1 - Example Problems Ch. 5 6

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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
fixed weekly expense of a coffee stand is $1,200 and the variable cost per cup of coffee
Espresso Express operates a number of espresso coffee stands in busy suburban malls. The
served is $0.22.
fixed weekly expense of a coffee stand is $1,200 and the variable cost per cup of coffee
served is $0.22.
Requirement 1:
Requirement 1:
Fill in the following table with your estimates of total costs and cost per cup of coffee at
the indicated levels of activity for a coffee stand.
Fill in the following table with your estimates of total costs and cost per cup of coffee at
to 3 decimal places. Omit the "$" sign in your response.)
the indicated levels of activity for a coffee stand.
to 3 decimal places. Omit the "$" sign in your response.)
Cups of Coffee Served in a Week
2,000
Fixed cost
0.60
(0%)
Fixed cost
Variable cost
0.22
(0%)
Total cost
0.82
(0%)
Average cost per cup

of coffee served
0.792
(0%
)
Variable cost
Total cost
Average cost per cup of coffee served
Total grade: 0.01/12 + 0.01/12 + 0.01/12 + 0.01/12 + 0.01/12 + 0.01/12 + 0.01/12 + 0.01/12 + 0.01/12 + 0.01/12 + 0.01/12 + 0.01/12 = 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
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.

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:
Requirement 2:
Estimate the company's break-even point in unit sales using your cost-volume-profit graph
Estimate the company's break-even point in unit sales using your cost-volume-profit graph
analysis.
analysis.
Break-even point in
sales
16.67
(0%) unitsBreak-even point in sales
4,000 units
Correct
Total grade: 0.01/1 = 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, hasThe

accumulated
Cheyennerecords
Hotel inofBig
the Sky,
total Montana,
electrical has accumulated records of the total electrical
costs of the hotel and the number of occupancy-days
costs of
over
thethe
hotel
lastand
year.
theAn
number
occupancy-day
of occupancy-days over the last year. An occupancy-day
represents a room rented out for one day. Therepresents
hotel's business
a room isrented
highlyoutseasonal,
for one with
day. The hotel's business is highly seasonal, with
peaks occurring during the ski season and in thepeaks
summer.
occurring during the ski season and in the summer.
Month
Occupancy- Electrical
Days
Costs
Month
Occupancy- Electrical
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
960
$ 2,857
April
960
$ 2,857
April
May
June
July
August
September
October
November
December
360
$ 1,871
744
May
360
$ 1,871
June
744
$ 2,696
July
2,108
$ 4,670
August
2,406
$ 5,148
September
840
$ 2,691
October
124
$ 1,588
November
720
$ 2,454
December
1,364
$ 3,529
$ 2,696
2,108
$ 4,670
2,406
$ 5,148
840
$ 2,691
124
$ 1,588
720
$ 2,454
1,364
$ 3,529
Requirement 1:
Requirement 1:
Using the high-low method, estimate the variable cost of electricity per occupancy-day and
the fixed cost of electricity per month. (Round Using
the fixed
cost to the
nearestestimate
whole dollar
the high-low
method,
the variable cost of electricity per occupancy-day and
and the variable cost to the nearest whole cent.
sign in your
theOmit
fixedthe
cost"$"
of electricity
perresponse.)
month. (Round the fixed cost to the nearest whole dollar
and the variable cost to the nearest whole cent. Omit the "$" sign in your response.)
Variable cost
1.56
Fixed cost
1394
(50%)
per occupancy
day
Variable cost
(0%
Fixed cost
per month
)
Total grade: 1.01/2 + 0.01/2 = 50% + 0%

Feedback:
Occupancy-
Electrical
$ 1.56 per occupancy day

$ 1,395 per month
Days
Costs
High activity level

(August)
2,406
$ 5,148
Low activity level

(October)
124
1,588
2,282
$ 3,560
Change
Variable
cost
= Change in cost Change in activity
= $3,560 2,282 occupancy-days

= $1.56 per occupancy-day
Total cost (August)

Variable cost element
($1.56 per occupancy-day 2,406 occupancydays)
Fixed cost element
$ 5,148
3,753
$ 1,395
Requirement 2:
Which of the following statement(s) is true? (Select all that apply.)
Choice
Selected
Points
Electrical cost may reflect seasonal factors other than just the variation in occupancy days
Yes
+1
Fixed cost will not be affected by the number of days in a month
No
Less systematic factors such as frugality of individual guests may also affect electrical costs
Yes
Total correct answers: 2

Partial Grading Explained
Feedback:
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.
Your response
Correct response
Exercise 5-4 Contribution Format Income Statement

Exercise [LO4]
5-4 Contribution Format Income Statement [LO4]
The Alpine House, Inc., is a large retailer of winter
The sports
Alpineequipment.
House, Inc.,
Anisincome
a large statement
retailer of winter sports equipment. An income statement
for the company's Ski Department for a recent quarter
for the is
company's
presentedSki
below:
Department for a recent quarter is presented below:
The Alpine House, Inc.

Income StatementSki Department
For the Quarter Ended March 31

Sales
Sales
Cost of goods sold
Cost of goods sold
Gross margin
Gross margin
Selling and administrative expenses:
Selling and administrative expenses:
Selling expenses
$ 30,000
Selling expenses
$ 30,000
+1
Administrative expenses
10,000
Net operating income
10,000
Skis sell, on the average, for $750 per pair. Variable

Skis selling
sell, onexpenses
the average,
are $50
for $750
per pair
per of
pair. Variable selling expenses are $50 per pair of
skis sold. The remaining selling expenses are fixed.
skis sold.
The The
administrative
remaining expenses
selling expenses
are 20%are fixed. The administrative expenses are 20%
variable and 80% fixed. The company does not
variable
manufacture
and 80%
its fixed.
own skis;
The company
it purchases
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

Prepare
for the
a contribution
quarter.
format income statement for the quarter.
your response.)
your response.)

Sales
(6%)
Sales
Variable expenses:
Variable expenses:
(6%)
Cost of goods sold
Selling expenses

Cost of goods sold
Selling expenses
(6%)
Contribution margin
(6%)
Contribution margin
(6%)
Fixed expenses:
Fixed expenses:
Advertising expenses
(0%)
(6%)
Selling expenses

(6%)
Total grade: 1.01/18 + 1.01/18 + 1.01/18 + 1.01/18 + 1.01/18 + 1.01/18 + 1.01/18 + 1.01/18 + 1.01/18 + 1.01/18 + 1.01/18 + 0.01/18 + 0.01/18 + 1.01/18 + 1.01/18 + 0.01/18 + 1.01/18 + 0.01/18 = 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

per pair)]
20,000
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

For every
was the
paircontribution
of skis sold toward
during covering
the quarter, what was the contribution toward covering
fixed expenses and toward earning profits? (Omit
fixed
theexpenses
"$" signand
in your
toward
response.)
earning profits? (Omit the "$" sign in your response.)
Contribution margin per pair

E5_4_id4
50

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

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
Selling expenses
$ 450
50
($2,000 200 pairs)
10
510
$ 240
Your response
Correct response
Exercise 5-5 Cost Behavior; Contribution Format Income Statement [LO1, LO4]
Harris Company manufactures and sells a single product.
in your response) :
Units Produced and Sold

30,000
40,000
Total
costs:
Variabl
e costs
180,000
Fixed
costs
Total
costs
%)
310000
300,000
190000
%)
480,000
(0
%)
500000
%)
Cost per
unit:
Variabl
e cost
Fixed
cost
Total
3.6
9.6
(0%)
(0
3.8
(0%)
6.2
(0%)
10.0
(0%)
cost per
unit
%)
Total grade: 0.01/15 + 0.01/15 + 0.01/15 + 0.01/15 + 0.01/15 + 0.01/15 + 0.01/15 + 0.01/15 + 0.01/15 + 0.01/15 + 0.01/15 + 0.01/15 + 0.01/15 + 0.01/15 + 0.01/15 = 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:
Requirement 2:
Assume that the company produces and sells 45,000 units during the year at a selling price
of $16 per unit. Prepare a contribution format Assume
income that
statement
for the produces
year.
the company
and sells 45,000 units during the year at a selling price
amounts as positive values. Omit the "$" signofin$16
your
response.)
per unit. Prepare a contribution format income statement for the year.
amounts as positive values. Omit the "$" sign in your response.)
Income Statement
For the Year Ended
Sales
(10%)
720000
Income Statement
For the Year Ended
(10%)
Sales
Variable
expenses
(10%)
Contribution
margin (10%)
Fixed expense
Net operating
income (10%)
(10%)
513000
(0%)
207000
(0%)Contribution margin
279000
(0%)
-70000
(0%)
Variable expenses
Fixed expense
$ 720000
270,000
450,000
300,000
$ 150,000
Total grade: 1.01/10 + 1.01/10 + 1.01/10 + 0.01/10 + 1.01/10 + 0.01/10 + 1.01/10 + 0.01/10 + 1.01/10 + 0.01/10 = 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
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 shippedThe
andfollowing
total shipping
data relating
expensetohave
unitsbeen
shipped and total shipping expense have been
assembled by Archer Company, a wholesaler of
assembled
large, custom-built
by Archer air-conditioning
Company, a wholesaler
units of large, custom-built air-conditioning units
for commercial buildings:
for commercial buildings:
Month
Total
Units Shipping
Shipped Expense
Month
Total
Units Shipping
Shipped Expense
January
$ 1,800
January
$ 1,800
February
$ 2,300
February
$ 2,300
March
$ 1,700
March
$ 1,700
April
$ 2,000
April
$ 2,000
May
$ 2,300
May
$ 2,300
June
$ 2,700
June
$ 2,700
July
$ 1,200
July
$ 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 = $
(0%
+$
)
(0%
X
)
= $ 700 + $ 250 X
Total grade: 0.01/2 + 0.01/2 = 0% + 0%

Feedback:
Units Shipping
Shipped Expense
High activity level
(June)
$ 2,700
Low activity level

(July)
1,200
Change
$ 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

units)
Total fixed cost
2,000
$ 700
The cost formula is $700 per month plus $250 per unit shipped or
Y = $700 + $250X,
where X is the number of units shipped.
Requirement 2:
What factors, other than the number of units shipped, are likely to affect the company's
total shipping expense? (Select all that apply.)
Choice
Selected
Points
Weight of the units shipped
No
Distance travelled
Yes
+1
Size of the units shipped
Yes
+1
Fixed cost
Yes
-1
Variable cost
No
Total correct answers: 3

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

kilometer
(0%)
Fixed cost per year
(0%)
Total grade: 0.01/2 + 0.01/2 = 0% + 0%

Feedback:
Kilometers
Driven
Total
Annual
Cost*
105,000
$ 11,970
Low level of activity
70,000
9,380
Change
35,000
$ 2,590
High level of
activity
* 105,000 kilometers $0.114 per kilometer =

$11,970
Variable cost per kilometer
$ 0.074
Fixed cost per year
$ 4,200
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
Fixed cost per year
7,770
$ 4,200
Your response
Correct response
Requirement 2:
Requirement 2:
Express the variable and fixed costs in the form

Express the variable and fixed costs in the form
kilometer to 3 decimal places. Omit the "$" sign in your response.)
kilometer to 3 decimal places. Omit the "$" sign in your response.)
Y= $
(0
+ $
%)
(0
X
%)
Y = $ 4,200 + $ 0.074 X
Total grade: 0.01/2 + 0.01/2 = 0% + 0%
Your response
Correct response
Requirement 3:
Requirement 3:
If a truck were driven 80,000 kilometers duringIfa ayear,

what
total
cost80,000
would kilometers
you expect during
to
truck
were
driven
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

Feedback:
Fixed cost
$ 4,200
Variable cost:
80,000 kilometers $0.074 per
kilometer
Total annual cost
5,920
$ 10,120
Your response
Correct response
Exercise 5-8 High-Low Method; Predicting Cost

Exercise
[LO1,5-8
LO3]
High-Low Method; Predicting Cost [LO1, LO3]
The Lakeshore Hotel's guest-days of occupancy
Theand
Lakeshore
custodialHotel's
supplies
guest-days
expense over
of occupancy
the
and custodial supplies expense over the
last seven months were:
last seven months were:
Month
GuestDays of
Occupancy
Custodial
Supplies
Expense Month
GuestDays of
Occupancy
Custodial
Supplies
Expense
March
4,000
7,500
April
6,500
8,250
May
8,000
$ 10,500
June
10,500
$ 12,000
July
12,000
$ 13,500
August
9,000
$ 10,750
September
7,500
9,750
March
4,000
7,500
April
6,500
8,250
May
8,000
$ 10,500
June
10,500
$ 12,000
July
12,000
$ 13,500
August
9,000
$ 10,750
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.)
Y= $
(0
+ $
%)
(0
X
%)
Total grade: 0.01/2 + 0.01/2 = 0% + 0%

Feedback:
High activity level (July)

Low activity level
GuestDays
Custodial
Supplies
Expense
12,000
$ 13,500
4,000
7,500
= $ 4,500 + $ 0.75 X
(March)
Change
8,000
6,000
Variable cost element:
Fixed cost element:
Custodial supplies expense at high

activity level
$ 13,500
Less variable cost element:

12,000 guest-days $0.75 per guestday
Total fixed cost
9,000
$ 4,500
The cost formula is $4,500 per month plus $0.75 per guest-day or
Y = $4,500 + $0.75X
Your response
Requirement 2:
Correct response
Requirement 2:
Using the cost formula you derived above, what

Using
amount
the cost
of formula
custodialyou
supplies
derived
expense
above, what amount of custodial supplies expense
would you expect to be incurred at an occupancy
would
level
youofexpect
11,000toguest-days?
be incurred at an occupancy level of 11,000 guest-days?
"$" sign in your response.)
Variable cost
Fixed cost
Total cost
50
(0%)Variable cost
$ 8,250
100
(0%)Fixed cost
4,500
150
(0%)Total cost
$ 12,750
Total grade: 0.01/3 + 0.01/3 + 0.01/3 = 0% + 0% + 0%

Feedback:
Variable cost (11,000 guest-days $0.75 per guest-day) = $8,250
Your response
Correct response
Exercise 5-10 High-Low Method; Predicting Exercise

Cost [LO1,
5-10
LO3]
High-Low Method; Predicting Cost [LO1, LO3]
St. Mark's Hospital contains 450 beds. The average
St. Mark's
occupancy
Hospital
ratecontains
is 80% per
450 month.
beds. The
In average occupancy rate is 80% per month. In
other words, on average, 80% of the hospital's beds
other are
words,
occupied
on average,
by patients.
80% of
At the
thishospital's
level
beds are occupied by patients. At this level
of occupancy, the hospital's operating costs areof
$32
occupancy,
per occupied
the hospital's
bed per day,
operating
assuming
costs
a are $32 per occupied bed per day, assuming a
30-day month. This $32 figure contains both variable
30-dayand
month.
fixedThis
cost$32
elements.
figure contains both variable and fixed cost elements.
During June, the hospital's occupancy rate was
During
onlyJune,
60%.the
A total
hospital's
of $326,700
occupancy
in 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 aEstimate
daily basis
the using
variable
thecost
high-low
per occupied
method.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 bedday
50
(0%)
Variable cost per bed-day

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

(given)
326,700
Difference in cost
$ 18,900
Difference in activity:
80% occupancy (450 beds 80% 30
days)
10,800
60% occupancy (450 beds 60% 30

days)
8,100
Difference in activity
2,700
Your response
Correct response
(b Estimate the total fixed operating costs per month using the high-low method.
(b Estimate the total fixed operating costs per month using the high-low method.
) the "$" sign in your response.)
) the "$" sign in your response.)
Fixed operating costs per

month
50000
Fixed operating costs per month
$ 270,000

Feedback:
Monthly operating costs at 80% occupancy (above)
$ 345,600
Less variable costs:

360 beds 30 days $7 per bed-day
Fixed operating costs per month
75,600
$ 270,000
Your response
Correct response
Requirement 2:
Requirement 2:
Assume an occupancy rate of 70% per month. What

Assume
amount
an occupancy
of total operating
rate of 70%
costper
would
month. What amount of total operating cost would
you expect the hospital to incur? (Omit the "$"you
signexpect
in your
theresponse.)
hospital to incur? (Omit the "$" sign in your response.)
Fixed costs
500
(0%)
Fixed costs
$ 270,000
Variable costs
Total expected costs
50
(0%)
Variable costs
550
(0%)
Total expected costs
66,150
$ 336,150
Total grade: 0.01/3 + 0.01/3 + 0.01/3 = 0% + 0% + 0%

Feedback:
450 beds 70% = 315 beds occupied:
Variable costs: 315 beds 30 days $7 per bed-day = 66,150
Your response
Correct response
Exercise 6-1 Preparing a Contribution Format Income Statement [LO1]

Exercise 6-1 Preparing a Contribution Format Income Statement [LO1]
Total
Per Unit
$ 350,000
$ 35.00
Variable expenses
200,000
20.00
Contribution
margin
150,000
$ 15.00
Fixed expenses
135,000
Sales (10,000
units)
Net operating
$ 15,000
Whirly Corporation's most recent income statement is shown below:
income
Prepare a new contribution format income statement under each of the following
conditions (consider each case independently):
Requirement 1:
The sales volume increases by 100 units. (Omit the "$" sign in your response.)
Total
350000
(0%)
Variable
expenses
200000
(0%)
Contribution
margin
150000
(0%)
Sales
Fixed
expenses
Net operating
income
135000
(20%)
15000
(0%)
Total grade: 0.01/5 + 0.01/5 + 0.01/5 + 1.01/5 + 0.01/5 = 0% + 0% + 0% + 20% + 0%

Feedback:
Sales (10,100 $35.00) = $353,500
Variable expenses (10,100 $20.00) = $202,000
You can get the same net operating income using the following approach.
Original net operating

income
$ 15,000
Change in contribution
margin
(100 units $15.00 per
unit)
New net operating
income
1,500
$ 16,500
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
Variable
expenses
200000
Contribution
margin
150000
Fixed
expenses
135000
(0%)
(0%)
(20%)
Variable expenses
198,000
Contribution margin
148,500
Fixed expenses
Net operating
income
15000
$ 346,500
135000
$ 13,500
(0%)
Total grade: 0.01/5 + 0.01/5 + 0.01/5 + 1.01/5 + 0.01/5 = 0% + 0% + 0% + 20% + 0%
Feedback:
Sales (9,900 $35.00) = $346,500
Sales (9,900 $20.00) = $198,000
You can get the same net operating income using the following approach.
Original net operating

income
$ 15,000
Change in contribution
margin
(-100 units $15.00
per unit)
New net operating
income
(1,500)
$ 13,500
Your response
Correct response
Requirement 3:
Requirement 3:
The sales volume is 9,000 units. (Leave no cellsThe

blank
sales- be
volume
certain
is 9,000
to enter
units.
"0"(Leave no cells blank - be certain to enter "0"
wherever required. Omit the "$" sign in yourwherever
response.)
required. Omit the "$" sign in your response.)
Total
Sales
Variable
expenses
Contribution
margin
Total
350000
(0%)
200000
(0%)
150000
Sales
$ 315,000
Variable expenses
180,000
Contribution margin
135,000
(0%)
Fixed expenses
135000
Fixed
expenses
135000
(20%)
Net operating
income
15000
(0%)
Total grade: 0.01/5 + 0.01/5 + 0.01/5 + 1.01/5 + 0.01/5 = 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
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?

What is the company's contribution margin (CM) ratio?
response.)
response.)
Contribution margin
ratio
(0%) %
Contribution margin ratio
40 %
Feedback:
The company's contribution margin (CM) ratio is:
Total sales
$ 200,000
Total variable expenses
120,000
= Total contribution
margin
Total sales
80,000
$ 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

income
Estimated change in net operating income
500

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
$ 1,00
0
CM ratio
40 %
= Estimated change in net operating

income
$ 400
Your response
Correct response
Exercise 6-5 Changes in Variable Costs, FixedExercise

Costs, Selling
6-5 Changes
Price, in
and
Variable
VolumeCosts,
[LO4]Fixed Costs, Selling Price, and Volume [LO4]
Data for Hermann Corporation are shown below:

Data for Hermann Corporation are shown below:
Per unit
Selling price
Variable expenses
Contribution
margin
Percent
of Sales
Per unit
$90
100%
Selling price
63
70%
Variable expenses
$27
30%
Contribution
margin
Percent
of Sales
$90
100%
63
70%
$27
30%
Fixed expenses are $30,000 per month and the company

Fixed expenses
is selling
are2,000
$30,000
units
perper
month
month.
and the company is selling 2,000 units per month.
Requirement 1:
Requirement 1:
(a Calculate the change in net operating income

(a Calculate
if a $5,000
the change
increaseininnet
theoperating
monthly income if a $5,000 increase in the monthly
) advertising budget would increase monthly sales
) advertising
by $9,000.budget would increase monthly sales by $9,000.
be indicated
by a minus sign. Omit the "$" sign in your response.)
be indicated by a minus sign. Omit the "$" sign
in your response.)
Change in net
operating income
(
0%)
500
Change in net operating

income
$ 2,30
0

Feedback:
The following table shows the effect of the proposed change in monthly advertising
budget:
Sales with
Additional
Advertising
Budget
Difference
$180,000
$189,000
$ 9,000
126,000
132,300
6,300
Contribution
margin
54,000
56,700
2,700
Fixed
expenses
30,000
35,000
5,000
$ 24,000
$ 21,700
Current
sales
Sales
Variable
expenses
Net operating
income
(
2,300 )
$
(b
Should the advertising budget be increased as suggested in requirement 1(a) above?
)
Your Answer:
Choice
Yes
Selected
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:
Choice
Selected
Yes
No
Feedback:
The $2 increase in variable cost will cause the unit contribution margin to decrease from
$27 to $25 with the following impact on net operating income:
Expected total contribution margin

with the higher-quality components:
2,200 units $25 per unit
Present total contribution margin:
Change in total contribution margin
$ 55,000
54,000
$ 1,000
Assuming no change in fixed costs and all other factors remain the same, the higherquality components should be used.
Your response
Correct response
Exercise 6-6 Compute the Level of Sales Required

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

thatthe
areequation
requiredmethod,
to earn asolve
target
Using
forprofit
the unit sales that are required to earn a target profit
of $10,000.
of $10,000.
Unit sales to
earn target profit
u
ni
(0%)
ts
5
Unit sales to earn

target profit

Feedback:
The equation method yields the required unit sales, Q, as follows:
Profit = [Unit CM Q] Fixed expenses

$10,00
= [($120 $80) Q] $50,000
0
$10,00
= [($40) Q] $50,000
0
$40
= $10,000 + $50,000
Q
Q = $60,000 $40
Q = 1,500 units
1,
un
50
0 its
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% unit
Unit sales to earn target profit
)s
1,625 units

Feedback:
The formula approach yields the required unit sales as follows:
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
Maurobasket
Products
whose
distributes
selling aprice
single
is $15
product,
and a woven basket whose selling price is $15 and
whose variable expense is $12 per unit. The company's
whose variable
monthlyexpense
fixed expense
is $12 per
is $4,200.
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

sales
500
(0%) baskets
Break-even point in unit sales
1,400 baskets

Feedback:
The equation method yields the break-even point in unit sales, Q, as follows:
Profi
= [Unit CM Q] Fixed expenses
t
$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 breakeven point in unit sales:
Unit sales to break

=
even
Fixed
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
sales
500
(0%)
Break-even point in sales
$ 21,000

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

$0 = [0.20 Sales] $4,200
0.20
= $4,200
Sales
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:
Dollar sales to break

even
Fixed
expenses
=
CM ratio
$4,200
=
$21,000
=
0.20
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
Molander
umbrella
Corporation
used at resort
is a distributor
hotels. Data
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
Unit sales
Requirement 1:
1,000
units per
month
Unit sales
Requirement 1:
1,000
units per
month
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
safety
500
(0%)
Margin of safety
$ 7,500

Feedback:
To compute the margin of safety, we must first compute the break-even unit sales.
Profi
t
$0 = [($30 $20) Q] $7,500
$0 = [($10) Q] $7,500
$10Q = $7,500
Q = $7,500 $10
Q = 750 units
Sales (at the budgeted volume of

1,000 units)
Less break-even sales (at 750 units)
Margin of safety (in dollars)
$ 30,000
22,500
$ 7,500
Your response
Correct response
Requirement 2:
Requirement 2:
Compute the company's margin of safety as a percentage of its sales.

Compute the company's margin of safety as a percentage of its sales.
in your response.)
in your response.)
Margin of safety as a percentage of

sales
Margin of safety as a percentage of sales

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%
Your response
Correct response
Exercise 6-9 Compute and Use the Degree of Exercise

Operating
6-9Leverage
Compute[LO8]
and Use the Degree of Operating Leverage [LO8]
Engberg Company installs lawn sod in home yards.
Engberg
TheCompany
company's
installs
most lawn
recentsod
monthly
in home yards. The company's most recent monthly
contribution format income statement follows: contribution format income statement follows:
Amount Percent
Amount Percent
of Sales
Sales
$ 80,000
100%
Variable expenses
32,000
40%
Contribution
margin
48,000
60%
Fixed expenses
38,000
Net operating
income
$ 10,000
of Sales
Sales
$ 80,000
100%
Variable expenses
32,000
40%
Contribution
margin
48,000
60%
Fixed expenses
38,000
Net operating
income
Requirement 1:
$ 10,000
Requirement 1:
Compute the company's degree of operating leverage.

Compute the company's degree of operating leverage.
place.)
place.)
Degree of operating
leverage
1000
(0%)
Degree of operating leverage

Feedback:
The company's degree of operating leverage would be computed as follows:
Contribution margin
$ 48,000
$ 10,000
4.8
Degree of operating
leverage
4.8
Your response
Requirement 2:
Correct response
Requirement 2:
Using the degree of operating leverage, estimate

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

income
Estimated percent change in net operating

income

Feedback:
A 5% increase in sales should result in a 24% increase in net operating income, computed
as follows:

Percent increase in sales
Estimated percent increase in net operating
income
Your response
Requirement 3:
4.8
5%
24%
Correct response
Requirement 3:
Verify your estimate from requirement (2) above

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

Percent change in net
operating income
100
Total grade: 0.01/7 + 0.01/7 + 0.01/7 + 1.01/7 + 0.01/7 + 0.01/7 + 0.01/7 = 0% + 0% + 0% + 14% + 0% + 0% + 0%
Your response
Correct response
Exercise 6-10 Compute the Break-Even PointExercise

for a Multiproduct
6-10 Compute
Company
the Break-Even
[LO9] Point for a Multiproduct Company [LO9]
Lucido Products markets two computer games: Lucido
Claimjumper
Products
andmarkets
Makeover.
twoAcomputer
contribution
games: Claimjumper and Makeover. A contribution
format income statement for a recent month for
format
the two
income
games
statement
appears for
on atherecent
following
month for the two games appears on the following
page:
page:
Claimjumper
Makeover
Claimjumper
Makeover
Sales
Variable expenses
30,000
10,000
Fixed expenses
50,00
Variable expenses
20,000
Contribution
margin
70,00
Sales
20,00
Contribution
margin
30,000
50,00
20,000
10,000
70,00
20,00
Fixed expenses
Net operating
income
Net operating
income
Requirement 1:
Requirement 1:
Compute the overall contribution margin (CM) ratio for the company.
Compute the overall contribution margin (CM) ratio for the company.
Overall CM
ratio
(0%
%
)
Overall CM ratio
30 %

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.
Compute the overall break-even point for the company in sales dollars.
Overall breakeven
500
(0%)
Overall break-even
$ 80,000

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

Verifyby
theconstructing
overall break-even
a contribution
point for
format
the company by constructing a contribution format
income statement showing the appropriate levels
income
of sales
statement
for theshowing
two products.
the appropriate levels of sales for the two products.
your answers to the nearest dollar amount. your
Do not
answers
roundtoyour
the interim
nearest calculation.
dollar amount. Do not round your interim calculation.
Leave no cells blank - be certain to enter "0"
Leave
wherever
no cells
required.
blank - Omit
be certain
the "$"
to enter
and "0" wherever required. Omit the "$" and
"%" sign in your response.)
"%" sign in your response.)
Claimjumper
Original dollar
sales
Sales at breakeven
50
(0%
)
(0%)
Makeover
500
Claimjumper
Original dollar sales
30,000
Sales at break-even
24,000
10
Claimjumper
Claimjumper
Sales
Variable
expenses
Contribution
margin
50
(0%)
20
(0%)
30
(0%)
Makeover
$
500
30
470
(0%)
Sales
Variable expenses
(0%)
Contribution margin
(0%)
24,000
16,000
8,000
Fixed expenses
Fixed
expenses
Net operating
income
Total grade: 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 = 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
Your response
Correct response
Exercise 6-11 Using a Contribution Format Income

Exercise
Statement
6-11 Using
[LO1,
a Contribution
LO4]
Format Income Statement [LO1, LO4]
Miller Company's most recent contribution format
Miller
income
Company's
statement
most
is shown
recent contribution
below:
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
$ 50,000
Required:
70,000
$ 50,000
Required:
Prepare a new contribution format income Prepare

statement
undercontribution
each of theformat
following
a new
income statement under each of the following
conditions (consider each case independently): conditions (consider each case independently):
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
Total
300000
(0%) Sales
Variable expenses
180000
(0%) Variable expenses
207,000
Contribution margin
120000
(0%) Contribution margin
138,000
Sales
Fixed expenses
70000
50000
$ 345,000
(13%) Fixed expenses

(0%) Net operating income
$ 68,000
Total grade: 0.01/8 + 1.01/8 + 0.01/8 + 1.01/8 + 0.01/8 + 1.01/8 + 1.01/8 + 0.01/8 = 0% + 13% + 0% + 13% + 0% + 13% + 13% + 0%
Feedback:
Sales (20,000 units 1.15 = 23,000 units)
Your response
Correct response
(b The selling price decreases by $1.50 per unit, and the number of units sold increases by
) 25%.
(b The selling price decreases by $1.50 per unit, and the number of units sold increases by
) 25%.
Total
Total
Sales
300000
(0%)
Sales
Variable expenses
180000
Contribution
margin
120000
Fixed expenses
Net operating
income
70000
50000
$ 337,500
(0%)
(0%)
(13%)
(0%)
Variable expenses
225,000
Contribution margin
112,500
Fixed expenses
$ 42,500
Total grade: 0.01/8 + 0.01/8 + 0.01/8 + 1.01/8 + 0.01/8 + 0.01/8 + 1.01/8 + 0.01/8 = 0% + 0% + 0% + 13% + 0% + 0% + 13% + 0%
Feedback:
Your response
Correct response
(c) The selling price increases by $1.50 per unit,(c)

fixed
Theexpenses
selling price
increase
increases
by $20,000,
by $1.50
and
per unit, fixed expenses increase by $20,000, and
the number of units sold decreases by 5%.
the number of units sold decreases by 5%.
Total
Sales
300000
Total
(0%)
Sales
$ 313,500
Variable expenses
180000
(0%)
Contribution
margin
120000
(0%)
Variable expenses
171,000
Contribution margin
142,500
Fixed expenses
Fixed expenses
70000
(0%)
Net operating
income
50000
90,000
$ 52,500
(0%)
Total grade: 0.01/8 + 0.01/8 + 0.01/8 + 1.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 = 0% + 0% + 0% + 13% + 0% + 0% + 0% + 0%
Feedback:
Your response
Correct response
(d The selling price increases by 12%, variable (d

expenses
The selling
increase
pricebyincreases
60 cents by
per12%,
unit, 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
Total
300000
(0%)
Sales
Variable expenses
180000
(0%)
Variable expenses
172,800
Contribution
margin
120000
(0%)
Contribution margin
129,600
Sales
$ 302,400
Fixed expenses
Fixed expenses
70000
(13%)
Net operating
income
50000
(0%)
$ 59,600
Total grade: 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 1.01/8 + 0.01/8 = 0% + 0% + 0% + 0% + 0% + 0% + 13% + 0%
Feedback:
Your response
Correct response
Exercise 6-12 Target Profit and Break-Even Analysis;

Exercise 6-12
Margin
Target
of Safety;
Profit and
CM Break-Even
Ratio
Analysis; Margin of Safety; CM Ratio
[LO1, LO3, LO5, LO6, LO7]
[LO1, LO3, LO5, LO6, LO7]
Menlo Company distributes a single product. The
Menlo
company's
Company
salesdistributes
and expenses
a single
for last
product. The company's sales and expenses for last
month follow:
month follow:
Total
Per
Unit
$450,000
$30
Variable expenses
180,000
12
Contribution margin
270,000
$18
Fixed expenses
216,000
Sales
Requirement 1:
$ 54,000
Total
Per
Unit
$450,000
$30
Variable expenses
180,000
12
Contribution margin
270,000
$18
Fixed expenses
216,000
Sales
$ 54,000
Requirement 1:
What is the monthly break-even point in unitsWhat

sold and
is the
in monthly
sales dollars?
break-even point in units sold and in sales dollars?
Monthly breakeven point

Sales
50000
(0%) units
Monthly break-even point

Sales
(0%)
12,000
units
$ 360,000
Total grade: 0.01/2 + 0.01/2 = 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 Without

total contribution
resorting margin
to computations,
at the break-even
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 breakeven point
Total contribution margin at the break-even

point
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
sold
(0%) units
500
Units sold
17,000 units

Feedback:
Your response
Correct response
Requirement 4:
Requirement 4:
Refer to the original data. Compute the company's

Refer margin
to the original
of safetydata.
in both
Compute
dollarthe
andcompany's margin of safety in both dollar and
percentage terms. (Omit the "$" and "%" signs
percentage
in your response.)
terms. (Omit the "$" and "%" signs in your response.)
Dollars
Margin of
safety
50
(0%)
Percentage
(0%)
Dollars
Margin of safety
$ 90,000
Percentage
20
Total grade: 0.01/2 + 0.01/2 = 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
Increase in net operating
income
500
(0%)
CM ratio
(0
Increase in net operating income
%)
60
$ 30,000
Total grade: 0.01/2 + 0.01/2 = 0% + 0%

Feedback:
The CM ratio is 60%.
Expected total contribution margin:

($500,000 60%)
Present total contribution margin: ($450,000
60%)
Increase in contribution margin
$ 300,000
270,000
$ 30,000
Given that the company's fixed expenses will not change, monthly net operating income
will also increase by $30,000.
Alternative solution:
$50,000 incremental sales 60% CM ratio = $30,000
Your response
Correct response
Exercise 6-13 Target Profit and Break-Even Analysis

Exercise[LO3,
6-13 Target
LO4, LO5,
ProfitLO6]
and Break-Even Analysis [LO3, LO4, LO5, LO6]
Lindon Company is the exclusive distributor for
Lindon
an automotive
Company product
is the exclusive
that sellsdistributor
for $40 for an automotive product that sells for $40
per unit and has a CM ratio of 30%. The company's
per unit
fixed
andexpenses
has a CM
areratio
$180,000
of 30%.
perThe
year.
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

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?

(a What is the break-even point in units and sales dollars?
) response.)
) response.)
Break-even point in units

dollars
40
400
Total grade: 0.01/2 + 0.01/2 = 0% + 0%

Feedback:
Selling price
Variable expenses
Contribution margin
$40
100%
28
70%
$12
30%
Break-even point in units

Break-even point in sales dollars
15,000
$ 600,000
Profi
= Unit CM Q Fixed expenses
t
$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(b

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

Sales level in dollars
Total grade: 0.01/2 + 0.01/2 = 0% + 0%

Feedback:
$60,000 = [$12 Q] $180,000
$12Q = $60,000 + $180,000
$12Q = $240,000
Q = $240,000 $12
20,000
$ 800,000
Q = 20,000 units
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

New break-even point in sales
dollars
50
5000
Total grade: 0.01/2 + 0.01/2 = 0% + 0%

Feedback:
The company's new cost/revenue relation will be:
Selling price
Variable expenses ($28
$4)
Contribution margin
$40
100%
24
60%
$16
40%
Profi
t
$0 = [($40 $24) Q] $180,000
$16Q = $180,000
New break-even point in units

New break-even point in sales dollars
Q = $180,000 $16
Q = 11,250 units
Your response
Correct response
Exercise
6-14
Missing Data; Basic CVP Concepts [LO1, LO9]
Exercise 6-14 Missing Data; Basic CVP Concepts
[LO1,
LO9]
Fill incase
the situations
missing amounts
in each
Fill in the missing amounts in each of the eight
below. Each
caseofisthe eight case situations below. Each case is
independent
the others.
(Hint:
way to find the missing amounts would be to prepare
independent of the others. (Hint: One way to find
the missingofamounts
would
be One
to prepare
a contribution
income
statement
a contribution format income statement for each
case, enterformat
the known
data,
and thenfor each case, enter the known data, and then
compute the missing items.)
compute the missing items.)
Requirement 1:
Requirement 1:
onlyfollowing
one product
being sold in each of the four following case situations:
Assume that only one product is being sold in Assume
each of that
the four
caseis situations:
(Omit the "$" sign in your response.)
(Omit the "$" sign in your response.)
Case #1
Units Sold
Sales
15,000
180,000 $
Case #2
Units Sold
12000
Sales
100,000
Variable Expenses
Variable
Expenses
120,000
110000
Contribution Margin
Contributio
n Margin
60,000
40,000
Fixed expenses
Fixed
expenses
Net
Operating
Income
(Loss)
Contributio
n Margin
$
per Unit
50,000
5000
32,000
Net Operating Income (Loss)
(0%
)
Contribution Margin per Unit
(0%) $
Total grade: 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 1.01/8 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 13%
Feedback:
Case #1
Number of units
sold
Sales
Variable Expenses
15,000 *
$ 180,000 *
4,000
1
2
$ 100,000 *
60,000
$ 4
40,000
120,000 *
Contribution
margin
60,000
Fixed Expenses
50,000 *
Net operating
income
Case #2
$ 10,000
Case #3
1
5
32,000 *
2
5
8,000 *
Case #4
1
*
0
Number of units sold
Sales
10,000 *
$ 200,000
Variable Expenses
70,000 *
Contribution margin
130,000
Fixed Expenses
118,000
Net operating
income
6,000*
2
0
$ 300,000*
210,000
35
90,000
$ 15
1
*
3
$ 50
100,000*
$ 12,000 *
$ (10,000
)
*
* Given
Your response
Correct response
Requirement 2:
Requirement 2:
product case
is being sold in each of the four following case
Assume that more than one product is being Assume
sold in that
eachmore
of thethan
fourone
following
situations:
(Omit the "$" and "%" signs in your response.)
situations: (Omit the "$" and "%" signs in your
response.)
Case #1
Sales
Variable
Expenses
500,000
200000
Contribution
Margin
Fixed
expenses
Sales
500,000
Variable Expenses
400,000
Contribution Margin
100,000
Fixed expenses
93,000
(0%
)
100,000
70000
Case #1
Case #2
(0%)
Net Operating Income (Loss)
Net
Operating
Income
(Loss)
7,000
13500
Average Contribution Margin Ratio
Average
Contribution
Margin
Ratio
20 %
Total grade: 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%
Feedback:
Case #1
Sales
Case #2
$ 500,000 *
100 %
Variable Expenses
400,000
80
260,000 *
65
Contribution
margin
100,000
20 %*
140,000
35%
Fixed Expenses
Net operating
income
93,000
7,000 *
Variable Expenses
$ 250,000
100,000
100%
100,000 *
$ 40,000
Case #3
Sales
$ 400,000 *
10
%
0
40
Case #4
$ 600,000*
420,000*
100 %
70
Contribution
margin
150,000
Fixed Expenses
130,000 *
185,000
$ 20,000 *
$ (5,000
Net operating
income
60 %*
180,000
30 %
)
*
* Given
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
Magic
board
Realm,
game.Inc.,
Thehas
company
developed
solda15,000
new fantasy board game. The company sold 15,000
games last year at a selling price of $20 per game.
gamesFixed
last year
costsatassociated
a selling price
with the
of $20
game
per game. Fixed costs associated with the game
total $182,000 per year, and variable costs aretotal
$6 per
$182,000
game. per
Production
year, andofvariable
the game
costs
is are $6 per game. Production of the game is
entrusted to a printing contractor. Variable costs
entrusted
consist
to amostly
printing
of contractor.
payments toVariable
this costs consist mostly of payments to this
contractor.
contractor.
Requirement 1:
Requirement 1:
(a Prepare a contribution format income statement

(a Prepare
for the game
a contribution
last year.format income statement for the game last year.
) sign in your response.)
) sign in your response.)
Sales
Variable expenses
Contribution margin
$ 300000 Sales
90000
210000
Variable expenses
Contribution margin
Fixed expenses
182000
Fixed expenses
$ 28000 Net operating income(loss)
Net operating income(loss)
Your response
Correct response
(b
Compute the degree of operating leverage. (b
)
Compute the degree of operating leverage.
)
Degree of operating
leverage
50
(0%)
7.5

Feedback:
The degree of operating leverage is:
Your response
Requirement 2:
Correct response
Requirement 2:
Management is confident that the company can Management

sell 18,000 games
is confident
next year
that(an
theincrease
company
of 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(anetCompute

operating
theincome
expected
for percentage
next year. increase in net operating income for next year.
) the "%" sign in your response.)
) the "%" sign in your response.)
Expected percentage increase in net operating Expected percentage increase in net operating
income
income

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 nexttotal
year.
(b Compute
the expected
dollar net operating income(loss) for next year.
) 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
Total expected net operating

income(loss)

Feedback:
The expected total dollar amount of net operating income for next year would be:
Last year's net operating income(loss)

Expected increase in net operating income next year (150%
$28,000)
Total expected net operating income(loss)
$ 28,000
42,000
$ 70,000
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.
Compute the break-even point in number of stoves and in total sales dollars.
Number of
stoves
Total sales
50
(0%)
50000
(0%)
Number of stoves
Total sales
Total grade: 0.01/2 + 0.01/2 = 0% + 0%

Feedback:
$0 = [($50 $32) Q] $108,000
$0 = [($18) Q] $108,000
$18Q = $180,000
Q = $180,000 $18
Q=
6,000 stoves, or at $50 per stove, $300,000 in

sales
6,000
$ 300,000
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:
Choice
Selected
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:
Requirement 3:
At present, the company is selling 8,000 stoves per

At present,
month. The
the company
sales manager
is selling
is convinced
8,000 stoves per month. The sales manager is convinced
that a 10% reduction in the selling price would result
that ain10%
a 25%
reduction
increase
in in
themonthly
selling price
sales would
of
result in a 25% increase in monthly sales of
stoves. Prepare two contribution format incomestoves.
statements,
Prepare
one
two
under
contribution
present operating
format income statements, one under present operating
conditions, and one as operations would appear
conditions,
after the proposed
and one aschanges.
operations
Show
would
bothappear after the proposed changes. Show both
total and per unit data on your statements. (Omittotal
the and
"$" per
signunit
in your
data on
response.)
your statements. (Omit the "$" sign in your response.)
Present: 8,000 stoves
Total
Sales
Variable
expenses
Contributio
n margin
500000
30000
470000
Present: 8,000 stoves
Per Unit
(0%
$
)
(0%)
(0%
$
)
500
Total
Sales
400,000
Variable expenses
256,000
Contribution margin
144,000
Fixed expenses
108,000
30
470
Correct
Fixed
expenses
(0%)
5000

Net
operating
income
465000
36,000
(0%
)
Total grade: 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 = 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 At

perpresent,
month. the
Thecompany
sales manager
is convinced
is selling
8,000 stoves per month. The sales manager is convinced
that a 10% reduction in the selling price would result
a 25%
increase
in monthly
saleswould
of
that a in
10%
reduction
in the
selling price
result in a 25% increase in monthly sales of
stoves. How many stoves would have to be stoves.
sold atHow
the new
to have
yield to
a be sold at the new selling price to yield a
manyselling
stovesprice
would
minimum net operating income of $35,000 per month?
minimum net operating income of $35,000 per month?
Number of Stoves
50
(0%)

Feedback:
Profit = Unit CM Q Fixed expenses
$35,000 = ($45 $32) Q $108,000
Number of Stoves
11,000
$35,000 = ($13) Q $108,000
$13 Q = $143,000
Q = $143,000 $13
Q = $11,000 stoves
Your response
Correct response
Exercise 6-18 Multiproduct Break-Even Analysis

Exercise
[LO9] 6-18 Multiproduct Break-Even Analysis [LO9]
Olongapo Sports Corporation is the distributor in the
Olongapo
Philippines
Sports
of two
Corporation
premiumisgolf
the balls
distributor in the Philippines of two premium golf balls
the Flight Dynamic and the Sure Shot. Monthlythe
sales,Flight
expressed
Dynamic
in pesos
and the
(P),Sure
and Shot.
the Monthly sales, expressed in pesos (P), and the
contribution margin ratios for the two products follow:
contribution margin ratios for the two products follow:
Product
Sales
CM ratio
Product
Flight
Dynamic
Sure Shot
P150,000
P250,000
80%
36%
Sales
CM ratio
Flight
Dynamic
Sure Shot
P150,000
P250,000
80%
Fixed expenses total P183,750 per month.
Fixed expenses total P183,750 per month.
Requirement 1:
Requirement 1:
36%
Prepare a contribution format income statement for the company as a whole.

percentage values to one decimal place, e.g., .1234 as 12.3. Omit the "P" and "%"
signs in your response.)
Prepare a contribution format income statement for the company as a whole.
percentage values to one decimal place, e.g., .1234 as 12.3. Omit the "P" and "%"
signs in your response.)
Flight Dynamic
Amount
Sales
500000
(0
%)
50
(0
%)
250000
(0
%)
50
(0
%)
Sales
Variable
expenses
Variable expenses
Contributi
on margin
250000
(0
%)
50
(0
%)
Contribution margin
Fixed expenses
Fixed
expenses

Net
operating
income
Total grade: 0.01/20 + 0.01/20 + 0.01/20 + 0.01/20 + 0.01/20 + 0.01/20 + 0.01/20 + 0.01/20 + 0.01/20 + 0.01/20 + 0.01/20 + 0.01/20 + 0.01/20 + 0.01/20 + 0.01/20 + 0.01/20 + 0.01/20 + 0.01/20 + 0.01/20 + 0.01/20
= 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
Requirement 2:
Correct response
Requirement 2:
Compute the break-even point for the company

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

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"
Expected increase in net operating

income
Expected increase in net operating income

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.
Your response
Correct response
Problem 6-19 Basics of CVP Analysis [LO1, LO3,

LO4,6-19
LO6,
LO8]of CVP Analysis [LO1, LO3, LO4, LO6, LO8]
Problem
Basics
Feather Friends, Inc., distributes a high-qualityFeather
wooden
birdhouse
sells fora $20
per
Friends,
Inc.,that
distributes
high-quality
wooden birdhouse that sells for $20 per
unit. Variable costs are $8 per unit, and fixed costs
$180,000
unit.total
Variable
costsper
areyear.
$8 per unit, and fixed costs total $180,000 per year.
Requirement 1:
Requirement 1:
What is the product's CM ratio? (Omit the "%"What

signisinthe
your
response.)
product's
CM ratio? (Omit the "%" sign in your response.)
CM ratio
(0%) %
CM ratio
60 %

Feedback:
Sales price
Variable expenses
Contribution margin
$20
100%
40%
$12
60%
Your response
Requirement 2:
Correct response
Requirement 2:
Use the CM ratio to determine the break-even point

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

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?
decrease) assuming that fixed costs do not change?

income
5000
$ 45,000

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

Assume that the operating results for last year were:
Sales
$ 400,000
Variable expenses
160,000
Contribution margin
240,000
Fixed expenses
180,000
Sales
$ 60,000
$ 400,000
Variable expenses
160,000
Contribution margin
240,000
Fixed expenses
180,000
$ 60,000
(a
Compute the degree of operating leverage at (a
the current level of sales.
)
Compute the degree of operating leverage at the current level of sales.
)
Degree of operating
leverage
50
(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.)

income
(0%)
80
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
manager is convinced that a 10% reduction in the selling price, combined with a $30,000
Refer to the original data. Assume that the company sold 18,000 units last year. The sales
increase in advertising, would cause annual sales in units to increase by one-third.
manager is convinced that a 10% reduction in the selling price, combined with a $30,000
increase in advertising, would cause annual sales in units to increase by one-third.
(a Prepare two contribution format income statements, one showing the results of last
) year's operations and one showing the results of operations if these changes are made.
(a Prepare two contribution format income statements, one showing the results of last
Show both total and per unit data on your statements.
) year's operations and one showing the results of operations if these changes are made.
response.)
Show both total and per unit data on your statements.
response.)
Last Year:
18,000 units
18,000 units
Amount
Amount
Sales
500000
(0%)
$
Sales
Variable
expenses
200000
Contribution
margin
300000
(0%)
50000
(0%)
Fixed expenses
Net operating
income
295000
360,000
(0%)
Variable expenses
144,000
Contribution margin
216,000
Fixed expenses
180,000

$
36,000
(0%)
Total grade: 0.01/16 + 0.01/16 + 0.01/16 + 0.01/16 + 0.01/16 + 0.01/16 + 0.01/16 + 0.01/16 + 0.01/16 + 0.01/16 + 0.01/16 + 0.01/16 + 0.01/16 + 0.01/16 + 0.01/16 + 0.01/16 = 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:
Choice
Selected
Yes
No
Feedback:
No, the changes should not be made.
Your response
Requirement 6:
Correct response
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 $1 per unit. He thinks that this move, combined with some increase in
advertising, would increase annual sales by 25%. By how much could advertising be
advertising, would increase annual sales by 25%. By how much could advertising be
increased with profits remaining unchanged?
increased with profits remaining unchanged?
the incremental analysis approach. Omit the "$" sign in your response.)
the incremental analysis approach. Omit the "$" sign in your response.)
The amount by which advertising can be

increased
The amount by which advertising can be increased

Feedback:
Expected total contribution margin:

18,000 units 1.25 $11 per unit*
$ 247,500
Correct
Present total contribution margin:

216,000
Incremental contribution margin, and the amount by which

advertising can be increased with net operating income
remaining unchanged
$ 31,500
*$20 ($8 + $1) = $11

1 - Example Problems Ch. 5 6

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1 - Example Problems Ch. 5 6

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Homew ork for Ch tad9000

Question 1: Score 0/4

Exercise 5-1 Fixed and Variable Cost Behavior [LO1]

Average cost per cup

Average cost per cup of coffee served

Question 2: Score 0/4

Exercise 6-2 Prepare a Cost-Volume-Profit (CVP) Graph [LO2]

(0%) unitsBreak-even point in sales

Total grade: 0.01/1 = 0%

Question 3: Score 2.6/4

Exercise 5-3 High-Low Method [LO3]

Exercise 5-3 High-Low Method [LO3]

The Cheyenne Hotel in Big Sky, Montana, hasThe

Total grade: 1.01/2 + 0.01/2 = 50% + 0%

$ 1.56 per occupancy day

High activity level

Low activity level

= Change in cost Change in activity

= $3,560 2,282 occupancy-days

Total cost (August)

Fixed cost will not be affected by the number of days in a month

Total correct answers: 2

Question 4: Score 2.48/4

Exercise 5-4 Contribution Format Income Statement

The Alpine House, Inc.

The Alpine House, Inc.

Cost of goods sold

Cost of goods sold

Selling and administrative expenses:

Selling and administrative expenses:

Net operating income

Net operating income

Skis sell, on the average, for $750 per pair. Variable

Prepare a contribution format income statement

The Alpine House, Inc.

Cost of goods sold

The Alpine House, Inc.

Cost of goods sold

Net operating income

Cost of goods sold (200 pairs* $450 per pair)

Variable selling expenses (200 pairs $50 per pair)

Variable administrative expenses (20% $10,000)

Fixed selling expenses [$30,000 (200 pairs $50

Fixed administrative expenses (80% $10,000)

*$150,000 $750 per pair = 200 pairs

For every pair of skis sold during the quarter, what

Contribution margin per pair

Contribution margin per pair

Total grade: 0.01/1 = 0%

Selling price per pair

Question 5: Score 1.2/4

Units Produced and Sold

Net operating income

Question 6: Score 0.66/4

Total grade: 0.01/2 + 0.01/2 = 0% + 0%

Low activity level

Variable cost element:

Fixed cost element:

Shipping expense at the high activity level

Less variable cost element ($250 per unit 8

Weight of the units shipped

Size of the units shipped

Total correct answers: 3