range of 30,000 to 50,000 units produced and sold annually is given. Complete the
Units Produced and Sold
schedule of the company's total and unit costs below (Round the "total costs" to the
30,000 40,000 50,000
nearest dollar amount and the "cost per unit" to 2 decimal places. Omit the "$" sign
Total
in your response) :
costs:
Variable Units Produced and Sold
$ 180,000 $ 190000 (0%) $ 200000 (0%)
costs 30,000 40,000 50,000
Fixed Total costs:
300,000 310000 (0%) 320000 (0%)
costs Variable costs $ 180,000 $ 240,000 $ 300,000
Total Fixed costs 300,000 300,000 300,000
$ 480,000 $ 500000 (0%) $ 520000 (0%) 540,000 600,000
costs Total costs $ 480,000 $ $
Cost per Cost per unit:
unit: Variable cost $ 6 $ 6 $ 6
Variable Fixed cost 10 7.5 6
$ 3.6 (0%) $ 3.8 (0%) $ 4 (0%)
cost Total cost per unit $ 16 $ 13.5 $ 12
Fixed
6 (0%) 6.2 (0%) 6.4 (0%)
cost
Total cost
$ 9.6 (0%) $ 10.0 (0%) $ 6.8 (0%)
per unit

Total grade: 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%
+ 0% + 0% + 0% + 0% + 0%
Feedback:
The company's variable cost per unit is:
 Your response Correct response
Requirement 2:
Assume that the company produces and sells 45,000 units during the year at a selling price Requirement 2:
of $16 per unit. Prepare a contribution format income statement for the year. (Input all Assume that the company produces and sells 45,000 units during the year at a selling price
amounts as positive values. Omit the "$" sign in your response.) of $16 per unit. Prepare a contribution format income statement for the year. (Input all
Income Statement amounts as positive values. Omit the "$" sign in your response.)
For the Year Ended Income Statement
Sales (10%) $ 720000 (10%) For the Year Ended
Variable
513000 (0%) Sales $ 720000
expenses (10%) Variable expenses 270,000
Contribution
207000 (0%) Contribution margin 450,000
margin (10%)
Fixed expense 300,000
Fixed expense (10%) 279000 (0%)
Net operating income $ 150,000
Net operating
income (10%)
$ -70000 (0%)

Total grade: 1.0×1/10 + 1.0×1/10 + 1.0×1/10 + 0.0×1/10 + 1.0×1/10 + 0.0×1/10 + 1.0×1/10 + 0.0×1/10 + 1.0×1/10 + 0.0×1/10 = 10% + 10% + 10% + 0% + 10% + 0% + 10% + 0% + 10% + 0%
Feedback:
Sales (45,000 units × $16 per unit) = $720,000
Variable expenses (45,000 units × $6 per unit) = $270,000

Question 6: Score 0.66/4

Your response Correct response

Exercise 5-6 High-Low Method [LO2, LO3] Exercise 5-6 High-Low Method [LO2, LO3]
The following data relating to units shipped and total shipping expense have been The following data relating to units shipped and total shipping expense have been
assembled by Archer Company, a wholesaler of large, custom-built air-conditioning units assembled by Archer Company, a wholesaler of large, custom-built air-conditioning units
for commercial buildings: for commercial buildings:
Total Total
Units Shipping Units Shipping
Month Shipped Expense Month Shipped Expense
January 3 $ 1,800 January 3 $ 1,800
February 6 $ 2,300 February 6 $ 2,300
March 4 $ 1,700 March 4 $ 1,700
April 5 $ 2,000 April 5 $ 2,000
May 7 $ 2,300 May 7 $ 2,300
June 8 $ 2,700 June 8 $ 2,700
July 2 $ 1,200 July 2 $ 1,200

Requirement 1: Requirement 1:
Using the high-low method, estimate the cost formula for shipping expense where X is the Using the high-low method, estimate the cost formula for shipping expense where X is the
number of units shipped. (Omit the "$" sign in your response.) number of units shipped. (Omit the "$" sign in your response.)
Y = $ 5 (0%) + $ 5 (0%) X Y = $ 700 + $ 250 X
 Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%
Feedback:
Units Shipping
Shipped Expense
High activity level
8 $ 2,700
(June)
Low activity level
2 1,200
(July)
Change 6 $ 1,500

Variable cost element:

Fixed cost element:

Shipping expense at the high activity level $ 2,700

Less variable cost element ($250 per unit × 8
2,000
units)
Total fixed cost $ 700

The cost formula is $700 per month plus $250 per unit shipped or
Y = $700 + $250X,
where X is the number of units shipped.

Requirement 2:
What factors, other than the number of units shipped, are likely to affect the company's
total shipping expense? (Select all that apply.)
Choice Selected Points

Weight of the units shipped No

Distance travelled Yes +1

Size of the units shipped Yes +1

Fixed cost Yes -1

Variable cost No
Total correct answers: 3
Partial Grading Explained

Feedback: The cost of shipping units is likely to depend on the weight and volume of the units and the
distance traveled, as well as on the number of units shipped. In addition, higher cost
shipping might be necessary to meet a deadline.

Question 7: Score 0/4

 Your response Correct response
Exercise 5-7 Cost Behavior; High-Low Method [LO1, LO3]
Exercise 5-7 Cost Behavior; High-Low Method [LO1, LO3]
Hoi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company
Hoi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company
has determined that if a truck is driven 105,000 kilometers during a year, the average
has determined that if a truck is driven 105,000 kilometers during a year, the average
operating cost is 11.4 cents per kilometer. If a truck is driven only 70,000 kilometers
operating cost is 11.4 cents per kilometer. If a truck is driven only 70,000 kilometers
during a year, the average operating cost increases to 13.4 cents per kilometer.(The
during a year, the average operating cost increases to 13.4 cents per kilometer.(The
Singapore dollar is the currency used in Singapore.)
Singapore dollar is the currency used in Singapore.)
Requirement 1:
Requirement 1:
Using the high-low method, estimate the variable and fixed cost elements of the annual
Using the high-low method, estimate the variable and fixed cost elements of the annual
cost of the truck operation. (Round the variable cost per kilometer to 3 decimal places.
cost of the truck operation. (Round the variable cost per kilometer to 3 decimal places.
Omit the "$" sign in your response.)
Omit the "$" sign in your response.)

Variable cost per

$ 5 (0%) Variable cost per kilometer $ 0.074
kilometer
Fixed cost per year $ 4,200
Fixed cost per year $ 5 (0%)

Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%

Feedback:
Total
Kilometers Annual
Driven Cost*
High level of
105,000 $ 11,970
activity
Low level of activity 70,000 9,380
Change 35,000 $ 2,590

* 105,000 kilometers × $0.114 per kilometer =

$11,970
70,000 kilometers × $0.134 per kilometer =
$9,380

Variable cost per kilometer:

Fixed cost per year:

Total cost at 105,000 kilometers $ 11,970

Less variable portion:

105,000 kilometers × $0.074 per

kilometer 7,770
Fixed cost per year $ 4,200

Your response Correct response

 Requirement 2: Requirement 2:
Express the variable and fixed costs in the form Y = a + bX. (Round the variable cost per Express the variable and fixed costs in the form Y = a + bX. (Round the variable cost per
kilometer to 3 decimal places. Omit the "$" sign in your response.) kilometer to 3 decimal places. Omit the "$" sign in your response.)
Y = $ 5 (0%) + $ 5 (0%) X Y = $ 4,200 + $ 0.074 X

Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%

Your response Correct response

Requirement 3: Requirement 3:
If a truck were driven 80,000 kilometers during a year, what total cost would you expect to If a truck were driven 80,000 kilometers during a year, what total cost would you expect to
be incurred? (Omit the "$" sign in your response.) be incurred? (Omit the "$" sign in your response.)
Total annual cost $ 400000 (0%) Total annual cost $ 10,120

Total grade: 0.0×1/1 = 0%

Feedback:

Fixed cost $ 4,200

Variable cost:

80,000 kilometers × $0.074 per

kilometer 5,920
Total annual cost $ 10,120

Question 8: Score 0/4

Your response Correct response

Exercise 5-8 High-Low Method; Predicting Cost [LO1, LO3] Exercise 5-8 High-Low Method; Predicting Cost [LO1, LO3]
The Lakeshore Hotel's guest-days of occupancy and custodial supplies expense over the The Lakeshore Hotel's guest-days of occupancy and custodial supplies expense over the
last seven months were: last seven months were:
Guest- Custodial Guest- Custodial
Days of Supplies Days of Supplies
Month Occupancy Expense Month Occupancy Expense
March 4,000 $ 7,500 March 4,000 $ 7,500
April 6,500 $ 8,250 April 6,500 $ 8,250
May 8,000 $ 10,500 May 8,000 $ 10,500
June 10,500 $ 12,000 June 10,500 $ 12,000
July 12,000 $ 13,500 July 12,000 $ 13,500
August 9,000 $ 10,750 August 9,000 $ 10,750
September 7,500 $ 9,750 September 7,500 $ 9,750

Guest-days is a measure of the overall activity at the hotel. For example, a guest who Guest-days is a measure of the overall activity at the hotel. For example, a guest who
stays at the hotel for three days is counted as three guest-days. stays at the hotel for three days is counted as three guest-days.
 Requirement 1: Requirement 1:
Using the high-low method, estimate a cost formula for custodial supplies expense where Using the high-low method, estimate a cost formula for custodial supplies expense where
X is the number of guest-days. (Round your answer to 2 decimal places. Omit the "$" X is the number of guest-days. (Round your answer to 2 decimal places. Omit the "$"
sign in your response.) sign in your response.)
Y = $ 5 (0%) + $ 5 (0%) X Y = $ 4,500 + $ 0.75 X

Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%

Feedback:
Custodial
Guest- Supplies
Days Expense
High activity level (July) 12,000 $ 13,500
Low activity level
4,000 7,500
(March)
Change 8,000 $ 6,000

Variable cost element:

Fixed cost element:

Custodial supplies expense at high

$ 13,500
activity level
Less variable cost element:

12,000 guest-days × $0.75 per guest-

day 9,000
Total fixed cost $ 4,500

The cost formula is $4,500 per month plus $0.75 per guest-day or
Y = $4,500 + $0.75X

Your response Correct response

Requirement 2: Requirement 2:
Using the cost formula you derived above, what amount of custodial supplies expense Using the cost formula you derived above, what amount of custodial supplies expense
would you expect to be incurred at an occupancy level of 11,000 guest-days? (Omit the would you expect to be incurred at an occupancy level of 11,000 guest-days? (Omit the
"$" sign in your response.) "$" sign in your response.)

Variable cost $ 50 (0%) Variable cost $ 8,250

Fixed cost 100 (0%) Fixed cost 4,500
Total cost $ 150 (0%) Total cost $ 12,750

Total grade: 0.0×1/3 + 0.0×1/3 + 0.0×1/3 = 0% + 0% + 0%

Feedback:
 Variable cost (11,000 guest-days × $0.75 per guest-day) = $8,250

Question 9: Score 0/4

Your response Correct response

Exercise 5-10 High-Low Method; Predicting Cost [LO1, LO3]
Exercise 5-10 High-Low Method; Predicting Cost [LO1, LO3]
St. Mark's Hospital contains 450 beds. The average occupancy rate is 80% per month. In
St. Mark's Hospital contains 450 beds. The average occupancy rate is 80% per month. In
other words, on average, 80% of the hospital's beds are occupied by patients. At this level
other words, on average, 80% of the hospital's beds are occupied by patients. At this level
of occupancy, the hospital's operating costs are $32 per occupied bed per day, assuming a
of occupancy, the hospital's operating costs are $32 per occupied bed per day, assuming a
30-day month. This $32 figure contains both variable and fixed cost elements.
30-day month. This $32 figure contains both variable and fixed cost elements.
During June, the hospital's occupancy rate was only 60%. A total of $326,700 in
During June, the hospital's occupancy rate was only 60%. A total of $326,700 in
operating cost was incurred during the month.
operating cost was incurred during the month.
Requirement 1:
Requirement 1:
(a) Estimate the variable cost per occupied bed on a daily basis using the high-low method.
(a) Estimate the variable cost per occupied bed on a daily basis using the high-low method.
(Omit the "$" sign in your response.)
(Omit the "$" sign in your response.)
Variable cost per bed- 7
$ 50 (0%) Variable cost per bed-day $
day

Total grade: 0.0×1/1 = 0%

Feedback:
Difference in cost:

Monthly operating costs at 80% occupancy:

450 beds × 80% = 360 beds;
360 beds × 30 days × $32 per bed-day $ 345,600
Monthly operating costs at 60% occupancy
326,700
(given)
Difference in cost $ 18,900

Difference in activity:
80% occupancy (450 beds × 80% × 30
10,800
days)
60% occupancy (450 beds × 60% × 30
8,100
days)
Difference in activity 2,700

Your response Correct response

 (b) Estimate the total fixed operating costs per month using the high-low method. (Omit
(b) Estimate the total fixed operating costs per month using the high-low method. (Omit
the "$" sign in your response.)
the "$" sign in your response.)
Fixed operating costs per
$ 50000 (0%) Fixed operating costs per month $ 270,000
month

Total grade: 0.0×1/1 = 0%

Feedback:

Monthly operating costs at 80% occupancy (above) $ 345,600

Less variable costs:

360 beds × 30 days × $7 per bed-day 75,600

Fixed operating costs per month $ 270,000

Your response Correct response

Requirement 2: Requirement 2:
Assume an occupancy rate of 70% per month. What amount of total operating cost would Assume an occupancy rate of 70% per month. What amount of total operating cost would
you expect the hospital to incur? (Omit the "$" sign in your response.) you expect the hospital to incur? (Omit the "$" sign in your response.)

Fixed costs $ 500 (0%) Fixed costs $ 270,000

Variable costs 50 (0%) Variable costs 66,150
Total expected costs $ 550 (0%) Total expected costs $ 336,150

Total grade: 0.0×1/3 + 0.0×1/3 + 0.0×1/3 = 0% + 0% + 0%

Feedback:
450 beds × 70% = 315 beds occupied:
Variable costs: 315 beds × 30 days × $7 per bed-day = 66,150

Question 10: Score 0.8/4

Your response Correct response

Exercise 6-1 Preparing a Contribution Format Income Statement [LO1] Exercise 6-1 Preparing a Contribution Format Income Statement [LO1]
Whirly Corporation's most recent income statement is shown below: Whirly Corporation's most recent income statement is shown below:
Total Per Unit Total Per Unit
Sales (10,000 Sales (10,000
$ 350,000 $ 35.00 $ 350,000 $ 35.00
units) units)
Variable expenses 200,000 20.00 Variable expenses 200,000 20.00
Contribution Contribution
150,000 $ 15.00 150,000 $ 15.00
margin margin
Fixed expenses 135,000 Fixed expenses 135,000
 Net operating Net operating
$ 15,000 $ 15,000
income income

Prepare a new contribution format income statement under each of the following Prepare a new contribution format income statement under each of the following
conditions (consider each case independently): conditions (consider each case independently):
Requirement 1: Requirement 1:
The sales volume increases by 100 units. (Omit the "$" sign in your response.) The sales volume increases by 100 units. (Omit the "$" sign in your response.)
Total Total
Sales $ 350000 (0%) Sales $ 353,500
Variable Variable expenses 202,000
200000 (0%)
expenses Contribution margin 151,500
Contribution Fixed expenses 135000
150000 (0%)
margin Net operating income $ 16,500
Fixed
135000 (20%)
expenses
Net operating
$ 15000 (0%)
income

Total grade: 0.0×1/5 + 0.0×1/5 + 0.0×1/5 + 1.0×1/5 + 0.0×1/5 = 0% + 0% + 0% + 20% + 0%

Feedback:
Sales (10,100 × $35.00) = $353,500

Variable expenses (10,100 × $20.00) = $202,000

You can get the same net operating income using the following approach.

Original net operating

$ 15,000
income
Change in contribution
margin

(100 units × $15.00 per

unit) 1,500
New net operating
$ 16,500
income

Your response Correct response

Requirement 2: Requirement 2:
The sales volume decreases by 100 units. (Omit the "$" sign in your response.) The sales volume decreases by 100 units. (Omit the "$" sign in your response.)
Total
Total
Sales $ 350000 (0%) Sales $ 346,500
Variable Variable expenses 198,000
200000 (0%)
expenses 148,500
Contribution margin
Contribution Fixed expenses 135000
150000 (0%)
margin
Net operating income $ 13,500
Fixed
135000 (20%)
expenses
 Net operating
$ 15000 (0%)
income

Total grade: 0.0×1/5 + 0.0×1/5 + 0.0×1/5 + 1.0×1/5 + 0.0×1/5 = 0% + 0% + 0% + 20% + 0%

Feedback:
Sales (9,900 × $35.00) = $346,500

Sales (9,900 × $20.00) = $198,000

You can get the same net operating income using the following approach.

Original net operating

$ 15,000
income
Change in contribution
margin

(-100 units × $15.00

per unit) (1,500)
New net operating
$ 13,500
income

Your response Correct response

Requirement 3:
The sales volume is 9,000 units. (Leave no cells blank - be certain to enter "0"
wherever required. Omit the "$" sign in your response.) Requirement 3:
The sales volume is 9,000 units. (Leave no cells blank - be certain to enter "0"
Total
wherever required. Omit the "$" sign in your response.)
Sales $ 350000 (0%)
Variable Total
200000 (0%)
expenses Sales $ 315,000
Contribution Variable expenses 180,000
150000 (0%)
margin Contribution margin 135,000
Fixed Fixed expenses 135000
135000 (20%)
expenses Net operating income $ 0
Net operating
$ 15000 (0%)
income

Total grade: 0.0×1/5 + 0.0×1/5 + 0.0×1/5 + 1.0×1/5 + 0.0×1/5 = 0% + 0% + 0% + 20% + 0%

Feedback:
Sales (9,000 × $35.00) = $315,000

Variable expenses (9,000 × $20.00) = $180,000

Note: This is the company's break-even point

Question 11: Score 0/4

 Your response Correct response
Exercise 6-4 Computing and Using the CM Ratio [LO3]
Exercise 6-4 Computing and Using the CM Ratio [LO3]
Last month when Holiday Creations, Inc., sold 50,000 units, total sales were $200,000, total
Last month when Holiday Creations, Inc., sold 50,000 units, total sales were $200,000, total
variable expenses were $120,000, and fixed expenses were $65,000.
variable expenses were $120,000, and fixed expenses were $65,000.
Requirement 1:
Requirement 1:
What is the company's contribution margin (CM) ratio? (Omit the "%" sign in your
What is the company's contribution margin (CM) ratio? (Omit the "%" sign in your
response.)
response.)
Contribution margin 40 %
5 (0%) % Contribution margin ratio
ratio

Total grade: 0.0×1/1 = 0%

Feedback:
The company's contribution margin (CM) ratio is:

Total sales $ 200,000

Total variable expenses 120,000
= Total contribution
80,000
margin
÷ Total sales $ 200,000
= CM ratio 40%

Your response Correct response

Requirement 2:
Requirement 2:
Estimate the change in the company's net operating income if it were to increase its total
Estimate the change in the company's net operating income if it were to increase its total
sales by $1,000.(Omit the "$" sign in your response.).
sales by $1,000.(Omit the "$" sign in your response.).
Estimated change in net operating 400
$ 500 (0%) Estimated change in net operating income $
income

Total grade: 0.0×1/1 = 0%

Feedback:
The change in net operating income from an increase in total sales of $1,000 can be
estimated by using the CM ratio as follows:

Change in total sales $ 1,000

× CM ratio 40 %
= Estimated change in net operating
$ 400
income

Question 12: Score 2.66/4

 Your response Correct response
Exercise 6-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume Exercise 6-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume
[LO4] [LO4]
Data for Hermann Corporation are shown below: Data for Hermann Corporation are shown below:
Percent Percent
Per unit of Sales Per unit of Sales
Selling price $ 90 100% Selling price $ 90 100%
Variable expenses 63 70 % Variable expenses 63 70 %
Contribution Contribution
$ 27 30% $ 27 30%
margin margin

Fixed expenses are $30,000 per month and the company is selling 2,000 units per month. Fixed expenses are $30,000 per month and the company is selling 2,000 units per month.

Requirement 1: Requirement 1:
(a) Calculate the change in net operating income if a $5,000 increase in the monthly (a) Calculate the change in net operating income if a $5,000 increase in the monthly
advertising budget would increase monthly sales by $9,000. (Negative amount should advertising budget would increase monthly sales by $9,000. (Negative amount should
be indicated by a minus sign. Omit the "$" sign in your response.) be indicated by a minus sign. Omit the "$" sign in your response.)
Change in net operating income $ 500 (0%) Change in net operating income $ -2,300

Total grade: 0.0×1/1 = 0%

Feedback:
The following table shows the effect of the proposed change in monthly advertising
budget:
Sales with
Additional
Current Advertising
sales Budget Difference
Sales $180,000 $189,000 $ 9,000
Variable
126,000 132,300 6,300
expenses
Contribution
54,000 56,700 2,700
margin
Fixed
30,000 35,000 5,000
expenses
Net operating
$ 24,000 $ 21,700 ($ 2,300 )
income

(b) Should the advertising budget be increased as suggested in requirement 1(a) above?

Your Answer:
Choic Selecte
e d
Yes

No

Feedback: Assuming no other important factors need to be considered, the increase in the
 advertising budget should not be approved because it would lead to a decrease in net
operating income of $2,300.

Requirement 2:
Refer to the original data. Management is considering using higher-quality components
that would increase the variable cost by $2 per unit. The marketing manager believes the
higher-quality product would increase sales by 10% per month. Should the higher-quality
components be used?
Your Answer:
Choic Selecte
e d

Yes

No
Feedback: The $2 increase in variable cost will cause the unit contribution margin to decrease from
$27 to $25 with the following impact on net operating income:

Expected total contribution margin

with the higher-quality components:
2,200 units × $25 per unit $ 55,000
Present total contribution margin:
2,000 units × $27 per unit 54,000
Change in total contribution margin $ 1,000

Assuming no change in fixed costs and all other factors remain the same, the higher-
quality components should be used.

Question 13: Score 0/4

Your response Correct response

Exercise 6-6 Compute the Level of Sales Required to Attain a Target Profit [LO5] Exercise 6-6 Compute the Level of Sales Required to Attain a Target Profit [LO5]
Lin Corporation has a single product whose selling price is $120 and whose variable Lin Corporation has a single product whose selling price is $120 and whose variable
expense is $80 per unit. The company's monthly fixed expense is $50,000. expense is $80 per unit. The company's monthly fixed expense is $50,000.

Requirement 1: Requirement 1:
Using the equation method, solve for the unit sales that are required to earn a target profit Using the equation method, solve for the unit sales that are required to earn a target profit
of $10,000. of $10,000.
Unit sales to earn target profit 5 (0%) units Unit sales to earn target profit 1,500 units

Total grade: 0.0×1/1 = 0%

Feedback:
The equation method yields the required unit sales, Q, as follows:
Profit = [Unit CM × Q] − Fixed expenses
$10,000 = [($120 − $80) × Q] − $50,000
 $10,000 = [($40) × Q] − $50,000
$40 ×
= $10,000 + $50,000
Q
Q = $60,000 ÷ $40
Q = 1,500 units

Your response Correct response

Requirement 2: Requirement 2:
Using the formula method, solve for the unit sales that are required to earn a target profit of Using the formula method, solve for the unit sales that are required to earn a target profit of
$15,000. $15,000.
Unit sales to earn target profit 50 (0%) units Unit sales to earn target profit 1,625 units

Total grade: 0.0×1/1 = 0%

Feedback:
The formula approach yields the required unit sales as follows:

Question 14: Score 0/4

Your response Correct response

Exercise 6-7 Compute the Break-Even Point [LO6]
Exercise 6-7 Compute the Break-Even Point [LO6]
Mauro Products distributes a single product, a woven basket whose selling price is $15 and
Mauro Products distributes a single product, a woven basket whose selling price is $15 and
whose variable expense is $12 per unit. The company's monthly fixed expense is $4,200.
whose variable expense is $12 per unit. The company's monthly fixed expense is $4,200.
Requirement 1:
Requirement 1:
Solve for the company's break-even point in unit sales using the equation method.
Solve for the company's break-even point in unit sales using the equation method.
Break-even point in unit 1,400 baskets
500 (0%) baskets Break-even point in unit sales
sales

Total grade: 0.0×1/1 = 0%

Feedback:
The equation method yields the break-even point in unit sales, Q, as follows:
Profit = [Unit CM × Q] − Fixed expenses
$0 = [($15 − $12) × Q] − $4,200
$0 = [($3) × Q] − $4,200
 $3Q = $4,200
Q = $4,200 ÷ $3
Q = 1,400 baskets

The formula method gives an answer that is identical to the equation method for the break-
even point in unit sales:
Fixed
Unit sales to break even = expenses
Unit CM
$4,200
= = 1,400 baskets
$3

Your response Correct response

Requirement 2:
Requirement 2:
Solve for the company's break-even point in sales dollars using the equation method and
Solve for the company's break-even point in sales dollars using the equation method and
the CM ratio. (Omit the "$" sign in your response.)
the CM ratio. (Omit the "$" sign in your response.)
Break-even point in
$ 500 (0%) Break-even point in sales $ 21,000
sales

Total grade: 0.0×1/1 = 0%

Feedback:
The equation method can be used to compute the break-even point in sales dollars as
follows:
Unit contribution
CM ratio = margin
Unit selling price
$3
= = 0.20
$15
Profit = [CM ratio × Sales] − Fixed expenses
$0 = [0.20 × Sales] − $4,200
0.20 × Sales = $4,200
Sales = $4,200 ÷ 0.20
Sales = $21,000

The formula method also gives an answer that is identical to the equation method for the
break-even point in dollar sales:
Fixed
Dollar sales to break even = expenses
CM ratio
$4,200
= = $21,000
0.20

Question 15: Score 0/4

Your response Correct response

 Exercise 6-8 Compute the Margin of Safety [LO7]
Exercise 6-8 Compute the Margin of Safety [LO7]
Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data
Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data
concerning the next month's budget appear below:
concerning the next month's budget appear below:

Selling price $ 30 per unit

Selling price $ 30 per unit
Variable expenses $ 20 per unit
Variable expenses $ 20 per unit
Fixed expenses $ 7,500 per month
Fixed expenses $ 7,500 per month
units per
Unit sales 1,000 units per
month Unit sales 1,000
month

Requirement 1:
Requirement 1:
Compute the company's margin of safety. (Omit the "$" sign in your response.)
Compute the company's margin of safety. (Omit the "$" sign in your response.)
Margin of
$ 500 (0%) Margin of safety $ 7,500
safety

Total grade: 0.0×1/1 = 0%

Feedback:
To compute the margin of safety, we must first compute the break-even unit sales.
Profit = [Unit CM × Q] − Fixed expenses
$0 = [($30 − $20) × Q] − $7,500
$0 = [($10) × Q] − $7,500
$10Q = $7,500
Q = $7,500 ÷ $10
Q = 750 units

Sales (at the budgeted volume of

$ 30,000
1,000 units)
Less break-even sales (at 750 units) 22,500
Margin of safety (in dollars) $ 7,500

Your response Correct response

Requirement 2:
Requirement 2:
Compute the company's margin of safety as a percentage of its sales. (Omit the "%"
Compute the company's margin of safety as a percentage of its sales. (Omit the "%"
sign in your response.)
sign in your response.)
Margin of safety as a percentage of 25 %
5 (0%) % Margin of safety as a percentage of sales
sales

Total grade: 0.0×1/1 = 0%

Feedback:
The margin of safety as a percentage of sales is as follows:

Margin of safety (in dollars) $ 7,500

÷ Sales $ 30,000
Margin of safety percentage 25%
Question 16: Score 0.19/4

Your response Correct response

Exercise 6-9 Compute and Use the Degree of Operating Leverage [LO8]
Exercise 6-9 Compute and Use the Degree of Operating Leverage [LO8]
Engberg Company installs lawn sod in home yards. The company's most recent monthly
Engberg Company installs lawn sod in home yards. The company's most recent monthly
contribution format income statement follows:
contribution format income statement follows:
Percent
Percent
Amount of Sales
Amount of Sales
Sales $ 80,000 100 %
Sales $ 80,000 100 %
Variable expenses 32,000 40 %
Variable expenses 32,000 40 %
Contribution
48,000 60 % Contribution
margin 48,000 60 %
margin
Fixed expenses 38,000
Fixed expenses 38,000
Net operating
$ 10,000 Net operating
income $ 10,000
income

Requirement 1:
Requirement 1:
Compute the company's degree of operating leverage. (Round your answer to 1 decimal
Compute the company's degree of operating leverage. (Round your answer to 1 decimal
place.)
place.)
Degree of operating 4.8
1000 (0%) Degree of operating leverage
leverage

Total grade: 0.0×1/1 = 0%

Feedback:
The company's degree of operating leverage would be computed as follows:

Contribution margin $ 48,000

÷ Net operating income $ 10,000
Degree of operating
4.8
leverage

Your response Correct response

Requirement 2: Requirement 2:
Using the degree of operating leverage, estimate the impact on net operating income of a Using the degree of operating leverage, estimate the impact on net operating income of a
5% increase in sales. (Omit the "%" sign in your response.) 5% increase in sales. (Omit the "%" sign in your response.)
Estimated percent change in net operating Estimated percent change in net operating 24 %
5 (0%) %
income income

Total grade: 0.0×1/1 = 0%

Feedback:
A 5% increase in sales should result in a 24% increase in net operating income, computed
as follows:
 Degree of operating leverage 4.8
× Percent increase in sales 5%
Estimated percent increase in net operating
24 %
income

Your response Correct response

Requirement 3:
Verify your estimate from requirement (2) above by constructing a new contribution Requirement 3:
format income statement for the company assuming a 5% increase in sales. (Omit the "$" Verify your estimate from requirement (2) above by constructing a new contribution
format income statement for the company assuming a 5% increase in sales. (Omit the "$"
and "%" sign in your response.)
and "%" sign in your response.)
Amount
Sales $ Amount
80000 (0%)
Sales $ 84,000
Variable expenses 32000 (0%)
Variable expenses 33,600
Contribution margin 48000 (0%) 50,400
Contribution margin
Fixed expenses 38000 (14%)
38000
Fixed expenses
Net operating income $ 10000 (0%)
Net operating income $ 12,400
Original net operating income $ 5000 (0%) Original net operating income $ 10,000
Percent change in net Percent change in net operating income 24 %
100 (0%) %
operating income

Total grade: 0.0×1/7 + 0.0×1/7 + 0.0×1/7 + 1.0×1/7 + 0.0×1/7 + 0.0×1/7 + 0.0×1/7 = 0% + 0% + 0% + 14% + 0% + 0% + 0%

Question 17: Score 0/4

Your response Correct response

Exercise 6-10 Compute the Break-Even Point for a Multiproduct Company [LO9] Exercise 6-10 Compute the Break-Even Point for a Multiproduct Company [LO9]
Lucido Products markets two computer games: Claimjumper and Makeover. A Lucido Products markets two computer games: Claimjumper and Makeover. A
contribution format income statement for a recent month for the two games appears on the contribution format income statement for a recent month for the two games appears on the
following page: following page:
Claimjumper Makeover Total Claimjumper Makeover Total
Sales $ 30,000 $ 70,000 $ 100,000 Sales $ 30,000 $ 70,000 $ 100,000
Variable expenses 20,000 50,000 70,000 Variable expenses 20,000 50,000 70,000
Contribution Contribution
$ 10,000 $ 20,000 30,000 $ 10,000 $ 20,000 30,000
margin margin
Fixed expenses 24,000 Fixed expenses 24,000
Net operating Net operating
$ 6,000 $ 6,000
income income

Requirement 1: Requirement 1:
Compute the overall contribution margin (CM) ratio for the company. (Omit the "%" Compute the overall contribution margin (CM) ratio for the company. (Omit the "%"
 sign in your response.) sign in your response.)
Overall CM Overall CM ratio 30 %
5 (0%) %
ratio

Total grade: 0.0×1/1 = 0%

Feedback:
The overall contribution margin ratio can be computed as follows:

Your response Correct response

Requirement 2:
Requirement 2:
Compute the overall break-even point for the company in sales dollars. (Omit the "$"
Compute the overall break-even point for the company in sales dollars. (Omit the "$"
sign in your response.)
sign in your response.)
Overall break-
$ 500 (0%) Overall break-even $ 80,000
even

Total grade: 0.0×1/1 = 0%

Feedback:
The overall break-even point in sales dollars can be computed as follows:

Your response Correct response

Requirement 3: Requirement 3:
Verify the overall break-even point for the company by constructing a contribution format Verify the overall break-even point for the company by constructing a contribution format
income statement showing the appropriate levels of sales for the two products. (Round income statement showing the appropriate levels of sales for the two products. (Round
your answers to the nearest dollar amount. Do not round your interim calculation. your answers to the nearest dollar amount. Do not round your interim calculation.
Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" and Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" and
"%" sign in your response.) "%" sign in your response.)
Claimjumper Makeover Total Claimjumper Makeover Total
Original dollar Original dollar sales $ 30,000 $ 70,000 $ 100,000
$ 50 (0%) $ 500 (0%) $ 5000 (0%) 24,000
sales Sales at break-even $ $ 56,000 $ 80,000
Sales at break-
$ 2 (0%) $ 10 (0%) $ 100 (0%)
even
Claimjumper Makeover Total
Sales $ 24,000 $ 56,000 $ 80,000
Claimjumper Makeover Total Variable expenses 16,000 40,000 56,000
 Sales $ 50 (0%) $ 500 (0%) $ 5000 (0%) Contribution margin $ 8,000 $ 16,000 24,000
Variable Fixed expenses 24,000
20 (0%) 30 (0%) 400 (0%)
expenses Net operating income $ 0
Contribution
$ 30 (0%) $ 470 (0%) 4600 (0%)
margin
Fixed
500 (0%)
expenses
Net operating
$ 4100 (0%)
income

Total grade: 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 = 0% + 0% + 0% + 0% + 0% + 0%
+ 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%
Feedback:
Claimjumper variable expenses: ($24,000/$30,000) × $20,000 = $16,000
Makeover variable expenses: ($56,000/$70,000) × $50,000 = $40,000

Question 18: Score 1/4

Your response Correct response

Exercise 6-11 Using a Contribution Format Income Statement [LO1, LO4] Exercise 6-11 Using a Contribution Format Income Statement [LO1, LO4]
Miller Company's most recent contribution format income statement is shown below: Miller Company's most recent contribution format income statement is shown below:
Total Per Unit Total Per Unit
Sales (20,000 units) $ 300,000 $ 15.00 Sales (20,000 units) $ 300,000 $ 15.00
Variable expenses 180,000 9.00 Variable expenses 180,000 9.00
Contribution margin 120,000 $ 6.00 Contribution margin 120,000 $ 6.00
Fixed expenses 70,000 Fixed expenses 70,000
Net operating income $ 50,000 Net operating income $ 50,000

Required: Required:
Prepare a new contribution format income statement under each of the following Prepare a new contribution format income statement under each of the following
conditions (consider each case independently): (Round your per unit values to 2 decimal conditions (consider each case independently): (Round your per unit values to 2 decimal
places. Omit the "$" sign in your response.) places. Omit the "$" sign in your response.)
(a) The number of units sold increases by 15%. (a) The number of units sold increases by 15%.
Total Per Unit Total Per Unit
Sales $ 300000 (0%) $ 15 (13%) Sales $ 345,000 $ 15
Variable expenses 180000 (0%) 9 (13%) Variable expenses 207,000 9
Contribution margin 120000 (0%) $ 6 (13%) Contribution margin 138,000 $ 6
Fixed expenses 70000 (13%) Fixed expenses 70000
Net operating income $ 50000 (0%) Net operating income $ 68,000

Total grade: 0.0×1/8 + 1.0×1/8 + 0.0×1/8 + 1.0×1/8 + 0.0×1/8 + 1.0×1/8 + 1.0×1/8 + 0.0×1/8 = 0% + 13% + 0% + 13% + 0% + 13% + 13% + 0%
Feedback:
Sales (20,000 units × 1.15 = 23,000 units)

Your response Correct response

The selling price decreases by $1.50 per unit, and the number of units sold increases by
(b)
25%. The selling price decreases by $1.50 per unit, and the number of units sold increases by
(b)
25%.
Total Per Unit
Sales $ 300000 (0%) $ 15 (0%) Total Per Unit
Variable expenses 180000 (0%) 9 (13%) Sales $ 337,500 $ 13.5
Contribution Variable expenses 225,000 9
120000 (0%) $ 6 (0%) 112,500 4.5
margin Contribution margin $
Fixed expenses 70000 (13%) Fixed expenses 70000
Net operating Net operating income $ 42,500
$ 50000 (0%)
income

Total grade: 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 1.0×1/8 + 0.0×1/8 + 0.0×1/8 + 1.0×1/8 + 0.0×1/8 = 0% + 0% + 0% + 13% + 0% + 0% + 13% + 0%
Feedback:
Sales (20,000 units × 1.25 = 25,000 units)

Your response Correct response

(c) The selling price increases by $1.50 per unit, fixed expenses increase by $20,000, and
the number of units sold decreases by 5%. (c) The selling price increases by $1.50 per unit, fixed expenses increase by $20,000, and
the number of units sold decreases by 5%.
Total Per Unit
Sales $ 300000 (0%) $ 15 (0%) Total Per Unit
Variable expenses 180000 (0%) 9 (13%) Sales $ 313,500 $ 16.5
Contribution Variable expenses 171,000 9
120000 (0%) $ 6 (0%) 142,500 7.5
margin Contribution margin $
Fixed expenses 70000 (0%) Fixed expenses 90,000
Net operating Net operating income $ 52,500
$ 50000 (0%)
income

Total grade: 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 1.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 = 0% + 0% + 0% + 13% + 0% + 0% + 0% + 0%
Feedback:
Sales (20,000 units × 0.95 = 19,000 units)

Your response Correct response

(d) The selling price increases by 12%, variable expenses increase by 60 cents per unit, (d) The selling price increases by 12%, variable expenses increase by 60 cents per unit,
and the number of units sold decreases by 10%. and the number of units sold decreases by 10%.
Total Per Unit Total Per Unit
Sales $ 300000 (0%) $ 15 (0%) Sales $ 302,400 $ 16.8
Variable expenses 180000 (0%) 9 (0%) Variable expenses 172,800 9.6
Contribution Contribution margin 129,600 $ 7.2
120000 (0%) $ 6 (0%)
margin Fixed expenses 70000
 Fixed expenses 70000 (13%) Net operating income $ 59,600
Net operating
$ 50000 (0%)
income

Total grade: 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 1.0×1/8 + 0.0×1/8 = 0% + 0% + 0% + 0% + 0% + 0% + 13% + 0%
Feedback:
Sales (20,000 units × 0.90 = 18,000 units)

Question 19: Score 0/4

Your response Correct response

Exercise 6-12 Target Profit and Break-Even Analysis; Margin of Safety; CM Ratio
Exercise 6-12 Target Profit and Break-Even Analysis; Margin of Safety; CM Ratio
[LO1, LO3, LO5, LO6, LO7]
[LO1, LO3, LO5, LO6, LO7]
Menlo Company distributes a single product. The company's sales and expenses for last
Menlo Company distributes a single product. The company's sales and expenses for last
month follow:
month follow:
Per
Per
Total Unit
Total Unit
Sales $ 450,000 $ 30
Sales $ 450,000 $ 30
Variable expenses 180,000 12
Variable expenses 180,000 12
Contribution margin 270,000 $ 18
Contribution margin 270,000 $ 18
Fixed expenses 216,000
Fixed expenses 216,000
Net operating income $ 54,000
Net operating income $ 54,000

Requirement 1:
Requirement 1:
What is the monthly break-even point in units sold and in sales dollars? (Omit the "$"
What is the monthly break-even point in units sold and in sales dollars? (Omit the "$"
sign in your response.)
sign in your response.)

Monthly break- 12,000 units

5 (0%) units Monthly break-even point
even point
Sales $ 360,000
Sales $ 50000 (0%)

Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%

Feedback:
Profit = Unit CM × Q − Fixed expenses
$0Q = ($30 − $12) × Q − $216,000
$0Q = ($18) × Q − $216,000
$18Q = $216,000
Q = $216,000 ÷ $18
Q = 12,000 units, or at $30 per unit, $360,000

Your response Correct response

 Requirement 2: Requirement 2:
Without resorting to computations, what is the total contribution margin at the break-even Without resorting to computations, what is the total contribution margin at the break-even
point? (Omit the "$" sign in your response.) point? (Omit the "$" sign in your response.)
Total contribution margin at the break- Total contribution margin at the break-even
$ 500 (0%) $ 216,000
even point point

Total grade: 0.0×1/1 = 0%

Feedback:
The contribution margin is $216,000 because the contribution margin is equal to the fixed
expenses at the break-even point.

Your response Correct response

Requirement 3:
Requirement 3:
How many units would have to be sold each month to earn a target profit of $90,000? Use
How many units would have to be sold each month to earn a target profit of $90,000? Use
the formula method.
the formula method.
Units 17,000 units
500 (0%) units Units sold
sold

Total grade: 0.0×1/1 = 0%

Feedback:

Your response Correct response

Requirement 4:
Requirement 4:
Refer to the original data. Compute the company's margin of safety in both dollar and
Refer to the original data. Compute the company's margin of safety in both dollar and
percentage terms. (Omit the "$" and "%" signs in your response.)
percentage terms. (Omit the "$" and "%" signs in your response.)
Dollars Percentage
Dollars Percentage
Margin of
$ 50 (0%) 5 (0%) % Margin of safety $ 90,000 20 %
safety

Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%

Feedback:
Margin of safety in dollar terms:

Margin of safety in percentage terms:

 Your response Correct response
Requirement 5: Requirement 5:
What is the company's CM ratio? If sales increase by $50,000 per month and there is no What is the company's CM ratio? If sales increase by $50,000 per month and there is no
change in fixed expenses, by how much would you expect monthly net operating income change in fixed expenses, by how much would you expect monthly net operating income
to increase? (Omit the "$" and "%" signs in your response.) to increase? (Omit the "$" and "%" signs in your response.)

CM ratio 5 (0%) % CM ratio 60 %

Increase in net operating income $ 500 (0%) Increase in net operating income $ 30,000

Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%

Feedback:
The CM ratio is 60%.

Expected total contribution margin:

$ 300,000
($500,000 × 60%)
Present total contribution margin: ($450,000
270,000
× 60%)
Increase in contribution margin $ 30,000

Given that the company's fixed expenses will not change, monthly net operating income
will also increase by $30,000.
Alternative solution:

$50,000 incremental sales × 60% CM ratio = $30,000

Question 20: Score 0/4

Your response Correct response

Exercise 6-13 Target Profit and Break-Even Analysis [LO3, LO4, LO5, LO6] Exercise 6-13 Target Profit and Break-Even Analysis [LO3, LO4, LO5, LO6]
Lindon Company is the exclusive distributor for an automotive product that sells for $40 Lindon Company is the exclusive distributor for an automotive product that sells for $40
per unit and has a CM ratio of 30%. The company's fixed expenses are $180,000 per year. per unit and has a CM ratio of 30%. The company's fixed expenses are $180,000 per year.
The company plans to sell 16,000 units this year. The company plans to sell 16,000 units this year.

Requirement 1: Requirement 1:
What are the variable expenses per unit? (Omit the "$" sign in your response.) What are the variable expenses per unit? (Omit the "$" sign in your response.)
 Variable expenses per unit $ 40 (0%) Variable expenses per unit $ 28

Total grade: 0.0×1/1 = 0%

Feedback:
Variable expenses: $40 × (100% – 30%) = $28.

Your response Correct response

Requirement 2:
Requirement 2:
Use the equation method for the following:
Use the equation method for the following:
(a) What is the break-even point in units and sales dollars? (Omit the "$" sign in your
(a) What is the break-even point in units and sales dollars? (Omit the "$" sign in your
response.)
response.)
Break-even point in units 40 (0%) units 15,000
Break-even point in units units
Break-even point in sales
$ 400 (0%) Break-even point in sales dollars $ 600,000
dollars

Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%

Feedback:

Selling price $ 40 100 %

Variable expenses 28 70 %
Contribution margin $ 12 30 %

Profit = Unit CM × Q − Fixed expenses

$0 = $12 × Q − $180,000
$12Q = $180,000
Q = $180,000 ÷ $12
Q = 15,000 units
In sales dollars: 15,000 units × $40 per unit = $600,000

Your response Correct response

(b) What sales level in units and in sales dollars is required to earn an annual profit of (b) What sales level in units and in sales dollars is required to earn an annual profit of
$60,000? (Omit the "$" sign in your response.) $60,000? (Omit the "$" sign in your response.)
Sales level in units 50 (0%) units Sales level in units 20,000 units
Sales level in dollars $ 5000 (0%) Sales level in dollars $ 800,000

Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%

Feedback:
Profit = [Unit CM × Q] − Fixed expenses
$60,000 = [$12 × Q] − $180,000
$12Q = $60,000 + $180,000
$12Q = $240,000
Q = $240,000 ÷ $12
Q = 20,000 units
In sales dollars: 20,000 units × $40 per unit = $800,000
 Your response Correct response
(c) Assume that by using a more efficient shipper, the company is able to reduce its
(c) Assume that by using a more efficient shipper, the company is able to reduce its
variable expenses by $4 per unit. What is the company's new break-even point in units
variable expenses by $4 per unit. What is the company's new break-even point in units
and sales dollars? (Omit the "$" sign in your response.)
and sales dollars? (Omit the "$" sign in your response.)
New break-even point in units 50 (0%) units 11,250
New break-even point in units units
New break-even point in sales
$ 5000 (0%) New break-even point in sales dollars $ 450,000
dollars

Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%

Feedback:
The company's new cost/revenue relation will be:

Selling price $ 40 100 %

Variable expenses ($28 –
24 60 %
$4)
Contribution margin $ 16 40 %

Profit = [Unit CM × Q] − Fixed expenses

$0 = [($40 − $24) × Q] − $180,000
$16Q = $180,000
Q = $180,000 ÷ $16
Q = 11,250 units
In sales dollars: 11,250 units × $40 per unit = $450,000

Question 21: Score 0.25/4

Your response Correct response

Exercise 6-14 Missing Data; Basic CVP Concepts [LO1, LO9] Exercise 6-14 Missing Data; Basic CVP Concepts [LO1, LO9]
Fill in the missing amounts in each of the eight case situations below. Each case is Fill in the missing amounts in each of the eight case situations below. Each case is
independent of the others. (Hint: One way to find the missing amounts would be to prepare independent of the others. (Hint: One way to find the missing amounts would be to prepare
a contribution format income statement for each case, enter the known data, and then a contribution format income statement for each case, enter the known data, and then
compute the missing items.) compute the missing items.)

Requirement 1: Requirement 1:
Assume that only one product is being sold in each of the four following case situations: Assume that only one product is being sold in each of the four following case situations:
(Omit the "$" sign in your response.) (Omit the "$" sign in your response.)
Case #1 Case #2 Case #3 Case #4 Case #1 Case #2 Case #3 Case #4
Units Sold 15,000 12000 (0%) 10,000 6,000 Units Sold 15,000 4,000 10,000 6,000
250000 (0% Sales $ 180,000 $ 100,000 $ 200,000 $ 300,000
Sales $ 180,000 $ 100,000 $ $ 300,000 Variable Expenses 120,000 60,000 70,000 210,000
)
Variable 110000 (0% 50000 (0% Contribution Margin 60,000 40,000 130,000 90,000
120,000 70,000 118,000 100,000
Expenses ) ) Fixed expenses 50,000 32,000
Contributio Net Operating Income (Loss) 10,000 8,000 12,000 (10,000)
60,000 40,000 130,000 90,000 4 $ 15
n Margin Contribution Margin per Unit $ 10 $ 13 $
Fixed 50,000 32,000 25000 (0%) 100,000
 expenses
Net
Operating 5000 (0%
8,000 12,000 (10,000)
Income )
(Loss)
Contributio
n Margin $ 5 (0%) $ 10 $ 13 $ 15 (13%)
per Unit

Total grade: 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 1.0×1/8 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 13%
Feedback:
Case #1 Case #2
Number of units
15,000 * 4,000
sold
Sales $ 180,000 * $ 12 $ 100,000 * $ 25
Variable Expenses 120,000 * 8 60,000 15
Contribution
60,000 $ 4 40,000 $ 10 *
margin
Fixed Expenses 50,000 * 32,000 *
Net operating
$ 10,000 $ 8,000 *
income

Case #3 Case #4
Number of units sold 10,000 * 6,000*
Sales $ 200,000 $ 20 $ 300,000* $ 50
Variable Expenses 70,000 * 7 210,000 35
Contribution margin 130,000 $ 13 * 90,000 $ 15
Fixed Expenses 118,000 100,000*
Net operating
$ 12,000 * $ (10,000)*
income

* Given

Your response Correct response

Requirement 2: Requirement 2:
Assume that more than one product is being sold in each of the four following case Assume that more than one product is being sold in each of the four following case
situations: (Omit the "$" and "%" signs in your response.) situations: (Omit the "$" and "%" signs in your response.)
Case #1 Case #2 Case #3 Case #4 Case #1 Case #2 Case #3 Case #4
Sales $ 500,000 $ 400,000 $ 300000 (0%) 600,000 Sales $ 500,000 $ 400,000 $ 250,000 600,000
Variable Variable Expenses 400,000 260,000 100,000 420,000
200000 (0%) 260,000 320000 (0%) 420,000
Expenses Contribution Margin 100,000 140,000 150,000 180,000
Contribution Fixed expenses 93,000 100,000 130,000 185,000
100,000 140,000 150,000 180,000 40,000
Margin Net Operating Income (Loss) $ 7,000 $ $ 20,000 $ (5,000)
Fixed Average Contribution Margin Ratio 20 % 35 % 60 % 30 %
70000 (0%) 100,000 130,000 160000 (0%)
expenses
 Net
Operating
$ 7,000 $ 13500 (0%) $ 20,000 $ (5,000)
Income
(Loss)
Average
Contribution
20 % 40 (0%) % 60 % 80 (0%) %
Margin
Ratio

Total grade: 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%
Feedback:
Case #1 Case #2
Sales $ 500,000 * 100 % $ 400,000 * 100%
Variable Expenses 400,000 80 260,000 * 65
Contribution
100,000 20 %* 140,000 35%
margin
Fixed Expenses 93,000 100,000 *
Net operating
$ 7,000 * $ 40,000
income

Case #3 Case #4
Sales $ 250,000 100 % $ 600,000* 100 %
Variable Expenses 100,000 40 420,000* 70
Contribution
150,000 60 %* 180,000 30 %
margin
Fixed Expenses 130,000 * 185,000
Net operating
$ 20,000 * $ (5,000)*
income

* Given

Question 22: Score 1/4

Your response Correct response

Exercise 6-15 Operating Leverage [LO4, LO8] Exercise 6-15 Operating Leverage [LO4, LO8]
Magic Realm, Inc., has developed a new fantasy board game. The company sold 15,000 Magic Realm, Inc., has developed a new fantasy board game. The company sold 15,000
games last year at a selling price of $20 per game. Fixed costs associated with the game games last year at a selling price of $20 per game. Fixed costs associated with the game
total $182,000 per year, and variable costs are $6 per game. Production of the game is total $182,000 per year, and variable costs are $6 per game. Production of the game is
entrusted to a printing contractor. Variable costs consist mostly of payments to this entrusted to a printing contractor. Variable costs consist mostly of payments to this
contractor. contractor.

Requirement 1: Requirement 1:
(a) Prepare a contribution format income statement for the game last year. (Omit the "$" (a) Prepare a contribution format income statement for the game last year. (Omit the "$"
sign in your response.) sign in your response.)
 Total Total
Sales $ 300000 (20%) Sales $ 300000
Variable expenses 90000 (20%) Variable expenses 90000
Contribution margin 210000 (20%) Contribution margin 210000
Fixed expenses 182000 (20%) Fixed expenses 182000
Net operating income(loss) $ 28000 (20%) Net operating income(loss) $ 28000

Your response Correct response

(b) Compute the degree of operating leverage. (Round your answer to 1 decimal place.)
(b) Compute the degree of operating leverage. (Round your answer to 1 decimal place.)
Degree of operating 7.5
50 (0%) Degree of operating leverage
leverage

Total grade: 0.0×1/1 = 0%

Feedback:
The degree of operating leverage is:

Your response Correct response

Requirement 2: Requirement 2:
Management is confident that the company can sell 18,000 games next year (an increase of Management is confident that the company can sell 18,000 games next year (an increase of
3,000 games, or 20%, over last year). 3,000 games, or 20%, over last year).

(a) Compute the expected percentage increase in net operating income for next year. (a) Compute the expected percentage increase in net operating income for next year.
(Omit the "%" sign in your response.) (Omit the "%" sign in your response.)
Expected percentage increase in net operating Expected percentage increase in net operating 150 %
5 (0%) %
income income

Total grade: 0.0×1/1 = 0%

Feedback:
Sales of 18,000 games represent a 20% increase over last year's sales. Because the degree
of operating leverage is 7.5, net operating income should increase by 7.5 times as much, or
by 150% (7.5 × 20%).

Your response Correct response

(b) Compute the expected total dollar net operating income(loss) for next year. (Do not (b) Compute the expected total dollar net operating income(loss) for next year. (Do not
prepare an income statement; use the degree of operating leverage to compute prepare an income statement; use the degree of operating leverage to compute
your answer. Omit the "$" sign in your response.) your answer. Omit the "$" sign in your response.)
Total expected net operating income(loss) $ 50000 (0%) Total expected net operating income(loss) $ 70,000

Total grade: 0.0×1/1 = 0%

 Feedback:
The expected total dollar amount of net operating income for next year would be:

Last year's net operating income(loss) $ 28,000

Expected increase in net operating income next year (150% ×
42,000
$28,000)
Total expected net operating income(loss) $ 70,000

Question 23: Score 0/4

Your response Correct response

Exercise 6-16 Target Profit and Break-Even Analysis [LO4, LO5, LO6]
Exercise 6-16 Target Profit and Break-Even Analysis [LO4, LO5, LO6]
Outback Outfitters sells recreational equipment. One of the company's products, a small
Outback Outfitters sells recreational equipment. One of the company's products, a small
camp stove, sells for $50 per unit. Variable expenses are $32 per stove, and fixed expenses
camp stove, sells for $50 per unit. Variable expenses are $32 per stove, and fixed expenses
associated with the stove total $108,000 per month.
associated with the stove total $108,000 per month.
Requirement 1:
Requirement 1:
Compute the break-even point in number of stoves and in total sales dollars. (Omit the
Compute the break-even point in number of stoves and in total sales dollars. (Omit the
"$" sign in your response.)
"$" sign in your response.)
Number of 6,000
50 (0%) Number of stoves
stoves 300,000
Total sales $
Total sales $ 50000 (0%)

Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%

Feedback:

Profit = [Unit CM × Q] − Fixed expenses

$0 = [($50 − $32) × Q] − $108,000
$0 = [($18) × Q] − $108,000
$18Q = $180,000
Q = $180,000 ÷ $18
6,000 stoves, or at $50 per stove, $300,000 in
Q=
sales

Requirement 2:
If the variable expenses per stove increase as a percentage of the selling price, will it result
in a higher or a lower break-even point? (Assume that the fixed expenses remain
unchanged.)

Your Answer:
Choic Selecte Correc
 e d t

Lower

Higher
Feedback: An increase in variable expenses as a percentage of the selling price would result in a
higher break-even point. If variable expenses increase as a percentage of sales, then the
contribution margin will decrease as a percentage of sales. With a lower CM ratio, more
stoves would have to be sold to generate enough contribution margin to cover the fixed
costs.

Your response Correct response

Requirement 3:
At present, the company is selling 8,000 stoves per month. The sales manager is convinced
that a 10% reduction in the selling price would result in a 25% increase in monthly sales of
Requirement 3:
stoves. Prepare two contribution format income statements, one under present operating
At present, the company is selling 8,000 stoves per month. The sales manager is convinced
conditions, and one as operations would appear after the proposed changes. Show both
that a 10% reduction in the selling price would result in a 25% increase in monthly sales of
total and per unit data on your statements. (Omit the "$" sign in your response.)
stoves. Prepare two contribution format income statements, one under present operating
Present: 8,000 stoves Proposed: 50 (0%) stoves conditions, and one as operations would appear after the proposed changes. Show both
Total Per Unit Total Per Unit total and per unit data on your statements. (Omit the "$" sign in your response.)
Sales $ 500000 (0%) $ 500 (0%) $ 50000 (0%) $ 50 (0%) Present: 8,000 stoves Proposed: 10,000 stoves
Variable
30000 (0%) 30 (0%) 3000 (0%) 30 (0%) Total Per Unit Total Per Unit
expenses 400,000 $ 50 $ 450,000 $ 45
Sales $
Contribution Variable expenses 256,000 32 320,000 32
470000 (0%) $ 470 (0%) 470000 (0%) $ 470 (0%)
margin 144,000 18 130,000 13
Contribution margin $ $
Fixed 108,000 108,000
5000 (0%) 5000 (0%) Fixed expenses
expenses
Net operating income $ 36,000 $ 22,000
Net
operating $ 465000 (0%) $ 465000 (0%)
income

Total grade: 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 + 0.0×1/17 = 0% + 0% + 0% + 0% + 0% + 0%
+ 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%
Feedback:
Proposed: 8,000 stoves × 1.25 = 10,000 stoves
Sales: $50 × 0.9 = $45
As shown above, a 25% increase in volume is not enough to offset a 10% reduction in the
selling price; thus, net operating income decreases.

Your response Correct response

Requirement 4: Requirement 4:
At present, the company is selling 8,000 stoves per month. The sales manager is convinced At present, the company is selling 8,000 stoves per month. The sales manager is convinced
that a 10% reduction in the selling price would result in a 25% increase in monthly sales of that a 10% reduction in the selling price would result in a 25% increase in monthly sales of
stoves. How many stoves would have to be sold at the new selling price to yield a stoves. How many stoves would have to be sold at the new selling price to yield a
minimum net operating income of $35,000 per month? minimum net operating income of $35,000 per month?
Number of Stoves 50 (0%) Number of Stoves 11,000
 Total grade: 0.0×1/1 = 0%
Feedback:

Profit = Unit CM × Q − Fixed expenses

$35,000 = ($45 − $32) × Q − $108,000
$35,000 = ($13) × Q − $108,000
$13 ×
= $143,000
Q
Q = $143,000 ÷ $13
Q = $11,000 stoves

Question 24: Score 0/4

Your response Correct response

Exercise 6-18 Multiproduct Break-Even Analysis [LO9]
Olongapo Sports Corporation is the distributor in the Philippines of two premium golf
balls—the Flight Dynamic and the Sure Shot. Monthly sales, expressed in pesos (P), and
the contribution margin ratios for the two products follow: Exercise 6-18 Multiproduct Break-Even Analysis [LO9]
Olongapo Sports Corporation is the distributor in the Philippines of two premium golf
Product
balls—the Flight Dynamic and the Sure Shot. Monthly sales, expressed in pesos (P), and
Flight
the contribution margin ratios for the two products follow:
Dynamic Sure Shot Total
Sales P 150,000 P 250,000 P 400,000 Product
CM ratio 80% 36% ? Flight
Dynamic Sure Shot Total
Fixed expenses total P183,750 per month. Sales P 150,000 P 250,000 P 400,000
CM ratio 80% 36% ?
Requirement 1:
Prepare a contribution format income statement for the company as a whole. (Round your Fixed expenses total P183,750 per month.
percentage values to one decimal place, e.g., .1234 as 12.3. Omit the "P" and "%"
signs in your response.) Requirement 1:
Prepare a contribution format income statement for the company as a whole. (Round your
Flight Dynamic Sure Shot Total Company
percentage values to one decimal place, e.g., .1234 as 12.3. Omit the "P" and "%"
Amount % Amount % Amount %
signs in your response.)
500000 (0 50 (0 500000 (0 50 (0 1000000 (0 50 (0
Sales P P P
%) %) %) %) %) %) Flight Dynamic Sure Shot Total Company
Variable 250000 (0 50 (0 250000 (0 50 (0 500000 (0% 50 (0 Amount % Amount % Amount %
expenses %) %) %) %) ) %) Sales P 150,000 100 P 250,000 100 P 400,000 100
Contributio 250000 (0 50 (0 250000 (0 50 (0 500000 (0% 50 (0 Variable expenses 30,000 20 160,000 64 190,000 47.5
P P
n margin %) %) %) %) ) %) Contribution margin P 120,000 80 P 90,000 36 210,000 52.5
Fixed Fixed expenses 183,750
5000 (0%)
expenses Net operating income P 26,250
Net
450000 (0%
operating P
)
income
 Total grade: 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 =
0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%
Feedback:
Total contribution margin percentage: (P210,000 ÷ P400,000) = 52.5%.

Your response Correct response

Requirement 2: Requirement 2:
Compute the break-even point for the company based on the current sales mix. (Round Compute the break-even point for the company based on the current sales mix. (Round
your answer to the nearest peso amount. Omit the "P" sign in your response.) your answer to the nearest peso amount. Omit the "P" sign in your response.)
Break-even point P 50 (0%) Break-even point P 350,000

Total grade: 0.0×1/1 = 0%

Feedback:
The break-even point for the company as a whole be:

Your response Correct response

Requirement 3:
Requirement 3:
If sales increase by P100,000 a month, by how much would you expect net operating
If sales increase by P100,000 a month, by how much would you expect net operating
income to increase? (Round your answer to the nearest peso amount. Omit the "P"
income to increase? (Round your answer to the nearest peso amount. Omit the "P"
sign in your response.)
sign in your response.)
Expected increase in net operating
P 500 (0%) Expected increase in net operating income P 52,500
income

Total grade: 0.0×1/1 = 0%

Feedback:
The additional contribution margin from the additional sales is computed as follows:
P100,000 × 52.5% CM ratio = P52,500
Assuming no change in fixed expenses, all of this additional contribution margin of
P52,500 should drop to the bottom line as increased net operating income.
This answer assumes no change in selling prices, variable costs per unit, fixed expense,
or sales mix.

Question 25: Score 0/4

Your response Correct response

 Problem 6-19 Basics of CVP Analysis [LO1, LO3, LO4, LO6, LO8] Problem 6-19 Basics of CVP Analysis [LO1, LO3, LO4, LO6, LO8]
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $20 per Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $20 per
unit. Variable costs are $8 per unit, and fixed costs total $180,000 per year. unit. Variable costs are $8 per unit, and fixed costs total $180,000 per year.

Requirement 1: Requirement 1:
What is the product's CM ratio? (Omit the "%" sign in your response.) What is the product's CM ratio? (Omit the "%" sign in your response.)
CM ratio 5 (0%) % CM ratio 60 %

Total grade: 0.0×1/1 = 0%

Feedback:

Sales price $ 20 100 %

Variable expenses 8 40 %
Contribution margin $ 12 60 %

Your response Correct response

Requirement 2:
Requirement 2:
Use the CM ratio to determine the break-even point in sales dollars. (Omit the "$" sign in
Use the CM ratio to determine the break-even point in sales dollars. (Omit the "$" sign in
your response.)
your response.)
Break-even point in
$ 50 (0%) Break-even point in sales $ 300,000
sales

Total grade: 0.0×1/1 = 0%

Feedback:

Your response Correct response

Requirement 3: Requirement 3:
Due to an increase in demand, the company estimates that sales will increase by $75,000 Due to an increase in demand, the company estimates that sales will increase by $75,000
during the next year. By how much should net operating income increase (or net loss during the next year. By how much should net operating income increase (or net loss
decrease) assuming that fixed costs do not change? (Omit the "$" sign in your response.) decrease) assuming that fixed costs do not change? (Omit the "$" sign in your response.)
Increase in net operating income $ 5000 (0%) Increase in net operating income $ 45,000

Total grade: 0.0×1/1 = 0%

Feedback:
$75,000 increased sales × 0.60 CM ratio = $45,000 increased contribution margin. Because
the fixed costs will not change, net operating income should also increase by $45,000.

Your response Correct response

 Requirement 4:
Requirement 4:
Assume that the operating results for last year were:
Assume that the operating results for last year were:

Sales $ 400,000
Sales $ 400,000
Variable expenses 160,000
Variable expenses 160,000
Contribution margin 240,000
Contribution margin 240,000
Fixed expenses 180,000
Fixed expenses 180,000
Net operating income $ 60,000
Net operating income $ 60,000

(a) Compute the degree of operating leverage at the current level of sales.
(a) Compute the degree of operating leverage at the current level of sales.
Degree of operating 4
50 (0%) Degree of operating leverage
leverage

Total grade: 0.0×1/1 = 0%

Feedback:

Your response Correct response

(b) The president expects sales to increase by 20% next year. By what percentage should
(b) The president expects sales to increase by 20% next year. By what percentage should
net operating income increase? (Omit the "%" sign in your response.)
net operating income increase? (Omit the "%" sign in your response.)
Increase in net operating 80 %
5 (0%) % Increase in net operating income
income

Total grade: 0.0×1/1 = 0%

Feedback:
4 × 20% = 80% increase in net operating income. In dollars, this increase would be 80% ×
$60,000 = $48,000.

Your response Correct response

Requirement 5: Requirement 5:
Refer to the original data. Assume that the company sold 18,000 units last year. The sales Refer to the original data. Assume that the company sold 18,000 units last year. The sales
manager is convinced that a 10% reduction in the selling price, combined with a $30,000 manager is convinced that a 10% reduction in the selling price, combined with a $30,000
increase in advertising, would cause annual sales in units to increase by one-third. increase in advertising, would cause annual sales in units to increase by one-third.

(a) Prepare two contribution format income statements, one showing the results of last (a) Prepare two contribution format income statements, one showing the results of last
year's operations and one showing the results of operations if these changes are made. year's operations and one showing the results of operations if these changes are made.
Show both total and per unit data on your statements. (Omit the "$" sign in your Show both total and per unit data on your statements. (Omit the "$" sign in your
response.) response.)
Last Year: Proposed: Last Year: Proposed:
18,000 units 24,000 units 18,000 units 24,000 units
Amount Per Unit Amount Per Unit Amount Per Unit Amount Per Unit
 Sales $ 500000 (0%) $ 50 (0%) $ 50000 (0%) $ 5 (0%) Sales $ 360,000 $ 20 $ 432,000 $ 18
Variable Variable expenses 144,000 8 192,000 8
200000 (0%) 20 (0%) 20000 (0%) 2 (0%)
expenses Contribution margin 216,000 $ 12 240,000 $ 10
Contribution Fixed expenses 180,000 210,000
300000 (0%) $ 30 (0%) 30000 (0%) $ 3 (0%)
margin Net operating income $ 36,000 $ 30,000
Fixed expenses 50000 (0%) 5000 (0%)
Net operating
$ 295000 (0%) $ 25000 (0%)
income

Total grade: 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 + 0.0×1/16 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%
+ 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%
Feedback:
18,000 units + 6,000 units = 24,000
units
$20 × 0.9 = $18

(b) Would you recommend that the company do as the sales manager suggests?

Your Answer:
Choic Selecte Correc
e d t

Yes

No
Feedback: No, the changes should not be made.

Your response Correct response

Requirement 6:
Requirement 6:
Refer to the original data. Assume again that the company sold 18,000 units last year. The
Refer to the original data. Assume again that the company sold 18,000 units last year. The
president does not want to change the selling price. Instead, he wants to increase the sales
president does not want to change the selling price. Instead, he wants to increase the sales
commission by $1 per unit. He thinks that this move, combined with some increase in
commission by $1 per unit. He thinks that this move, combined with some increase in
advertising, would increase annual sales by 25%. By how much could advertising be
advertising, would increase annual sales by 25%. By how much could advertising be
increased with profits remaining unchanged? (Do not prepare an income statement; use
increased with profits remaining unchanged? (Do not prepare an income statement; use
the incremental analysis approach. Omit the "$" sign in your response.)
the incremental analysis approach. Omit the "$" sign in your response.)
The amount by which advertising can be
$ 50000 (0%) The amount by which advertising can be increased $ 31,500
increased

Total grade: 0.0×1/1 = 0%

Feedback:

Expected total contribution margin:

18,000 units × 1.25 × $11 per unit* $ 247,500
Present total contribution margin:
18,000 units × $12 per unit 216,000
Incremental contribution margin, and the amount by which
advertising can be increased with net operating income $ 31,500
 remaining unchanged

*$20 – ($8 + $1) = $11