Page 1 Quiz – Chapter 6 – Solution 1. Rider Company sells a single product. The product has a selling price of $40 per unit and variable expenses of $15 per unit. The company's fixed expenses total $30,000 per year. The company's break-even point in terms of total dollar sales is: A) $100,000. B) $80,000. C) $60,000. D) $48,000. The answer is d. CMR = (P-V)/P = ($40 - $15)/$40 = 62.5% Px = F/ (CMR) Px = $30,000/.625 = $48,000 Use the following to answer questions 2-3: Weiss Corporation produces two models of wood chairs, Colonial and Early American. The Colonial sells for $60 per chair and the Early American sells for $80 per chair. Variable expenses for each model are as follows: Colonial Early AmericanVariable production cost per unit....... $35 $48 Variable selling expense per unit ....... 9 8 Total fixed expenses are $39,600 per month. Expected monthly sales are: Colonial, 1,800 units; Early American, 600 units. 2. The contribution margin per chair for the Colonial model is: A) $51. B) $16. C) $35. D) $25. The answer is b. CM = P-V = $60 - $35 - $9 = $16.Page 2 3. If the sales mix and sales units are as expected, the break-even in sales dollars is closest to: A) $132,000. B) $148,500. C) $143,000. D) $139,764. ANSWER: C Construct an income statement for the company: Sales (1800 x60=108K)+(600x80=48K) $156,000 VC (1800 x44=79.2K)+(600x56=33.6K) -112,800 CM 43,200 Fixed Costs: -39,600 Oper. Profits: -$8,400 The Contribution Margin Ratio for the Company is 27.6923% You can also get the Contribution Margin Ratio for the Company by calculating the individual Contribution Margin Ratios for each product: Colonial Early American Price: $60 $80 Variable Costs: -44 -56 Contribution Margin: $16 $24 Contribution Margin Ratio: 26.67% 30% What you have to remember, however, is that the product mix (when calculating Contribution Margin Ratios) is based on relative sales revenue of the product (not the relative units sold): Colonial Early American Product Sales Revenue: $108K $48K ÷Total Sales Revenue: ÷ 156K ÷ 156K Product Mix: 69.23% 30.77% Weighted Average Contribution Margin Ratio: .6923(.2667) +..3077(.30)= .18463641 +..09231=.2769461 The difference between the two Contribution Margin Ratios for the Company is due to rounding. Using Formula B, you get the Break Even point in Dollars PX = F/CMR = $39,600/.276923 = $143,000Page 3 In this question, you had enough information to use Formula A. For example, using the Weighted Average Method: Weighted Average Contribution Margin: .75(16) + .25(24) = 12+6 = $18 X = F/CMU = $39,600/$18 = 2,200 units Colonial Sales Revenue: .75(2,200) = 1,650 x $60 = $99,000 Early American Revenue: .25(2,200) = 550 x $80 = 44,000 $143,000 Use the following to answer questions 4-5: Southwest Industries produces a sports glove that sells for $15 per pair. Variable expenses are $8 per pair and fixed expenses are $35,000 annually. 4. The break-even point for Southwest industries is: A) 8,000 pairs. B) 5,000 pairs. C) 4,375 pairs. D) 2.333 pairs. The answer is b. X = F/(P-V) = $35,000/($15-$8) = 5,000Page 4 5. The contribution margin ratio is closest to: A) 46.7%. B) 53.3%. C) 33.3%. D) 42.9%. The answer is a. CMR = (P-V)/P = ($15 - $8)/$15 = 46.667% Use the following to answer questions 6-8: Budget data for the Bidwell Company are as follows: Fixed Variable Sales (100,000 units)..................... $1,000,000Expenses: Raw materials............................. $300,000 Direct labor ................................ 200,000 Overhead .................................... $100,000 150,000 Selling and administrative.......... 110,000 50,000 Total expenses ............................... $210,000 $700,000 910,000Net operating income.................... $ 90,000 6. Bidwell's break-even sales in units is: A) 30,000 units. B) 91,000 units. C) 60,000 units. D) 70,000 units. The answer is d. Contribution Margin For Company: Sales Revenue – Variable Costs $1,000,000 - $700,000 = $300,000 Contribution Margin Per Unit = $300,000/100,000 = $3 X = F/CMU = $210,000 / 3 = 70,000 unitsPage 5 7. The number of units Bidwell would have to sell to earn a net operating income of $150,000 is: A) 100,000 units. B) 120,000 units. C) 112,000 units. D) 145,000 units. The answer is b. X = F + Operating Profit/ CMU = $210,000 +$150,000 / 3 = 120,000 units 8. If fixed expenses increased $31,500, the break-even sales in units would be: A) 34,500 units. B) 80,500 units. C) 69,000 units. D) 94,500 units. The answer is b. X = F/CMU = ($210,000 + $31,500) / 3 = 80,500 unitsPage 6 Use the following to answer questions 9-10: Henning Corporation produces and sells two models of hair dryers, Standard and Deluxe. The company has provided the following data relating to these two products: Standard DeluxeSelling price ......................................................... $40 $55Variable production cost ...................................... $10 $16Variable selling and administrative expense ....... $15 $12Expected monthly sales in units........................... 600 1,200 The company's total monthly fixed expense is $13,800. 9. The break-even in sales dollars for the expected sales mix is (rounded): A) $36,800. B) $30,000. C) $28,105. D) $31,222. Standard Deluxe Price: $40 $55 Variable Production Cost: -10 -16 Variable Selling Expense: -15 -12 Contribution Margin: $15 $27 Contribution Margin Ratio: 37.5% 49.09% Sales Mix 33% 67% The answer is b. Weighted Average Contribution Margin Ratio: .33(.375) + .67(.4909) = .125 +.327 = .452 Px = F/CMR = $13,800/.452 = $30,531. Weighted Average Contribution Margin: .33(15) + .67(27) = 5+18 = $23 X = F/CMU = $13,800/23 = 600 Standard: .33(600) = 200 x $40 = $8,000 Deluxe: .67(600) = 400 x $55 = 22,000 $30,000Page 7 10. If the expected monthly sales in units were divided equally between the two models (900 Standard and 900 Deluxe), the break-even level of sales would be: A) lower than with the expected sales mix. B) higher than with the expected sales mix. C) the same as with the expected sales mix. D) cannot be determined with the available data. The answer is b. If the sales mix was
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