Chapt

er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Tr
ue/
Fal
seQuest
ions

1.Onewaytocomputet
hetot
alcont
ri
but
ionmar
gini
stoaddt
otal
fixedexpenses
t
onetoperat
ingi
ncome.

Ans:
  
True AACSB: 
 Ref
lect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Level
: 
 Medi
um

2.OnaCVPgraphforaprof
it
abl
ecompany
,thet
otal
rev
enuel
i
newi
l
lbest
eeper
t
hant
hetot
alcostli
ne.

Ans:
  
True AACSB:
  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Level
:
  
Easy

3.I
nt wocompani esmakingt hesameproductandwi t
hthesametot
alsal
esand
totalexpenses,thecontr
ibuti
onmargi
nrati
owi l
lbeloweri
nthecompanywi
tha
higherproporti
onoff i
xedexpensesinit
scoststructur
e.

Ans:
  
Fal
se AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Medi
um

4.I
fthev
ari
ableexpenseperuni
tincreases,andal
lot
herf
act
orsr
emai
nconst
ant
,
t
hecontr
ibut
ionmarginrat
iowil
lincrease.

Ans:
  
Fal
se AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Medi
um

5.Theimpactonnetoper
ati
ngincomeofanygiv
endoll
archangeintot
alsales
canbeesti
matedbymulti
ply
ingtheCM r
ati
obythedol
larchangei
ntotal
sales.

Ans:
  
True AACSB: 
 Ref
lect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Level
: 
 Easy

6.Acompanywi thsal
esof$70,000andvar
iabl
eexpensesof$40,000shoul
d
spend$10,000onincr
easedadver
ti
singi
ftheincr
easedadver
ti
singwil
l
i
ncreasesalesby$20,
000.

Ans:
  
Fal
se AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Medi
um

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
7
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

7.Thefor
mulaforthebreak-
evenpointi
sthesameastheformulat
oattai
na
gi
ventar
getprof
itfort
hespecial
casewherethet
argetprof
iti
szero.

Ans:
  Tr
ue AACSB: 
 Refl
ect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5;
 6 Level
:
  
Medi um

8.Ani
ncr
easeint
otal
fixedexpenseswi
l
lnotaff
ectthebr
eak-
evenpoi
ntsol
ong
ast
hecont
ri
but
ionmar gi
nrati
oremai
nsunchanged.

Ans:
  
Fal
se AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Medi
um

9.Allot
herthi
ngsthesame,ar
educt
ioni
nthev
ari
abl
eexpenseperuni
twi
l
lcause
thebreak-
evenpoi
nttori
se.

Ans:
  
Fal
se AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Medi
um

10.Theuni
tsal
esvol
umenecessar
ytoreachat
argetpr
ofi
tisdet
ermi
nedby
di
vi
dingt
hetar
getpr
ofi
tbythecont
ri
buti
onmargi
nperunit
.

Ans:
  
Fal
se AACSB:
 
 Ref
lect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 6 Lev
el:
  
Medi
um

11.All
othert
hingsthesame,themargi
nofsafetyi
ndol
larsatagi
venl
evelofsales
wil
ltendt
obel owerforacapi
tal
-i
ntensi
vecompanythanforal
abor
-i
ntensiv
e
companywi t
hhighvari
abl
eexpenses.

Ans:
  
True AACSB:
 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 7 Level
:
  
Medi
um

12.Themargi
nofsafet
yindol
lar
sequal
stheexcessofbudget
ed(
oract
ual
)sal
es
overt
hebr
eak-
evenv ol
umeofsal
es.

Ans:
  
True AACSB: 
 Ref
lect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 7 Level
: 
 Easy

13.Acompanywit
hhighoper
ati
ngl
ever
agewil
lexper
iencealowerr
educt
ioni
nnet
oper
ati
ngi
ncomeinaperi
odofdecl
ini
ngsal
esthanwill
acompanywi t
hlow
oper
ati
ngl
ever
age.

Ans:
  
Fal
se AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 8 Lev
el:
 
 Medi
um

6-
8 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

14.IfQisthequanti
tyofaproductsold,Pist
hepr i
ceperuni
t,Visthevar
iable
expenseperunit
,andFisthetotalfi
xedexpense,t
henthedegreeofoperati
ng
l
everageisequalto:
[Q(
P-V)]÷[Q(P-V)-
F]

Ans:
  
True AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 8 Level
:
  
Hard

15.Ashifti
nthesalesmixf
rom pr
oductswi
thhi
ghcontr
ibut
ionmargi
nrati
os
towardproduct
swit
hlowcontri
but
ionmargi
nrat
ioswil
lrai
set
hebreak-
even
point
.

Ans:
  
True AACSB:
 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 9 Level
:
  
Medi
um

Mul
ti
pleChoi
ceQuest
ions

16.Cont
ri
but i
onmargi
ncanbedef i
nedas:
A) t heamountofsalesr
evenuenecessarytocov
erv
ar i
abl
eexpenses.
B) sal esrev
enueminusfi
xedexpenses.
C) t heamountofsalesr
evenuenecessarytocov
erf
ixedandvari
able
expenses.
D) sal esrev
enueminusvari
ableexpenses.

Ans:
  
D AACSB: 
 Ref
lect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

17.Whi
chofthef
ollowingstatementsi scor r
ectwithregardtoaCVPgr aph?
A) ACVPgr aphshowst hemaxi mum possi bleprofi
t.
B) ACVPgr aphshowst hebreak-ev enpointastheintersect
ionofthetotal
sal
esrevenuelineandt hetotal expenseli
ne.
C) ACVPgr aphassumest hatt
otal expensev ar
iesindir
ectproporti
ontounit
sal
es.
D) ACVPgr aphshowst heoperatingleverageast hegapbetweent otal
sales
rev
enueandt otalexpenseatt heact uall
evelofsales.

Ans:
  
B AACSB: 
 Ref
lect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 2 Lev
el:
 
 Easy

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
9
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

18.I
fbotht
hef i
xedandv ar
iabl
eexpensesassoci
atedwit
haproductdecrease,
whatwi
llbetheef
fectonthecontr
ibut
ionmargi
nrati
oandt
hebr eak-
evenpoint
,
r
espect
ivel
y?

Cont
ributi
onmargi
n Break-even
rati
o point
A) Decrease Increase
B) Increase Decrease
C) Decrease Decrease
D) Increase Increase

Ans:
  B AACSB: 
 Anal
yti
c AI
CPA BB: 
 Cr
iti
cal
 Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3;
 5 Lev
el:
 
 Medium Source:
  
CMA; adapted

19.Whichofthefoll
owi ngi
str
ueregardingthecont r
ibuti
onmar gi
nratioofasi ngl
e
pr
oductcompany ?
A) Asf ixedexpensesdecrease,thecontribut
ionmar ginrat
ioi
ncreases.
B) Thecont ri
but i
onmarginrat
iomul ti
pli
edbyt hesell
ingpri
ceperuni tequal
s
thecontri
butionmargi
nperuni t.
C) Thecont ributi
onmarginrat
iowi l
ldeclineasunitsalesdecl
ine.
D) Thecont ributi
onmarginrat
ioequal stheselli
ngpriceperunitlessthe
vari
ableexpenserati
o.

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Medi
um

20.I
facompanyisoperat
ingatthebreak-
evenpoint:
A) it
scontri
but
ionmar gi
nwillbeequalt
oi t
sv ari
abl
eexpenses.
B) it
smarginofsafetywil
lbeequaltozero.
C) it
sfi
xedexpenseswi l
lbeequaltoit
svariableexpenses.
D) it
ssell
i
ngpricewillbeequaltoi
tsvari
ableexpenseperunit
.

Ans:
  B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5;
 7 Lev
el:
 
 Medium

21.Att
hebr
eak-
evenpoi
nt:
A) sal
eswouldbeequal
tocont
ri
buti
onmar gi
n.
B) cont
ri
buti
onmargi
nwouldbeequaltofi
xedexpenses.
C) cont
ri
buti
onmargi
nwouldbeequaltonetoper
ati
ngincome.
D) sal
eswouldbeequal
tofi
xedexpenses.

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Medi
um

6-
10 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

22.Thebr
eak-
ev enpointwouldbeincr
easedby:
A) adecreasei ntot
alfi
xedexpenses.
B) adecreasei ntherat
ioofvari
abl
eexpensestosal
es.
C) anincreaseinthecontri
buti
onmarginr
atio.
D) noneoft hese.

Ans:
  
D AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Medi
um

23.Whi
choft
hef
oll
owi
ngst
rat
egi
escoul
dbeusedt
oreducet
hebr
eak-
evenpoi
nt?

Fi
xedexpenses Cont
ribut
ionmargi
n
A) Incr
ease Incr
ease
B) Decrease Decrease
C) Decrease Incr
ease
D) Incr
ease Decrease

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Easy

24.Br
eak-
evenanalysisassumesthat :
A) Totalrevenueisconstant
.
B) Unitvari
ableexpenseisconst ant
.
C) Unitfi
xedexpensei sconstant.
D) Sell
ingpricesmustfalli
nor dertogener
atemor
erev
enue.

Ans:
  
B AACSB: 
 Ref
lect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Easy

25.Tar
getprof
itanal
ysi
sisusedt
oanswerwhichoft hefol
lowi
ngquest
ions?
A) Whatsal esvol
umeisneededt
ocoverallexpenses?
B) Whatsal esvol
umeisneededt
ocoverfi
xedexpenses?
C) Whatsal esvol
umeisneededt
oearnaspeci fi
camountofnetoperat
ing
i
ncome?
D) Whatsal esvol
umeisneededt
oavoidaloss?

Ans:
  
C AACSB: 
 Ref
lect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 6 Lev
el:
 
 Easy

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
11
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

26.Themar
ginofsafet
ycanbecal cul
atedby:
A) Sal
es−( Fi
xedexpenses/Contr
ibut
ionmar gi
nrati
o).
B) Sal
es−( Fi
xedexpenses/Vari
ableexpenseperunit
).
C) Sal
es−( Fi
xedexpenses+Var i
ableexpenses).
D) Sal
es−Netoper at
ingincome.

Ans:
  
A AACSB: 
 
Refl
ect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 7 Lev
el:
 
 Medi
um

27.Ift
hedegreeofoperati
ngleveragei
s4,thenaoneper
centchangei
nquant
it
y
sol
dshouldresulti
naf ourper
centchangein:
A) unitcontri
buti
onmar gin.
B) revenue.
C) v ar
iabl
eexpense.
D) netoper at
ingincome.

Ans:
  
D AACSB:  
 Anal
yti
c AI CPA 
BB: 
 Cr
iti
cal
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 8 Lev
el:
 
 Easy Sour ce:
 
 CMA; 
adapted

28.Whichoft hefol
lowi
ngisthecorrectcalcul
ationforthedegreeofoper
ati
ng
l
everage?
A) netoper at
ingi
ncomedividedbyt otal
expenses.
B) netoper at
ingi
ncomedividedbyt otal
cont r
ibuti
onmar gi
n.
C) t otalcontr
ibut
ionmargi
ndi vi
dedbynetoper at
ingincome.
D) v ariabl
eexpensediv
idedbyt otalcont
ributi
onmar gin.

Ans:
  
C AACSB: 
 Ref
lect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 8 Lev
el:
 
 Easy

29.Whi
chofthefoll
owingisanassumpt ionunder l
yi
ngst andar
dCVPanal
ysi
s?
A) Inmulti
productcompani es,thesal esmi xisconstant.
B) Inmanufacturi
ngcompani es,i
nv entor
iesal wayschange.
C) Thepriceofapr oductorser vi
cei sexpectedt ochangeasvol
ume
changes.
D) Fixedexpenseswi l
lchangeasv olumei ncreases.

Ans:
  
A AACSB: 
 Ref
lect
ive 
Thi
nki
ng AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 9 Lev
el:
 
 Easy

6-
12 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

30.Hopi
Cor
por
ati
onexpect
sthef
oll
owi
ngoper
ati
ngr
esul
tsf
ornexty
ear
:

$400,
00
Sal
es 0
$100,
00
Marginofsaf
ety 0
Contri
but
ionmargi
nrat
io 75%
Degreeofoper
ati
nglev
erage 4

Whati
sHopiexpect
ingt
otal
fixedexpensest
obenexty
ear
?
A) $75,
000
B) $100,
000
C) $200,
000
D) $225,
000

Ans:
  D AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1;
 3;
 
8 Level
:  
Hard

Sol
uti
on:

Currentsal
es-Breakevensales=Mar gi
nofsaf et
y
Substit
uti
ngthegiveninformat
ionintotheaboveequat
ion,wewi
l
lhav
e:
$400,000−Breakevensal es=$100,000
Breakevensal
es=$300, 000
Breakevensal
es=Fi xedexpenses÷Cont ri
buti
onmarginrati
o
Substit
uti
ngthegiveninformat
ionintotheaboveequat
ion,wewi
l
lhav
e:
$300,000=Fixedexpenses÷0. 75
Fi
xedexpenses=$225, 000

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
13
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

31.EscarenoCorpor
ati
onhaspr
ovidedi
tscontr
ibuti
onformati
ncomest
atement
forJune.Thecompanypr
oducesandsell
sasi ngl
eproduct
.

$764,40
Sal
es(
8,400uni
ts) 0
 
445,20
Vari
ableexpenses 0
Contr
ibut
ionmar gi
n 319,200
 
250,90
Fi
xedexpenses 0
$ 
68,30
Netoper
ati
ngi
ncome 0

I
fthecompanysel
l
s8,
200uni
ts,
itst
otal
cont
ri
but
ionmar
ginshoul
dbecl
osest
to:
A) $301,000
B) $311,600
C) $319,200
D) $66,674

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Curr
entcont
ri
buti
onmargi
n÷Cur rentsal
esinuni
ts=Contr
ibuti
onmarginper
uni
t
$319,
200÷8,400=$38contr
ibut
ionmar gi
nperunit
I
f8,200uni
tsaresol
d,t
hetot
alcontri
buti
onmarginwil
lbe8,200×$38,or
$311,
600.

32.Rovi
nskyCorpor
ation,acompanythatpr
oducesandsell
sasingl
epr
oduct
,has
pr
ovidedi
tscontr
ibuti
onformati
ncomest at
ementforNovember
.

$319,20
Sal
es(
5,700uni
ts) 0
 
188,10
Vari
ableexpenses 0
Contr
ibut
ionmar gi
n 131,100
 
106,50
Fi
xedexpenses 0
$ 
24,60
Netoper
ati
ngi
ncome 0

6-
14 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

I
fthecompanysel
l
s5,
300uni
ts,
itsnetoper
ati
ngi
ncomeshoul
dbecl
osestt
o:
A) $24,600
B) $2,200
C) $22,874
D) $15,400

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
15
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Sol
uti
on:

Curr
entsal
esdoll
ars÷Curr
entsalesinuni
ts=Salespr
iceperunit
$319,
200÷5,700=$56salespriceperuni
t
Curr
entvar
iabl
eexpenses÷Currentsal
esinuni
ts=Variabl
eexpenseperuni
t
$188,
100÷5,700=$33v ar
iabl
eexpenseperuni
t

Sales( 5,
300units×$56) $296,
800
Variableexpenses(5,
300uni
ts×
$33)  
 174,
900
Cont r
ibuti
onmar gi
n 121,
900
Fi
xedexpenses  
 106,
500
Netoper ati
ngincome $15,400

33.Sori
nInc.
, acompanythatpr
oducesandsel
l
sasingl
epr
oduct
,haspr
ovi
dedi
ts
cont
ribut
ionfor
matincomest at
ementf
orJanuar
y.

$155,40
Sal
es(
4,200uni
ts) 0
 
100,80
Vari
ableexpenses 0
Contr
ibut
ionmar gi
n 54,600
Fi
xedexpenses  
  
42,400
$ 
12,20
Netoper
ati
ngi
ncome 0

I
fthecompanysel
l
s4,
600uni
ts,
itst
otal
cont
ri
but
ionmar
ginshoul
dbecl
osest
to:
A) $54,600
B) $59,800
C) $69,400
D) $13,362

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Cur
rentcont
ri
but
ionmar
gin÷Cur
rentsal
esi
nuni
ts=Cont
ri
but
ionmar
ginper
uni
t
$54,
600÷4,200=$13cont
ri
buti
onmargi
nperuni
t
I
f4,600uni
tsar
esold,
thet
otal
cont
ri
buti
onmargi
nwi
l
lbe4,
600×$13,
or
$59,
800.

6-
16 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
17
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

34.Decapr
ioInc.pr
oducesandsel
l
sasi ngl
eproduct
.Thecompanyhaspr
ovi
ded
i
tscontr
ibuti
onfor
matincomestat
ementforJune.

$528,00
Sal
es(
8,800uni
ts) 0
 
290,40
Vari
ableexpenses 0
Contr
ibut
ionmar gi
n 237,600
 
211,70
Fi
xedexpenses 0
$ 
25,90
Netoper
ati
ngi
ncome 0

I
fthecompanysel
l
s9,
200uni
ts,
itsnetoper
ati
ngi
ncomeshoul
dbecl
osestt
o:
A) $27,077
B) $49,900
C) $36,700
D) $25,900

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Curr
entsal
esdoll
ars÷Curr
entsalesinuni
ts=Salespr
iceperunit
$528,
000÷8,800=$60salespriceperuni
t
Curr
entvar
iabl
eexpenses÷Currentsal
esinuni
ts=Variabl
eexpenseperuni
t
$290,
400÷8,800=$33v ar
iabl
eexpenseperuni
t

$552,00
Sal
es(
9,200uni
ts×$60) 0
 
303,60
Vari
ableexpenses(9,
200uni
ts×$33) 0
Contr
ibut
ionmar gi
n 248,400
 
211,70
Fi
xedexpenses 0
$ 
36,70
Netoper
ati
ngi
ncome 0

6-
18 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

35.TheBr
oncoBi
rdf
eedCompanyr
epor
tedt
hef
oll
owi
ngi
nfor
mat
ion:

$100,
00
Sal
es( 400cases) 0
Vari
ableexpenses 60,
000
Contr
ibuti
onmar gi
n 40,
000
Fi
xedexpenses 35,
000
Netoperati
ngincome $5,
000

Howmuchwi l
lthesal
eofoneaddi
ti
onal
caseaddt
oBr
onco'
snetoper
ati
ng
i
ncome?
A) $250.00
B) $100.00
C) $150.00
D) $12.50

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Currentcontr
ibut
ionmargi
n÷Cur rentsalesi
ncases=Cont
ribut
ionmar
ginper
case
$40,000÷400=$100cont ribut
ionmar gi
npercase
Ifoneadditi
onalcasei
ssold,netoperati
ngincomewi
ll
incr
easeby$100.

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
19
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

36.Themar ginofsaf
etyi
ntheFl
aher
tyCompanyis$24,
000.I
fthecompany'
ssal
es
are$120,000anditsv
ari
abl
eexpensesar
e$80,000,
it
sfi
xedexpensesmustbe:
A) $8, 000
B) $32, 000
C) $24, 000
D) $16, 000

Ans:
  B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3;
 5;
 
7 Level
:  
Hard

Sol
uti
on:

Currentsales-Br eakevensales=Mar ginofsafet

y
Substit
uti
ngt hegi veninformati
onint
ot heaboveequati
on,wewi
l
lhav
e:
$120,000-Br eakev ensales=$24,000
Breakevensal es=$96, 000
Sales-Var i
ableexpenses=Cont ri
buti
onmar gi
n
$120,000-$80, 000=$40, 000
Contri
butionmar ginr at
io=Cont ri
but
ionmar gi
n÷Sales
Contri
butionmar ginr at
io=$40, 000÷$120,000
Contri
butionmar ginr at
io=0.33333
Breakevensal es=Fi xedcosts÷Cont ri
buti
onmar gi
nrat
io
Substit
uti
ngt hegi veninformati
onint
ot heaboveequati
on,wewi
l
lhav
e:
$96,000=Fi xedcost s÷0. 33333
Fi
xedcost s=$32, 000

6-
20 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

37.DoderoCompanypr oducesasi nglepr oductwhi chsell

sfor$100perunit.
Fixed
expensestotal$12,
000permont h,andv ar
iableexpensesare$60perunit.The
company '
ssalesaver age500uni tspermont h.Whi chofthefoll
owing
stat
ementsiscor r
ect ?
A) Thecompany '
sbr eak-evenpoi ntis$12, 000permont h.
B) Thef i
xedexpensesr emainconst antat$24peruni tforanyacti
vi
tyl
evel
wi
thi
nther el
ev antrange.
C) Thecompany '
scont ribut
ionmar ginrati
oi s40%.
D) ResponsesA, B, andCar eallcorrect.

Ans:
  C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3;
 5 Lev
el:
 
 Medium

Sol
uti
on:

AnswerAi snotcorr
ectbecause:
Sal
es=Var iabl
eexpenses+Fixedexpenses+Pr ofi
t
$100Q=$60Q+$12, 000+$0
$40Q=$12, 000
Q=$12, 000÷$40peruni t=300uni t
s
300units×$100selli
ngpr i
ceperunit=$30,000breakevensalesi
ndoll
ars
AnswerBi snotcorr
ectbecausefixedcostschangeasact i
vi
tylev
elchanges
AnswerCi scorr
ectbecause:
Contr
ibuti
onmar gi
nperunit=Sell
ingpr i
ceperunit-Vari
abl
eexpensesperunit
=$100-$60=$40
Contr
ibuti
onmar gi
nrati
o=Cont ri
butionmarginperunit÷Sell
i
ngpr i
ceperuni
t
Contr
ibuti
onmar gi
nrati
o=$40÷$100
Contr
ibuti
onmar gi
nrati
o=40%

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
21
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

38.HoltCompany '
svari
ableexpensesar
e70%ofsal
es.Ata$300,
000sal
esl
evel
,
thedegreeofoperat
inglever
ageis10.I
fsal
esi
ncr
easeby$60,
000,t
hedegr
ee
ofoperati
nglever
agewi l
lbe:
A) 12
B) 10
C) 6
D) 4

Ans:
  D AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3;
 8 Lev
el:
 
 Hard

Sol
uti
on:

$300,
00
Sal
es 0
 
210,
00
Vari
ableexpenses($300,
000×70%) 0
Contr
ibuti
onmar gi
n 90,
000
Fi
xedexpenses   ?
Netoperati
ngincome $  ?

Curr
entdegr eeofoper atingl
everage=Cur rentcontr
ibut
ionmar
gin÷Cur
rent
netoperatingincome
10=$90, 000÷Cur rentnetoperati
ngincome
Curr
entnetoper ati
ngincome=$90, 000÷10=$9, 000
Contr
ibutionmar gi
n=Fi xedexpenses-Netoper ati
ngincome
$90,
000=Fi xedexpenses-$9, 000
Fi
xedexpenses=$90, 000-$9,000=$81, 000

$360,
00
Sal
es(
$300,
000+$60,
000) 0
 
252,
00
Vari
ableexpenses($360,
000×70%) 0
Contr
ibut
ionmar gi
n 108,
000
Fi
xedexpenses 81,
000
$27,
00
Netoper
ati
ngi
ncome 0

Degr
eeofoper
ati
ngl
ever
age=Cont
ri
but
ionmar
gin÷Netoper
ati
ngi
ncome
=$108,
000/
$27,
000=4.0

6-
22 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

39.GayneCorporat
ion'
scontri
but
ionmarginrati
ois12%andi t
sfixedmont
hly
expensesare$84,
000.Ift
hecompany'ssalesforamonthare$738,
000,whati
s
thebestesti
mateofthecompany'
snetoper at
ingincome?Assumethatthe
fi
xedmont hl
yexpensesdonotchange.
A) $565, 440
B) $654, 000
C) $88, 560
D) $4, 560

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Easy

Sol
uti
on:

$738,
00
Sal
es 0
 
649,
44
Vari
ableexpenses($738,
000×88%) 0
Contr
ibuti
onmar gi
n($738,
000×12%) 88,560
Fi
xedexpenses  84,000
Netoperati
ngincome $ 4,560

40.Ji
lkInc.
'
scont ri
buti
onmargi
nrati
ois58%anditsfi
xedmonthl
yexpensesar
e
$36,
000.Assumi ngthatt
hefi
xedmonthl
yexpensesdonotchange,
whatist
he
bestest
imat eofthecompany'
snetoper
ati
ngincomeinamonthwhensales
are$103,000?
A) $23, 740
B) $59, 740
C) $67, 000
D) $7, 260

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Easy

Sol
uti
on:

$103,00
Sal
es 0
Vari
ableexpenses($103,
000×42%)  43, 260
Contr
ibuti
onmar gi
n($103,
000×58%) 59, 740
Fi
xedexpenses  36, 000
$ 
23,74
Netoperati
ngincome 0

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
23
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

6-
24 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

41.Cr
eswellCorporat
ion'
sfi
xedmont hl
yexpensesar
e$29,000andi
tscont
ri
bution
margi
nrati
oi s56%.Assumingthatthefi
xedmonthl
yexpensesdonotchange,
whati
sthebestest i
mateofthecompany '
snetoper
ati
ngincomeinamont h
whensal
esar e$95,000?
A) $12,800
B) $24,200
C) $53,200
D) $66,000

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Easy

Sol
uti
on:

Sal
es $95,
000
Vari
ableexpenses($95,
000×44%)  
41,
800
Contr
ibuti
onmar gi
n($95,
000×56%) 53,
200
Fi
xedexpenses  
29,
000
Netoperati
ngincome $24,
200

42.Wil
sonCompanypreparedt
hef
oll
owi
ngpr
eli
minar
ybudgetassumi
ngno
adv
ert
isi
ngexpendi
tur
es:

$10per
Sel
li
ngpri
ce uni
t
Uni
tsal
es 100,
000
Var
iabl
eexpenses $600,
000
Fi
xedexpenses $300,
000

Basedonamar ketstudy
,thecompanyest i
mat edthatitcoul
dincr
easetheuni
t
sel
li
ngpriceby15%andincreasetheunitsal
esv ol
umeby10%i f$100,
000were
spentonadvert
isi
ng.Assumingthatthesechangesar eincor
poratedi
nits
budget,
whatshouldbethebudget ednetoperati
ngincome?
A) $175, 000
B) $190, 000
C) $205, 000
D) $365, 000

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA BB:
 
 Cri
ti
cal
 Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Medi
um Source:
 
 CPA;
 adapt
ed

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
25
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Sol
uti
on:

$1,
265,
00
Sal
es( 110,
000units×$11.
50) 0
Vari
ableexpenses(110,
000uni
ts×$6*) 660,000
Contr
ibuti
onmar gi
n 605,
000
Fi
xedexpenses( $300,
000+$100,
000) 400,
000
Netoperati
ngincome $ 205,
000

*Curr
entv
ari
abl
eexpenses÷Curr
entsalesi
nunit
s=Var
iabl
eexpenseperuni
t
$600,
000÷100,
000=$6v ar
iabl
eexpenseperuni
t

43.Dat
aconcer
ningKar
dasCor
por
ati
on'
ssi
ngl
epr
oductappearbel
ow:

Per Per
centof
Unit Sal
es
Sel
li
ngprice $140 100%
Vari
ableexpenses  
  
28  
20%
Contr
ibut
ionmar gi
n $112  
80%

Thecompanyi scurr
entlysel
l
ing8,000unit
spermonth.Fixedexpensesare
$719,000permont h.Themar ket
ingmanagerbeli
evesthata$20,000incr
ease
i
nthemont hl
yadv
erti
singbudgetwouldresul
tina180unitincr
easeinmonthl
y
sal
es.Whatshoul dbet heoveral
leff
ectonthecompany '
smont hl
ynet
operati
ngi ncomeofthischange?
A) decr easeof$160
B) i ncreaseof$20,160
C) decr easeof$20,000
D) i ncreaseof$160

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Easy

Sol
uti
on:

8,000 8,180
uni
ts uni
ts
$1,
120,00 $1,
145,20
Sal
es( 8,
000units,8,
180uni
ts×$140) 0 0
Vari
ableexpenses
(
$1,120,
000,$1,145,
200×20%) 224,
000 229,
040
Contr
ibuti
onmar gin 896,
000 916,
160
Fi
xedexpenses 719,
000 739,
000
Netoperati
ngincome $ 177,
000 $ 177,
160

6-
26 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

I
ncr
easei
nnetoper
ati
ngi
ncome:
$177,
160-$177,
000=$160

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
27
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

44.Kuzi
oCorporat
ionproducesandsel
l
sasi
ngl
epr
oduct
.Dat
aconcer
ningt
hat
pr
oductappearbel
ow:

Per Per
centof
Unit Sal
es
Sel
li
ngprice $130 100%
Vari
ableexpenses   
 78  
60%
Contr
ibut
ionmar gi
n $ 52  
40%

Thecompanyi scurr
entlysel
l
ing6,000uni
tspermonth.Fi
xedexpensesare
$263,000permont h.Themar ket
ingmanagerbel
iev
esthata$5,000i
ncreasei
n
themont hl yadver
ti
singbudgetwouldresul
tina140uniti
ncreasei
nmont hl
y
sales.Whatshoul dbet heoveral
leff
ectonthecompany'
smont hl
ynet
operatingi ncomeofthischange?
A) i ncreaseof$2,280
B) i ncreaseof$7,280
C) decr easeof$5,000
D) decr easeof$2,280

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Easy

Sol
uti
on:

6,
000 6,
140
unit
s unit
s
Sal
es( 6,
000units,
6,140uni
ts×$130) $780,
000 $798,
200
Vari
ableexpenses
(
$780,000,$798,
200×60%) 468,
000 478,
920
Contr
ibuti
onmar gi
n 312,
000 319,
280
Fi
xedexpenses 263,
000 268,
000
Netoperati
ngincome $49,
000 $51,
280

I
ncr
easei
nnetoper
ati
ngi
ncome:
$51,
280-$49,
000=$2,
280

6-
28 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

45.Dat
aconcer
ningDor
azi
oCor
por
ati
on'
ssi
ngl
epr
oductappearbel
ow:

Per Percentof
Unit Sales
Sel
li
ngprice $160 100%
Vari
ableexpenses  
  
48  
30%
Contr
ibut
ionmar gi
n $112  
70%

Fi
xedexpensesar e$87, 000permont h.Thecompanyiscur rent
lysell
i
ng1, 000
unit
spermont h.Managementi sconsider
ingusi
nganewcomponentt hat
wouldi ncreaset heunitv ar
iabl
ecostby$28.Sincethenewcomponentwoul d
i
ncreaset hef eaturesoft hecompany'sproduct,
themar ket
ingmanager
predictsthatmont hl
ysal eswouldi
ncreaseby400uni t
s.Whatshoul dbet he
overalleffectont hecompany '
smonthlynetoperat
ingincomeoft hischange?
A) i ncreaseof$5, 600
B) i ncreaseof$33, 600
C) decr easeof$5, 600
D) decr easeof$33, 600

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Easy

Sol
uti
on:

1,
000 1,
400
unit
s unit
s
Sal
es( 1,
000units,
1,400unit
s×$160) $160,
000 $224,
000
Vari
ableexpenses
(
1,000unit
s×$48, 1,400uni
ts×$76) 48,
000 106,
400
Contri
buti
onmar gi
n 112,
000 117,
600
Fi
xedexpenses 87,
000 87,
000
Netoperati
ngincome $25,
000 $30,
600

I
ncr
easei
nnetoper
ati
ngi
ncome:
$30,
600-$25,
000=$5,
600

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
29
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

46.ChovanecCorporat
ionpr
oducesandsel
l
sasi
ngl
epr
oduct
.Dat
aconcer
ning
thatpr
oductappearbel
ow:

Per Percentof
Unit Sales
Sel
li
ngprice $170 100%
Vari
ableexpenses  
  
68  
40%
Contr
ibut
ionmar gi
n $102  
60%

Fi
xedexpensesar e$521,000permonth.Thecompanyi scurrent
lysel
li
ng7,000
unit
spermont h.Managementi sconsi
deringusi
nganewcomponentt hat
wouldi ncreaset heunitvar
iabl
ecostby$6.Sincethenewcomponentwoul d
i
ncreaset hef eaturesofthecompany'sproduct,
themar ket
ingmanager
predictsthatmont hl
ysaleswouldi
ncreaseby500uni t
s.Whatshoul dbethe
overalleffectont hecompany '
smonthlynetoperat
ingincomeoft hi
schange?
A) decr easeof$48, 000
B) decr easeof$6, 000
C) i ncreaseof$48, 000
D) i ncreaseof$6, 000

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Easy

Sol
uti
on:

7,000 7,500
uni
ts uni
ts
$1,
190,00 $1,
275,00
Sal
es( 7,
000units,
7,500unit
s×$170) 0 0
Vari
ableexpenses
(
7,000unit
s×$68, 7,500uni
ts×$74) 476,
000 555,
000
Contri
buti
onmar gi
n 714,
000 720,
000
Fi
xedexpenses 521,
000 521,
000
Netoperati
ngincome $ 193,
000 $199,
000

I
ncr
easei
nnetoper
ati
ngi
ncome:
$199,
000-$193,
000=$6,
000

6-
30 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

47.Dat
aconcer
ningPel
l
egr
enCor
por
ati
on'
ssi
ngl
epr
oductappearbel
ow:

Per Per
centof
Unit Sal
es
Sel
li
ngprice $200 100%
Vari
ableexpenses  
  
40  
20%
Contr
ibut
ionmar gi
n $160  
80%

Fi
xedexpensesar e$531,000permont h.
Thecompanyi scurr
entl
ysell
ing4,000
uni
tspermont h.Themar ket
ingmanagerwoul dl
iketocutthesell
ingpri
ceby
$14andincreasetheadv erti
singbudgetby $35,000permont h.Themar keti
ng
managerpredict
st hatthesetwochangeswoul di
ncreasemont hl
ysalesby500
uni
ts.
Whatshoul dbet heov eral
lef
fectonthecompany'
smont hlynetoperati
ng
i
ncomeoft hischange?
A) decr easeof$18, 000
B) increaseof$38, 000
C) decr easeof$38, 000
D) increaseof$58, 000

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Easy

Sol
uti
on:

4,
000 4,
500
unit
s unit
s
Sales( 4,
000units×$200,4,
500uni
ts×
$186) $800,
000 $837,
000
Var i
ableexpenses
(4,
000uni t
s×$40, 4,
500unit
s×$40) 160,
000 180,
000
Cont r
ibuti
onmar gi
n 640,
000 657,
000
Fi
xedexpenses 531,
000 566,
000
Netoper ati
ngincome $109,
000 $91,
000

Decr
easei
nnetoper
ati
ngi
ncome:
$109,
000-$91,
000=$18,
000

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
31
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

48.Cobbl
eCorporat
ionpr
oducesandsel
l
sasi
ngl
epr
oduct
.Dat
aconcer
ningt
hat
pr
oductappearbel
ow:

Per Per
centof
Unit Sal
es
Sel
li
ngprice $160 100%
Vari
ableexpenses  
  
48  
30%
Contr
ibut
ionmar gi
n $112  
70%

Fi
xedexpensesar e$499,000permont h.
Thecompanyi scurr
entl
ysell
ing5,000
uni
tspermont h.Themar ket
ingmanagerwoul dl
iketocutthesell
ingpri
ceby
$13andincreasetheadv erti
singbudgetby $33,000permont h.Themar keti
ng
managerpredict
st hatthesetwochangeswoul di
ncreasemont hl
ysalesby900
uni
ts.
Whatshoul dbet heov eral
lef
fectonthecompany'
smont hlynetoperati
ng
i
ncomeoft hischange?
A) increaseof$56, 100
B) decr easeof$8, 900
C) increaseof$99, 300
D) decr easeof$56, 100

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Easy

Sol
uti
on:

5,
000 5,
900
unit
s unit
s
Sales( 5,
000units×$160,5,
900uni
ts×
$147) $800,
000 $867,
300
Var i
ableexpenses
(5,
000uni t
s×$48, 5,
900unit
s×$48) 240,
000 283,
200
Cont r
ibuti
onmar gi
n 560,
000 584,
100
Fi
xedexpenses 499,
000 532,
000
Netoper ati
ngincome $61,
000 $52,
100

Decr
easei
nnetoper
ati
ngi
ncome:
$61,
000-$52,
100=$8,
900

6-
32 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

49.Dat
aconcer
ningBazi
nCor
por
ati
on'
ssi
ngl
epr
oductappearbel
ow:

Per Per
centof
Unit Sal
es
Sel
li
ngprice $100 100%
Vari
ableexpenses   
 20  
20%
Contr
ibut
ionmar gi
n $ 80  
80%

Fixedexpensesar e$384, 000permont h. Thecompanyi scurr

entlysell
ing6,000
unitspermont h.Themar ketingmanagerwoul dli
ketoint
roducesales
commi ssionsasani ncent i
v eforthesal esst af
f.Themarketi
ngmanagerhas
proposedacommi ssionof$9peruni t.Inexchange, t
hesalesstaffwoul d
acceptadecr easeint heirsalar i
esof$46, 000permont h.(
Thisisthecompany '
s
savingsf ortheentiresal esst aff.
)Themar keti
ngmanagerpredictsthat
i
nt r
oduci ngthissalesi ncent i
v ewouldi ncreasemont hl
ysalesby500uni t
s.
Whatshoul dbet heov eralleffectonthecompany '
smonthlynetoperating
i
ncomeoft hischange?
A) i ncreaseof$27, 500
B) decr easeof$64, 500
C) i ncreaseof$41, 500
D) i ncreaseof$507, 500

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Easy

Sol
uti
on:

6,
000 6,
500
unit
s unit
s
Sales( 6,
000units×$100,6,
500uni
ts×
$100) $600,
000 $650,
000
Var i
ableexpenses
(6,
000uni t
s×$20, 6,
500unit
s×$29) 120,
000 188,
500
Cont r
ibuti
onmar gi
n 480,
000 461,
500
Fi
xedexpenses 384,
000 338,
000
Netoper ati
ngincome $96,
000 $123,
500

I
ncr
easei
nnetoper
ati
ngi
ncome:
$123,
500-$96,
000=$27,
500

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
33
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

50.Sannell
aCorporati
onpr
oducesandsel
l
sasi
ngl
epr
oduct
.Dat
aconcer
ningt
hat
productappearbel
ow:

Per Per
centof
Unit Sales
Sel
li
ngprice $220 100%
Vari
ableexpenses  
  
66  
30%
Contr
ibut
ionmar gi
n $154  
70%

Fixedexpensesar e$991, 000permont h.Thecompanyi scurr

entlysell
ing8,000
unitspermont h.Themar ketingmanagerwoul dli
ketoint
roducesales
commi ssionsasani ncent i
v eforthesalesst af
f.Themarketi
ngmanagerhas
proposedacommi ssionof$11peruni t.I
nexchange, t
hesalesstaffwoul d
acceptadecr easeint heirsalar i
esof$74,000permont h.(
Thisisthecompany '
s
savingsf ortheentiresal esst aff.
)Themar keti
ngmanagerpredictsthat
i
nt r
oduci ngthissalesi ncent i
v ewouldincreasemont hl
ysalesby200uni t
s.
Whatshoul dbet heov eralleffectonthecompany '
smonthlynetoperating
i
ncomeoft hischange?
A) i ncreaseof$1, 246, 600
B) i ncreaseof$14, 600
C) decr easeof$133, 400
D) i ncreaseof$71, 800

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Easy

Sol
uti
on:

8,000 8,200
uni
ts uni
ts
Sales( 8,
000units×$220,8,
200uni
ts× $1,
760,00 $1,
804,00
$220) 0 0
Var i
ableexpenses
(8,
000uni t
s×$66, 8,
200unit
s×$77) 528,
000 631,
400
Cont r
ibuti
onmar gi
n 1,
232,
000 1,172,
600
Fi
xedexpenses 991,
000 917,
000
Netoper ati
ngincome $ 241,
000 $ 255,
600

I
ncr
easei
nnetoper
ati
ngi
ncome:
$255,
600-$241,
000=$14,
600

6-
34 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

51.Cher
ryStreetMarketr
epor
tedt
hefol
lowi
ngi
nfor
mat
ionf
ort
hesal
esoft
hei
r
onl
yproduct,cher
ri
essol
dbythepi
nt:

Per
Tot al Uni
t
$31,50
Sal
es 0 $4.
50
  
  
9,45
Vari
ableexpenses 0  
1.35
Contr
ibut
ionmar gi
n 22,050 $3.15
  
13,00
Fi
xedexpenses 0
$  
9,05
Netoper
ati
ngi
ncome 0

CherryStreetwoul dliketoincreasethei
rsel
l
ingpr
iceby50centsperunit
,and
feel
thatthiswi l
ldecr easesalesv ol
umeby10%.ShouldCher
ryStr
eetincr
ease
theprice,
andwhatwi llt
heeffectbeonnetoperat
ingi
ncome?
A) Yes; $3,500incr ease
B) Yes; $945i ncrease
C) No; nochange
D) No; $945decr ease

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Medi
um

Sol
uti
on:

Curr
entsal
es(doll
ars)=Currentperuni
tpr
ice×Cur
rentsal
es(
uni
ts)
$31,
500=$4.50×Cur rentsal
es(unit
s)
7,
000=Currentsal
es( uni
ts)

7,
000 6,
300
unit
s unit
s
Sal
es(
7,000uni
ts×$4.
50,
6,300uni
ts×$5.
00)
$31,
500 $31,
500
Vari
ableexpenses
(7,
000uni t
s×$1.35,6,
300uni
ts×$1.
35) 9,
450 8,
505
Contr
ibuti
onmar gi
n 22,
050 22,
995
Fi
xedexpenses 13,
000 13,
000
Netoperati
ngincome $9,
050 $9,
995

I
ncr
easei
nnetoper
ati
ngi
ncome:
$9,
995-$9,
050=$945

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
35
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

6-
36 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

52.Acompanymakesasi nglepr
oductt
hatitsel
l
sfor$16peruni
t.Fi
xedcost
sare
$76,
800permonthandt hepr
oducthasacontri
but
ionmargi
nrati
oof40%.If
thecompany'
sact
ualsalesar
e$224,000,i
tsmargi
nofsafet
yis:
A) $32,000
B) $96,000
C) $128,000
D) $192,000

Ans:
  A AACSB: 
 Anal
yti
c AI
CPA BB: 
 Cr
it
ical
 
Thinki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5;
 7 Lev
el:
 
 Medium Source:
  
CIMA; 
adapted

Soluti
on:
Break-evenintot
al sal
esdoll
ars=Fixedexpenses/
CM r
ati
o
=$76,800/ 0.
400=$192, 000
Mar gi
nofsaf et
yindollars=Sales-Break-
evensal
es
=$224, 000-$192,000=$32,000

53.Thef
oll
owi
ngdat
aar
eav
ail
abl
efort
hePhel
psCompanyf
orar
ecentmont
h:

Product Product Pr
oduct
A B C Total
$150,00 $130,00 $370,00
Sal
es 0 0 $90,
000 0
 
222,00
Vari
ableexpenses   
 91,
000  
104,000  27,
000 0
Contr
ibut
ionmar gi
n $ 59,
000 $ 
26,000 $63,
000 148,000
Fi
xedexpenses  
  
55,000
$ 
93,00
Netoper
ati
ngi
ncome 0

Thebr
eak-ev
ensal
esf
ort
hemont
hfort
hecompanyar
e:
A) $91,667
B) $203,000
C) $148,000
D) $137,500

Ans:
  D AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5;
 9 Lev
el:
 
 Medium

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
37
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Sol
uti
on:

Product Product Pr
oduct
A B C Total
$150,00 $130,00 $370,00
Sal
es 0 0 $90,
000 0
 
222,00
Vari
ableexpenses   
 91,
000  
104,000  27,
000 0
Contr
ibut
ionmar gi
n $ 59,
000 $ 
26,000 $63,
000 148,000
Fi
xedexpenses  
  
55,000
$ 
93,00
Netoper
ati
ngi
ncome 0

Over
allCM rati
o=Total contri
but
ionmargin/
Totalsal
es
=$148,000/$370,
000=0. 40
Br
eak-evenpointi
ntotal sal
esdoll
ars=Fixedexpenses/
Over
all
CM r
ati
o
=$55,
000/ 0.
40=$137, 500

54.Hartl
Corpor
ati
oni
sasingl
epr
oductf
ir
m wi
tht
hef
oll
owi
ngsel
l
ingpr
iceand
coststr
uct
uref
ornexty
ear
:

Sel
li
ngpriceperuni
t $1.
80
Contr
ibut
ionmarginrat
io 40%
$218,
70
Tot
alf
ixedexpensesf
ort
hey
ear 0

Howmanyuni
tswi
l
lHar
tlhav
etosel
lnexty
eari
nor
dert
obr
eak-
even?
A) 121,
500
B) 202,
500
C) 303,
750
D) 546,
750

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Medi
um

Sol
uti
on:

Var
iabl
ecostperunit=$1. 80×( 1-40%)
Var
iabl
ecostperunit=$1. 08
Sal
es=Variableexpenses+Fi xedexpenses+Pr
ofi
t
$1.
80Q=$1. 08Q+$218, 700+$0
$0.
72Q=$218, 700
Q=$218,700÷$0. 72perunit=303,750units

6-
38 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
39
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

55.Bor
ichCorpor
ati
onproducesandsel
l
sasi
ngl
epr
oduct
.Dat
aconcer
ningt
hat
pr
oductappearbel
ow:

Sel
l
ingpri
ceperuni
t $150.
00
Var
iabl
eexpenseperuni
t $73.
50
$308,
29
Fi
xedexpensepermont
h 5

Thebr
eak-
eveni
nmont
hlyuni
tsal
esi
scl
osestt
o:
A) 2,055
B) 4,030
C) 4,194
D) 3,426

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Easy

Sol
uti
on:

Sal
es=Variabl
eexpenses+Fi
xedexpenses+Pr
ofi
t
$150.
00Q=$73.50Q+$308,295+$0
$76.
50Q=$308,295
Q=$308,295÷$76.50peruni
t=4,
030units

56.Dat
aconcer
ningBuchenauCor
por
ati
on'
ssi
ngl
epr
oductappearbel
ow:

Sel
l
ingpri
ceperuni
t $150.
00
Var
iabl
eexpenseperuni
t $34.
50
$466,
62
Fi
xedexpensepermont
h 0

Thebr
eak-ev
eni
nmont
hlyuni
tsal
esi
scl
osestt
o:
A) 3,111
B) 6,892
C) 4,040
D) 13,525

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Easy

Sol
uti
on:

Sal
es=Vari
abl
eexpenses+Fi
xedexpenses+Pr
ofi
t
$150.
00Q=$34.
50Q+$466,620+$0

6-
40 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

$115.
50Q=$466,620
Q=$466,620÷$115.50peruni
t=4,
040uni
ts

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
41
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

57.HevesyInc.pr
oducesandsell
sasi ngl
eproduct
.Thesell
ingpriceoftheproduct
i
s$200. 00peruni
tandit
svariablecosti
s$80.00perunit.Thef i
xedexpenseis
$300,
000permont h.Thebreak-eveni
nmont hl
yuni
tsalesi sclosestt
o:
A) 2, 500
B) 1, 500
C) 3, 750
D) 2, 583

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Easy

Sol
uti
on:

Sal
es=Variabl
eexpenses+Fixedexpenses+Pr
ofi
t
$200.
00Q=$80.00Q+$300,000+$0
$120.
00Q=$300,000
Q=$300,000÷$120.00perunit=2,
500units

58.Wenst
rom Cor
porati
onproducesandsel
l
sasi
ngl
epr
oduct
.Dat
aconcer
ning
t
hatpr
oductappearbel
ow:

Sel
l
ingpri
ceperuni
t $130.
00
Var
iabl
eexpenseperuni
t $41.
60
$109,
61
Fi
xedexpensepermont
h 6

Thebr
eak-
eveni
nmont
hlydol
l
arsal
esi
scl
osestt
o:
A) $342,
550
B) $204,
455
C) $109,
616
D) $161,
200

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Easy

Sol
uti
on:

Sal
es=Variabl
eexpenses+Fixedexpenses+Pr
ofi
t
$130.
00Q=$41.60Q+$109, 616+$0
$88.
40Q=$109,616
Q=$109,616÷$88.40perunit=1,
240units
1,
240uni
ts×$130.00sell
ingpri
ce=$161,200

6-
42 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

59.Dat
aconcer
ningFol
l
ickCor
por
ati
on'
ssi
ngl
epr
oductappearbel
ow:

Sel
l
ingpri
ceperuni
t $110.
00
Var
iabl
eexpenseperuni
t $30.
80
$321,
55
Fi
xedexpensepermont
h 2

Thebr
eak-ev
eninmont
hlydol
l
arsal
esi
scl
osestt
o:
A) $1,148,
400
B) $638,851
C) $321,552
D) $446,600

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Easy

Sol
uti
on:

Sal
es=Variabl
eexpenses+Fixedexpenses+Pr
ofi
t
$110.
00Q=$30.80Q+$321, 552+$0
$79.
20Q=$321,552
Q=$321,552÷$79.20perunit=4,
060units
4,
060uni
ts×$110.00sell
ingpri
ce=$446,600

60.WimpyInc.
producesandsell
sasingl
eproduct
.Thesel
li
ngpriceoftheproduct
i
s$150.00peruni
tandit
sv ar
iabl
ecosti
s$58.50peruni
t.Thefixedexpenseis
$366,
915permonth.

Thebr
eak-
eveni
nmont
hlydol
l
arsal
esi
scl
osestt
o:
A) $601,
500
B) $366,
915
C) $636,
408
D) $940,
808

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Easy

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
43
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Sol
uti
on:

Sal
es=Variabl
eexpenses+Fixedexpenses+Pr
ofi
t
$150.
00Q=$58.50Q+$366, 915+$0
$91.
50Q=$366,915
Q=$366,915÷$91.50perunit=4,
010units
4,
010uni
ts×$150.00sell
ingpri
ce=$601,500

61.TheSagi
nawIceCompanyhadsalesof$400,
000,
wi t
hvari
abl
eexpensesof
$162,
000andfi
xedexpensesof$98,
000.Whi
chofthefol
l
owingi
sclosestt
o
Sagi
naw'
sbreak-
evenpoint
?
A) $260,000
B) $165,000
C) $140,000
D) $238,000

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Easy

Sol
uti
on:

Percentof
Total Sales
Sales $400,000 100.0%
Variableexpenses  
  
162,000  
40.5%
Cont r
ibut
ionmar gi
nandcont
ri
but
ion
mar gi
nrati
o $ 
238,
000  
59.
5%

Br
eak-
evenintot
alsal
esdoll
ars=Fi
xedex
penses/
CM r
ati
o
=$98,
000/0.
595=$164,705.
88

6-
44 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

62.ProductYsell
sfor$15peruni
t,andhasr el
atedvar
iabl
eexpensesof$9peruni
t.
Fi
xedexpensest ot
al$300,
000pery ear.Howmanyuni t
sofProductYmustbe
soldeachyeartoyiel
danannualprofitof$90,
000:
A) 50, 000unit
s
B) 65, 000unit
s
C) 15, 000unit
s
D) 43, 333unit
s

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 6 Lev
el:
 
 Easy

Sol
uti
on:

Sal
es=Vari
abl
eexpenses+Fi
xedexpenses+Tar
getpr
ofi
t
$15Q=$9Q+$300,000+$90,
000
$6Q=$390,
000
Q=$390,
000÷$6perunit=65,
000unit
s

63.CaneerCor
porati
onproducesandsel
l
sasi
ngl
epr
oduct
.Dat
aconcer
ningt
hat
pr
oductappearbelow:

Sel
l
ingpri
ceperuni
t $240.
00
Var
iabl
eexpenseperuni
t $81.
60
$997,
92
Fi
xedexpensepermont
h 0

Theunitsal
est
oat
tai
nthecompany
'smont
hlyt
argetpr
ofi
tof$44,
000i
s
cl
osestto:
A) 7, 896
B) 12, 769
C) 6, 578
D) 4, 341

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 6 Lev
el:
 
 Easy

Solut
ion:
Sal
es=Var iabl
eexpenses+Fi
xedexpenses+Targetpr
ofi
t
$240.00Q=$81.60Q+$997,920+$44,000
$158.40Q=$1,041,
920
Q=$1, 041,
920÷$158.40peruni
t=6,578uni
ts(
rounded)

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
45
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

64.Dat
aconcer
ningBedwel
lEnt
erpr
isesCor
por
ati
on'
ssi
ngl
epr
oductappear
bel
ow:

Sel
l
ingpri
ceperuni
t $160.
00
Var
iabl
eexpenseperuni
t $65.
60
$387,
04
Fi
xedexpensepermont
h 0

Theunitsal
est
oat
tai
nthecompany
'smont
hlyt
argetpr
ofi
tof$17,
000i
s
cl
osestto:
A) 6, 159
B) 4, 280
C) 2, 525
D) 4, 321

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 6 Lev
el:
 
 Easy

Sol
uti
on:

Sal
es=Variabl
eexpenses+Fi
xedexpenses+Targetpr
ofi
t
$160.
00Q=$65.60Q+$387,040+$17,000
$94.
40Q=$404,040
Q=$404,040÷$94.40peruni
t=4,
280units(
rounded)

65.Hett
rickInt
ernat
ionalCorporati
on'sonl
yproductsel
lsfor$120.
00perunitand
i
tsvariabl
eexpensei s$52.80.Thecompany '
smonthlyfi
xedexpenseis
$396,480permont h.Theunitsalestoatt
ainthecompany'smonthl
ytarget
prof
itof$13,000isclosestto:
A) 7, 755
B) 6, 093
C) 5, 753
D) 3, 412

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 6 Lev
el:
 
 Easy

Sol
uti
on:

Sal
es=Variabl
eexpenses+Fi
xedexpenses+Targetpr
ofi
t
$120.
00Q=$52.80Q+$396,480+$13,000
$67.
20Q=$409,480
Q=$409,480÷$67.20peruni
t=6,
093units(
rounded)

6-
46 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

66.LogsdonCorporati
onproducesandsel
lsasinglepr
oductwhosecontri
buti
on
marginrat
iois63%.Thecompany '
smonthl
yf i
xedexpenseis$720,
720andt he
company '
smonthlytar
getprof
iti
s$28,
000.
Thedol l
arsalest
oattai
nthatt
arget
prof
iti
sclosestto:
A) $471, 694
B) $454, 054
C) $1, 188,
444
D) $1, 144,
000

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 6 Lev
el:
 
 Easy

Sol
uti
on:

Totalsal
esdollar
stoatt
aintargetprof
it
=(Fixedexpenses+Targetprofi
t)/CM r
ati
o
=($720,720+$28,000)
/0.63=$1, 188,
444(rounded)

67.Thecont
ributionmargi
nrat
ioofMountai
nCorporati
on'
sonlyproductis52%.
Thecompany 'smonthl
yfi
xedexpensei
s$296,400andt hecompany'
smont hl
y
tar
getpr
ofitis$7,
000.Thedol
larsal
estoat
tai
nt hatt
argetprof
iti
sclosestt
o:
A) $570, 000
B) $157, 768
C) $583, 462
D) $154, 128

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 6 Lev
el:
 
 Easy

Sol
ut i
on:
Totalsal
esdollar
stoatt
aintargetprof
it
=(Fixedexpenses+Targetprofi
t)/
CM rati
o
=($296,400+$7,000)
/0.52=$583, 462(r
ounded)

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
47
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

68.Maji
dCor por
ati
onsell
saproductf
or$240peruni
t.Theproduct
'scur
rentsal
es
ar
e41,300unitsandit
sbreak-
evensalesar
e36,
757unit
s.
Whatisthemar gi
nofsaf
etyindol
lar
s?
A) $8,821,680
B) $6,608,000
C) $9,912,000
D) $1,090,320

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 7 Lev
el:
 
 Easy

Sol
uti
on:

Marginofsaf etyi
ndol
lar
s:
Break-evensales=$240perunit×36,757=$8,821,680
Currentsales=$240perunit×41,300=$9,912,
000
Marginofsaf etyi
ndol
lar
s=Sales-Br eak-
evensales
=$9,912,000-$8,821,
680=$1,090,320

69.Mcmurtr
yCorporat
ionsel
lsaproductf
or$170peruni
t.Theproduct
'scur
rent
sal
esare10,
000unitsandit
sbreak-
evensalesar
e8,
100units.Themargi
nof
saf
etyasapercent
ageofsalesiscl
osestt
o:
A) 23%
B) 81%
C) 19%
D) 77%

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 7 Lev
el:
 
 Easy

Sol
uti
on:

Mar ginofsafetyindol
lar
s:
Break-evensales=$170peruni t×8,100=$1,377,
000
Currentsales=$170peruni t×10,000=$1,700,
000
Mar ginofsafetyindol
lar
s=Sal es-Break-
evensal
es
=$1, 700,
000-$1, 377,
000=$323,000
Mar ginofsafetyasapercentageofsales=Margi
nofsaf
etyi
ndol
l
ars÷Cur
rent
sales=$323, 000÷$1,700,000=19%

6-
48 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

70.Cubi
eCor
por
ati
onhaspr
ovi
dedt
hef
oll
owi
ngdat
aconcer
ningi
tsonl
ypr
oduct
:

$100per
Sel
l
ingpr
ice uni
t
10,
600
Currentsales uni
ts
Break-evensales 9,
540uni
ts

Whati
sthemarginofsaf
etyi
ndol
l
ars?
A) $1,060,
000
B) $106,000
C) $954,000
D) $706,667

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 7 Lev
el:
 
 Easy

Sol
uti
on:

Marginofsaf etyi
ndoll
ars:
Break-evensales=$100peruni
t×9,540=$954,000
Currentsales=$100perunit×10,
600=$1,060,
000
Marginofsaf etyi
ndoll
ars=Sal
es-Break-
evensales
=$1,060,000-$954,000=$106,
000

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
49
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

71.Ensl
eyCor
por
ati
onhaspr
ovi
dedt
hef
oll
owi
ngdat
aconcer
ningi
tsonl
ypr
oduct
:

$200per
Sel
l
ingpr
ice uni
t
30,
300
Cur
rentsal
es uni
ts
21,
816
Br
eak-
evensal
es uni
ts

Themar
ginofsaf
etyasaper
cent
ageofsal
esi
scl
osestt
o:
A) 61%
B) 28%
C) 72%
D) 39%

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 7 Lev
el:
 
 Easy

Sol
uti
on:

Mar ginofsafetyi
ndol
lars:
Break-evensales=$200peruni t×30,300=$6, 060,000
Currentsales=$200perunit×21, 816=$4, 363,
200
Mar ginofsafetyi
ndol
lars=Sales-Br eak-evensales
=$6, 060,
000-$4,363,
200=$1, 696,800
Mar ginofsafet
yasapercentageofsal es=Mar gi
nofsaf et
yindol
l
ars÷Cur
rent
sales=$1, 696,
800÷$4,363,
200=39%( rounded)

72.Thef
oll
owi
ngi
sNobl
eCompany
'scont
ri
but
ionf
ormati
ncomest
atementl
ast
mont
h:

$600,00
Sal
es(
12,
000uni
ts) 0
 
375,00
Vari
ableexpenses 0
Contr
ibut
ionmar gi
n 225,000
 
150,00
Fi
xedexpenses 0
$ 
75,00
Netoper
ati
ngi
ncome 0

Whatisthecompany
'smar
ginofsaf
etyper
cent
aget
othenear
estwhol
e
per
cent?
A) 42%

6-
50 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

B) 38%
C) 33%
D) 25%

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 7 Lev
el:
 
 Medi
um

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
51
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Sol
uti
on:

Sales=Sal espr i
ce×Unit ssold
$600,000=12, 000×Sal espr i
ce
$50=Sal espri
ce
Variableexpenses=Per -unitcost×Unitssold
$375,000=12, 000×Per -unitcost
$31.25=Per -
unitcost
Break-evensales:
Sales=Var iabl
eexpenses+Fi xedexpenses+Pr ofi
t
$50.00Q=$31. 25Q+$150, 000+$0
$18.75Q=$150, 000
Q=8, 000uni ts
Mar gi
nofsaf etyindoll
ars:
Break-evensales=$50peruni t×8,000=$400, 000
Currentsales=$50peruni t×12,000=$600, 000
Mar gi
nofsaf etyindoll
ars=Sal es-Break-evensal
es
=$600, 000-$400, 000=$200, 000
Mar gi
nofsaf etyasaper centageofsales=Mar gi
nofsaf
etyi
ndol
l
ars÷Cur
rent
sales=$200, 000÷$600, 000=33%( rounded)

73.Ostl
erCompany '
snetoperati
ngincomel
astyearwas$10, 000andits
contr
ibuti
onmarginwas$50,000.Usi
ngt
heoper ati
ngleverageconcept
,ift
he
company '
ssal
esincreasenexty
earby8percent
, netoper
atingi
ncomecanbe
expectedtoi
ncreaseby:
A) 20%
B) 16%
C) 160%
D) 40%

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 8 Lev
el:
 
 Easy

Sol
uti
on:

Degreeofoper at
inglev
er age=Contr
ibut
ionmargi
n÷Netoper
ati
ngi
ncome
Degreeofoper at
inglev
er age=$50,
000÷$10,000=5
Percentincr
easeinnetoper at
ingi
ncome
=Per centi
ncreaseinsales×Degreeofoperat
ingl
ever
age
=8%×5=40%

6-
52 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

74.TheFebruarycont ri
buti
onformatincomest atementofMcabi
erCorpor
ati
on
appear
sbel ow:
a.Degreeofoper ati
ngleverage=Cont r
ibut
ionmargin/
Netoper
ati
ngincome
=$251,100/$41,300=6. 08
b.Percentincreasei nnetoperat
ingincome
=Percentincreaseinsales×Degreeofoper ati
nglever
age
=19%×6. 08=115. 52%

$211,20
Sal
es 0
Vari
ableexpenses  
  
96,000
Contr
ibut
ionmar gi
n 115,200
Fi
xedexpenses  
  
84,100
$ 
31,10
Netoper
ati
ngi
ncome 0

Thedegr
eeofoper
ati
ngl
ever
agei
scl
osestt
o:
A) 0.27
B) 6.79
C) 3.70
D) 0.15

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 8 Lev
el:
 
 Easy

Sol
uti
on:
Degr
eeofoper
ati
ngl
everage=Cont
ri
but
ionmar
gin/
Netoper
ati
ngi
ncome
=$115,
200/
$31,
100=3.70

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
53
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

75.Ser
fassCor
por
ati
on'
scont
ri
but
ionf
ormati
ncomest
atementf
orJul
yappear
s
bel
ow:

$260,00
Sal
es 0
 
176,00
Vari
ableexpenses 0
Contr
ibut
ionmar gi
n 84,000
Fi
xedexpenses  
  
71,800
$ 
12,20
Netoper
ati
ngi
ncome 0

Thedegr
eeofoper
ati
ngl
ever
agei
scl
osestt
o:
A) 0.05
B) 0.15
C) 21.31
D) 6.89

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 8 Lev
el:
 
 Easy

Sol
uti
on:

Degr
eeofoper
ati
ngl
ever
age=Cont
ri
but
ionmar
gin/
Netoper
ati
ngi
ncome
=$84,
000/
$12,
200=6.89

76.RushenbergCor
porat
ion'
soper
ati
nglever
agei
s10.8.Ifthecompany'
ssal
es
i
ncreaseby14%,it
snetoper
ati
ngincomeshoul
dincreasebyabout:
A) 151. 2%
B) 14. 0%
C) 77. 1%
D) 10. 8%

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 8 Lev
el:
 
 Easy

Sol
uti
on:

Per
centincr
easeinnetoper
ati
ngi
ncome
=Percenti
ncreasei
nsales×Degr
eeofoper
ati
ngl
ever
age
=14%×10. 8=151.2%

6-
54 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

77.Bendel
Inc.hasanoperat
ingl
ever
ageof7.3.I
fthecompany
'ssal
esi
ncr
easeby
3%,i
tsnetoperat
ingi
ncomeshouldi
ncreasebyabout:
A) 243. 3%
B) 7.3%
C) 21. 9%
D) 3.0%

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 8 Lev
el:
 
 Easy

Sol
uti
on:

Per
centincr
easeinnetoper
ati
ngi
ncome
=Percenti
ncreaseinsal
es×Degr
eeofoper
ati
ngl
ever
age
=3%×7. 3=21. 9%

78.E.
D.Manuf acturi
ng,I
nc.producesandsel l
siceskates.Thecurr
entnet
operat
ingincomei s$40,
000,wi t
hadegr eeofoperati
nglever
ageof3.Ifsal
es
i
ncreaseby10%, howmucht otalnetoperat
ingi
ncomeshoul dbeexpected?
A) $12. 000
B) $52, 000
C) $44, 000
D) Noneoft heabove.

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 8 Lev
el:
 
 Easy

Sol
uti
on:

Percentincr
easeinnetoper ati
ngincome
=Per centi
ncreaseinsales×Degr eeofoperati
ngleverage
=10%×3=30%
Currentnetoperat
ingincome×Per centi
ncr
ease=I ncreaseinnetoper
ati
ng
i
ncome
$40,000×30%=$12, 000I ncreaseinnetoperati
ngincome
Currentnetoperat
ingincome+I ncreasei
nnetoperatingincome=Expectednet
operatingi
ncome=$40, 000+$12, 000=$52,000

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
55
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

79.Mcdal
eInc.pr
oducesandsel
l
stwoproduct
s.Dat
aconcer
ningt
hosepr
oduct
s
f
orthemostrecentmont
happearbel
ow:

Product Pr oduct
I
49V Z50U
Sal
es $15,000 $14, 000
Var
iabl
eexpenses $3,
300 $2,790

Thefixedexpensesoft
heenti
recompanywer
e$18,
460.Thebr
eak-
evenpoi
nt
fort
heentirecompanyi
sclosestt
o:
A) $23, 367
B) $10, 540
C) $24, 550
D) $18, 460

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 9 Lev
el:
 
 Easy

Sol
uti
on:

Mul
tiB/
ESol
uti
on:
Product
Pr
oductI
49V Z50U Total
Sal
es $15,
000 $14,000 $29,000
Vari
ableexpenses  
 3,
300  2, 790  6, 090
Contr
ibut
ionmar gi
n $11,
700 $11,210 22, 910
 
  
18,46
Fi
xedexpenses 0
Netoper
ati
ngincome $ 4,450

Over
allCM rati
o=Total contri
but
ionmargin/
Totalsal
es
=$22,
910/ $29,
000=0. 79
Br
eak-evenpointi
ntotal sal
esdoll
ars=Fixedexpenses/
Over
all
CM r
ati
o
=$18,
460/ 0.
79=$23,367( r
ounded)

6-
56 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

80.Roddam Corporat
ionpr
oducesandsel
l
stwoproduct
s.Dat
aconcer
ningt
hose
pr
oductsforthemostrecentmont
happearbel
ow:

Product Pr oduct
K09E G17B
Sal
es $28,000 $38, 000
Var
iabl
eexpenses $11,200 $8,600

Thef i
xedexpensesoft heenti
recompanywer
e$41,
970.Ift
hesalesmixwere
toshiftt
owardPr oductK09Ewithtot
alsal
esr
emai
ningconstant
,theov
eral
l
break-
evenpointfortheenti
recompany:
A) woul di
ncrease.
B) coul dincreaseordecrease.
C) woul dnotchange.
D) woul ddecrease.

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 9 Lev
el:
 
 Easy

81.Newham Cor por

ati
onproducesandsel
lstwoproducts.I
nt hemostrecent
month,ProductR10Lhadsalesof$28,
000andv ar
iableexpensesof$6,440.
ProductX96Nhadsalesof$22,000andvari
abl
eexpensesof$7, 560.Andthe
fi
xedexpensesoftheentir
ecompanywere$32,710.Thebr eak-
evenpointfor
theenti
recompanyisclosestt
o:
A) $32, 710
B) $45, 431
C) $46, 710
D) $17, 290

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 9 Lev
el:
 
 Easy

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
57
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Sol
uti
on:

Mul
tiB/
ESol
uti
on:
Product Product
R10L X96N Tot
al
Sal
es $28,000 $22,000 $50,
000
Vari
ableexpenses  
  6,
440  7, 560  14,
000
Contr
ibuti
onmar gi
n $21,560 $14,440 36,000
Fi
xedexpenses  
32,
710
Netoperati
ngincome $3,
290

Over
allCM rati
o=Total contri
but
ionmargin/
Totalsal
es
=$36,
000/ $50,
000=0. 72
Br
eak-evenpointi
ntotal sal
esdoll
ars=Fixedexpenses/
Over
all
CM r
ati
o
=$32,
710/ 0.
72=$45,431( r
ounded)

82.FleschCor porationproducesandsellstwoproducts.I
nthemostr ecentmonth,
ProductC90Bhadsal esof$24,000andv ari
ableexpensesof$6,480.Product
Y45Ehadsal esof$29, 000andv ar
iableexpensesof$11,010.Andt hefi
xed
expensesoft heent i
recompanywer e$32,280.Ift
hesalesmi xweret oshi
ft
towardPr oductC90Bwi thtotal
salesremaini
ngconstant,theoverall
break-ev
enpoi ntfortheenti
recompany :
A) woul ddecr ease.
B) woul di ncrease.
C) coul dincr easeordecrease.
D) woul dnotchange.

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 9 Lev
el:
 
 Easy

6-
58 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

83.Zachar
y'
sBikeShopsel
lst
wopr
oduct
s.Sal
esandcont
ri
but
ionmar
ginr
ati
os
fort
hetwoproduct
sfol
l
ow:

Product Product
A B
Sal
esindol
lar
s $10,000 $40,000
Cont
ri
buti
onmargi
nrat
io 25% 75%

Gi
venthesedata,
thecont
ri
buti
onmargi
nrati
ofort
hecompanyasawhol
e
woul
dbe:
A) 25%
B) 50%
C) 65%
D) Itisimpossi
blet
odetermi
nefr
om thegi
vendata.

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 9 Lev
el:
 
 Medi
um

Sol
uti
on:

Mul
tiB/
ESol
uti
on:
Pr
oductA Pr
oductB Total
Sal
es $10,
000 $40,000 $50,
000
Cont
ri
but
ionmar
gin(
Sal
es×CM r
ati
o)
$2,
500 $30,
000 $32,
500

Over
all
CM rat
io=Tot
alcont
ri
but
ionmar
gin/
Tot
alsal
es
=$32,
500/
$50,000=0.
65

Uset
hef
oll
owi
ngt
oanswerquest
ions84-
86:

Acementmanuf
act
urerhassuppl
i
edt
hef
oll
owi
ngdat
a:

Tonsofcementpr
oducedandsol
d 680,
000
$2,
788,
00
Sal
esr
evenue 0
$1,
156,
00
Var
iabl
emanuf acturi
ngexpense 0
Fi
xedmanuf actur
ingexpense $760,
000
Var
iabl
eselli
ngandadmi nist
rati
veexpense $272,
000
Fi
xedsell
i
ngandadmi ni
strat
iveexpense $294,
000
Netoper
atingincome $306,
000

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
59
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

84.Whati
sthecompany
'suni
tcont
ri
but
ionmar
gin?
A) $0.45
B) $2.10
C) $2.00
D) $4.10

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Easy

Sol
uti
on:

Cont
ri
but
ionmargi
n=Sales-Vari
ableexpenses
Cont
ri
but
ionmargi
n=$2,788,
000-($1,
156,000+$272,
000)
Cont
ri
but
ionmargi
n=$1,360,
000
Uni
tcont
ri
but
ionmargi
n=Contri
buti
onmar gin÷Tonsofcement
Uni
tcont
ri
but
ionmargi
n=$1,360,
000÷680, 000
Uni
tcont
ri
but
ionmargi
n=$2.00

85.Thecompany
'scont
ri
but
ionmar
ginr
ati
oiscl
osestt
o:
A) 39.0%
B) 51.2%
C) 11.0%
D) 48.8%

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Easy

Sol
uti
on:

Cont
ri
but
ionmar
gin=Sal
es-Vari
ableexpenses
Cont
ri
but
ionmar
gin=$2,
788,
000-($1,
156,000+$272,000)
Cont
ri
but
ionmar
gin=$1,
360,
000
Cont
ri
but
ionmar
ginr
ati
o=Contri
buti
onmar gin÷Sales
Cont
ri
but
ionmar
ginr
ati
o=$1,360,
000÷$2, 788,
000
Cont
ri
but
ionmar
ginr
ati
o=48.8%

6-
60 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

86.I
fthecompanyi ncreasesit
suni
tsalesvol
umeby4%wi t
houti
ncreasi
ngi
ts
fi
xedexpenses,thentotal
netoper
atingi
ncomeshoul
dbeclosestto:
A) $12, 240
B) $318, 240
C) $360, 400
D) $311, 973

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Medi
um

Sol
uti
on:

$1,
414,
40
Newcontri
buti
onmar gin($1,
360,
000×1.04) 0
Fi
xedexpenses($760,000+$294,000) 1,
054,
000
Netoper
ati
ngincome $ 360,
400

Uset
hef
oll
owi
ngt
oanswerquest
ions87-
89:

Ri
ghwayCor
por
ati
onhassuppl
i
edt
hef
oll
owi
ngdat
a:

Sal
esperper
iod 1,
000units
Sel
l
ingpri
ce $50perunit
Var
iabl
emanufact
uri
ngcost $20perunit
$10,
000plus5%of
Sel
l
ingexpenses sal
es
$5,
000plus15%of
Admi
nist
rat
ionexpenses sal
es

87.Thet
otal
contri
but
ionmar
ginperper
iodi
s:
A) $22,500
B) $27,500
C) $30,000
D) $20,000

Ans:
  
D AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Medi
um

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
61
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Sol
uti
on:

Sal
es( 1,
000units×$50) $50,
000
Vari
ableexpenses* 30,
000
Contr
ibuti
onmar gi
n $20,
000

*Var
iabl
emanuf act
uri
ngcost(1,000uni
ts×$20) $20,
000
Sel
l
ingexpenses($50,
000×5%) 2,
500
Admini
str
ati
onexpenses($50,000×15%) 7,
500
Tot
alvari
abl
eexpenses $30,
000

88.Thebr
eak-
evenpoi
ntperper
iodi
s(r
oundt
onear
estuni
t)
:
A) 750units
B) 545units
C) 500units
D) 667units

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Medi
um

Sol
uti
on:

Sal
es=Vari
abl
eexpenses+Fi
xedexpenses+Pr
ofi
t
$50Q=$30Q*+$15,
000+$0
$20Q=$15,
000
Q=$15,
000÷$20perunit=750uni
ts

*
Var
iabl
eexpenseperuni
t=$20+(
5%×$50)+(
15%×$50)=$30

6-
62 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

89.I
fthesel
li
ngpri
ceischangedt
o$55peruni
t,
thebr
eak-
evenpoi
ntwi
l
lbe(
round
tonear
estuni
t):
A) 667uni t
s
B) 545uni t
s
C) 625uni t
s
D) 500uni t
s

Ans:
  C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4;
 5 Lev
el:
 
 Medium

Sol
uti
on:

Sal
es=Vari
abl
eexpenses+Fi
xedexpenses+Pr
ofi
t
$55Q=$31Q*+$15,
000+$0
$24Q=$15,
000
Q=$15,
000÷$24perunit=625uni
ts

*
Var
iabl
eexpenseperuni
t=$20+(
5%×$55)+(
15%×$55)=$31

Uset
hef
oll
owi
ngt
oanswerquest
ions90-
92:

Biskr
aCorpor
ati
oni
sasi
ngl
epr
oductf
ir
mthatexpect
sthef
oll
owi
ngoper
ati
ngr
esul
ts
nextyear
:

Per
InTotal Uni
t
$288,
00
Sal
es 0 $0.
80
$172,
80
Var
iabl
eexpenses 0 $0.
48
Fi
xedexpenses $72,
000 $0.
20

90.Ever
yunitt
hatBi
skr
asel
l
snexty
earaf
tert
hebr
eak-
evenpoi
ntwi
l
lincr
easenet
oper
ati
ngincomeby:
A) $0.12
B) $0.20
C) $0.32
D) $0.60

Ans:
  C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1;
 5 Lev
el:
 
 Easy

Sol
uti
on:

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
63
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Sal
esperuni
t-Var
iabl
eexpensesperuni
t=Cont
ri
but
ionmar
ginperuni
t
=$0.80-$0.
48=$0.32

6-
64 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

91.WhatwouldBi
skra'
stot
alsalesdol
l
arshav
etobenexty
eart
ogener
ate
$180,
000ofnetoper
ati
ngincome?
A) $450,000
B) $630,000
C) $588,000
D) $787,500

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 6 Lev
el:
 
 Easy

Sol
uti
on:

CM rati
o
=(Sales-Vari
ableexpenses)÷Sal es
=($288,000-$172,800)÷$288, 000=40%
Totalsal
esdollar
stoattaintargetprofi
t
=(Fixedexpenses+Tar getprofi
t)/
CM rati
o
=($72,000+$180,000)/0.40=$630, 000

92.Whati
sBiskr
a'smar
ginofsaf
etyper
cent
age?
A) 15%
B) 24%
C) 37.5%
D) 40%

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 7 Lev
el:
 
 Easy

Sol
uti
on:

Break-evensal es:
Sales=Var iableexpenses+Fixedexpenses+Pr of
it
$0.80Q=$0. 48Q*+$72, 000+$0
$0.32Q=$72, 000
Q=$72, 000÷$0. 32perunit=225, 000unit
s
Mar gi
nofsaf etyi
ndoll
ars:
Break-evensal es=$0.80peruni t×360,000=$288,000
Currentsales=$0. 80perunit×225, 000=$180,000
Mar gi
nofsaf etyi
ndoll
ars=Sal es−Br eak-
evensal
es
=$288, 000−$180, 000=$108, 000
Mar gi
nofsaf etyasaper cent
ageofsal es=Marginofsafet
yindol
l
ars÷Cur
rent
sales=$108, 000÷$288, 000=37. 5%

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
65
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Uset
hef
oll
owi
ngt
oanswerquest
ions93-
95:

Amanuf
act
urerofpr
emi
um wi
rest
ri
pper
shassuppl
i
edt
hef
oll
owi
ngdat
a:

Uni
tspr
oducedandsol
d 580,
000
$4,
176,
00
Sal
esr
evenue 0
$2,
871,
00
Var
iabl
emanuf acturi
ngexpense 0
Fi
xedmanuf actur
ingexpense $778,
000
Var
iabl
eselli
ngandadmi nist
rati
veexpense $348,
000
Fi
xedsell
i
ngandadmi ni
strat
iveexpense $104,
000
Netoper
atingincome $75,
000

93.Thecompany'
smar
ginofsaf
etyi
nuni
tsi
scl
osestt
o:
A) 234,222
B) 564,242
C) 45,455
D) 457,500

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 7 Lev
el:
 
 Medi
um

Sol
uti
on:

Break-ev
ensal esinunit
s:
Sales=Variableexpenses+Fi xedexpenses+Profi
t
$7.20Q*=$5. 55Q* *+$882,000+$0
$1.65Q=$882, 000
Q=$882, 000÷$1. 65perunit=534, 545uni
ts
Mar gi
nofsafet yinuni
ts:
Mar gi
nofsafet yinuni
ts=Sal esinuni t
s−Break-
evensal
esi
nuni
ts
=580,000−534, 545=45,455uni ts

* $4,
176,
000÷580,
000uni
ts=$7.
20peruni
t

*
* Manuf act
uri
ngexpense($2,
871,000÷580,000uni
ts) $4.
95
Sell
ingandadminist
rat
iveexpense($348,
000÷580,000
unit
s) 0.
60
Totalvari
abl
eexpensesperunit $5.
55

6-
66 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

94.Thecompany
'suni
tcont
ri
but
ionmar
gini
scl
osestt
o:
A) $2.25
B) $5.55
C) $1.65
D) $6.60

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

$4,
176,
00
Sal
es 0
 
Vari
ableexpenses 3,
219,
000
Contr
ibut
ionmar gi
n $ 957,
000

$957,
000÷580,
000uni
ts=$1.
65

95.Thecompany
'sdegr
eeofoper
ati
ngl
ever
agei
scl
osestt
o:
A) 55.68
B) 3.65
C) 7.73
D) 12.76

Ans:
  
D AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 8 Lev
el:
 
 Medi
um

Sol
uti
on:

Sales $4,
176,
000
Variableexpenses  3,
219,
000
Cont r
ibut
ionmar gin $ 957,
000
Degr
eeofoper atinglever
age=Cont
ri
buti
onmar
gin/
Netoper
ati
ngi
ncome
=$957,000/$75,000=12.76

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
67
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Uset
hef
oll
owi
ngt
oanswerquest
ions96-
97:

Keomuangtai
Corpor
ati
onproducesandsel
lsasingl
eproduct
.Thecompanyhas
prov
idedi
tscont
ri
buti
onfor
mati ncomest
atementforOct
ober.

$266,80
Sal
es(
4,600uni
ts) 0
 
179,40
Vari
ableexpenses 0
Contr
ibut
ionmar gi
n 87,400
Fi
xedexpenses  
  
62,200
$ 
25,20
Netoper
ati
ngi
ncome 0

96.I
fthecompanysel
l
s4,
500uni
ts,
itst
otal
cont
ri
but
ionmar
ginshoul
dbecl
osest
to:
A) $85,500
B) $24,652
C) $87,400
D) $81,600

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Sal
espr i
ceperunit=$266,800÷4,600uni
ts=$58
Var
iableexpenseperunit=$179,
400÷4,600unit
s=$39
$261,00
Sales( 4,
500units) 0
 
175,50
Variableexpenses 0
$ 
85,50
Cont r
ibuti
onmar gi
n 0

6-
68 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

97.I
fthecompanysel
l
s4,
200uni
ts,
itsnetoper
ati
ngi
ncomeshoul
dbecl
osestt
o:
A) $17,600
B) $23,009
C) $25,200
D) $2,000

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Sal
espr i
ceperunit=$266,800÷4, 600uni
ts=$58
Var
iableexpenseperunit=$179,400÷4,600unit
s=$39
$243, 60
Sales( 4,
200units) 0
 163,80
Variableexpenses 0
Cont r
ibuti
onmar gi
n 79,
800
Fixedexpenses   
 62,
200
$ 17,60
Netoper ati
ngincome 0

Uset
hef
oll
owi
ngt
oanswerquest
ions98-
99:

SouzaI
nc,whi
chproducesandsel
lsasi
ngl
epr
oduct
,haspr
ovi
dedi
tscont
ri
but
ion
for
matincomest
atementforOct
ober
.

$88,00
Sal
es( 4,
000units) 0
Vari
ableexpenses  
40,000
Contr
ibuti
onmar gi
n 48,000
Fi
xedexpenses  
41,700
Netoperati
ngincome $ 
6,300

98.I
fthecompanysel
l
s3,
600uni
ts,
itst
otal
cont
ri
but
ionmar
ginshoul
dbecl
osest
to:
A) $39,200
B) $5,670
C) $43,200
D) $48,000

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
69
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Sol
uti
on:

Sal
espr i
ceperunit=$88,000÷4,000units=$22
Var
iableexpenseperunit=$40,
000÷4, 000uni
ts=$10
Sales( 3,
600units) $79,200
Variableexpenses  
36,000
Cont r
ibuti
onmar gi
n $43,200

99.I
fthecompanysel
l
s3,
500uni
ts,
itsnetoper
ati
ngi
ncomeshoul
dbecl
osestt
o:
A) $5,513
B) $6,300
C) $300
D) -$4,700

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Sal
espr i
ceperunit=$88,000÷4,000units=$22
Var
iableexpenseperunit=$40,000÷4,000uni
ts=$10
Sales( 3,
500units) $77,000
Variableexpenses  
35,000
Cont r
ibuti
onmar gi
n 42,000
Fixedexpenses  
41,700
Netoper ati
ngincome $  
  
300

Uset
hef
oll
owi
ngt
oanswerquest
ions100-
101:

WightCor
por
ati
onhasprov
idedit
scont
ribut
ionfor
mati
ncomest
atementf
orJune.
Thecompanypr
oducesandsel
lsasi
ngleproduct.

$336,00
Sal
es(
9,600uni
ts) 0
 
144,00
Vari
ableexpenses 0
Contr
ibut
ionmar gi
n 192,000
 
137,00
Fi
xedexpenses 0
$ 
55,00
Netoper
ati
ngi
ncome 0

6-
70 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

100.I
fthecompanysel
l
s9,
100uni
ts,
itst
otal
cont
ri
but
ionmar
ginshoul
dbecl
osest
to:
A) $174,500
B) $192,000
C) $52,135
D) $182,000

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Sal
espr i
ceperunit=$336,000÷9,600uni
ts=$35
Var
iableexpenseperunit=$144,
000÷9,600unit
s=$15
$318,50
Sales( 9,
100units) 0
 
136,50
Variableexpenses 0
$182,00
Cont r
ibuti
onmar gi
n 0

101.I
fthecompanysel
l
s9,
700uni
ts,
itsnetoper
ati
ngi
ncomeshoul
dbecl
osestt
o:
A) $57,000
B) $55,000
C) $55,573
D) $58,500

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 1 Lev
el:
 
 Easy

Sol
uti
on:

Sal
espr i
ceperunit=$336,000÷9,600uni
ts=$35
Var
iableexpenseperunit=$144,
000÷9,600unit
s=$15
$339,50
Sales( 9,
700units) 0
Variableexpenses 145,
500
Cont r
ibuti
onmar gi
n 194,
000
Fixedexpenses 137,
000
Netoper ati
ngincome $57,
000

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
71
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Uset
hef
oll
owi
ngt
oanswerquest
ions102-
103:

Thef
oll
owi
ngi
nfor
mat
ionr
elat
est
oFr
anci
scaCompany
:

Degr
eeofoper
ati
ngl
ever
age 2.
5
24
Pr
ofi
tmar
ginper
cent
age %
40
Mar
ginofsaf
etyper
cent
age %
60
Cont
ri
but
ionmar
ginr
ati
o %

102.I
fFrancisca'
ssalesi
ncr
easeby20%,
bywhatper
cent
agewi
l
lit
snetoper
ati
ng
i
ncomei ncrease?
A) 4. 8%
B) 8%
C) 12%
D) 50%

Ans:
  
D AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 8 Lev
el:
 
 Medi
um

Sol
uti
on:

Per
centincr
easeinnetoper
ati
ngi
ncome
=Percenti
ncreasei
nsales×Degr
eeofoper
ati
ngl
ever
age
=20%×2. 5=50%

103.Franci
scawantstogiveitssal
esstaffa$60,000increaseinsal ar
ybutsti
l
l
wantstomaket hesamenetoper at
ingincome.IfFranciscagivesthi
sincr
ease,
byhowmuchwoul dsalesatFranci
scahav etoincr
easei norderforthe
companyt omaintai
nit
scur r
entnetoperati
ngincomel evel?
A) $60, 000
B) $100, 000
C) $150, 000
D) $250, 000

Ans:
  B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3;
 4 Lev
el:
 
 Medium

Sol
uti
on:

I
ncreaseinsal
esdol
l
ars=Addi
ti
onal
fixedexpenses÷Cont
ri
but
ionmar
ginr
ati
o
=$60,000÷0.60=$100,
000

6-
72 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
73
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Uset
hef
oll
owi
ngt
oanswerquest
ions104-
108:

Thefol
lowi
ngdat
arel
atet
oacompanyt
hatpr
oducesandsel
l
sat
rav
elgui
det
hati
s
updat
edmonthl
y:

Fi
xedcosts:
Copyediting $6,
000
Artwork $2,
000
Typeset
ting $72,
000
Var
iabl
ecost s:
$3.20per
Pr
int
ingandbi
ndi
ng copy
$4.00per
Bookst
oredi
scount
s copy
$0.50per
Sal
esper
sons’
commi
ssi
ons copy
$2.00per
Aut
hor
’sr
oyal
ti
es copy

Eachbooksel
l
sfor$20.
00.Thecompanysol
d8,
000booksi
nJuneand10,
000books
i
nJuly.

104.Theuni
tcont
ri
but
ionmar
ginperbooki
s:
A) $10.30
B) $14.30
C) $10.80
D) $8.30

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Easy

Sol
uti
on:

Uni
tcont
ri
buti
onmar
gin=Uni
tsal
espr
ice-Var
iabl
eexpenseperuni
t
=$20.
00-($3.
20+$4.
00+$0.50+$2.
00)=$10.30

105.Thecont
ri
but
ionmar
ginr
ati
ofort
hebooki
s:
A) 71.5%
B) 54.0%
C) 51.5%
D) 51.9%

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Medi
um

6-
74 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
75
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Sol
uti
on:

Uni
tcont
ri
buti
onmargi
n=Unitsalespri
ce-Vari
abl
eexpenseperuni
t
=$20.
00-($3.
20+$4.00+$0.
50+$2. 00)=$10.30
Cont
ri
but
ionmargi
nrati
o=Contri
buti
onmargin÷Sales
Cont
ri
but
ionmargi
nrati
o=$10.30÷$20.00
Cont
ri
but
ionmargi
nrati
o=51.5%

106.Thebr
eak-
evenpointi
nuni
tsi
s:
A) 8,247books
B) 7,767books
C) 7,407books
D) 6,504books

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Medi
um

Sol
uti
on:

Vari
abl
eexpenseperuni t=$3.
20+$4. 00+$0.50+$2.00=$9.
70
Sal
es=Variableexpenses+Fixedexpenses+Profi
t
$20.
00Q=$9. 70Q+$80, 000+$0
$10.
30Q=$80, 000
Q=$80,000÷$10. 30perunit=7,
767units(r
ounded)

6-
76 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

107.Thedegreeofoper at
inglever
agef
orJul
yis:
A) t hesameast hatforJune
B) hi gherthanthatforJune
C) lowert hanthatforJune
D) notdet erminable

Ans:
  
C AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 8 Lev
el:
 
 Har
d

Sol
uti
on:

ForJune:
Variableexpenseperuni t=$3.
20+$4.00+$0.50+$2.00=$9.70
$160,
00
Sales( 8,000uni ts) 0
Variableexpenses 77,
600
Cont r
ibut i
onmar gin 82,
400
Fixedexpenses 80,
000
Netoper ati
ngi ncome $ 2,400
Degr eeofoper at
ingl ever
age=Contri
but
ionmargi
n/Netoper
ati
ngincome
=$82, 400/ $2,400=34. 33

ForJul y:
Variableexpenseperuni t=$3.20+$4.00+$0.50+$2.00=$9.70
$200,
00
Sales( 10,000uni ts) 0
Variableexpenses 97,
000
Cont r
ibutionmar gin 103,
000
Fixedexpenses 80,
000
Netoper at i
ngi ncome $23,000
Degr eeofoper atingl everage=Contri
but
ionmargi
n/Netoper
ati
ngincome
=$103, 000/ $23,000=4. 48

Assalesincreasepastt
hebr
eakev
enpoi
nt,
thedegr
eeofoper
ati
ngl
ever
age
wi
lldecrease.

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
77
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

108.Thedegr
eeofoper
ati
ngl
ever
agef
orJul
yiscl
osestt
o:
A) 4.48
B) 3.48
C) 4.22
D) 8.70

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 8 Lev
el:
 
 Medi
um

Sol
uti
on:

Vari
ableexpenseperuni t=$3.20+$4.00+$0.50+$2.00=$9.70
$200,
00
Sales( 10,000uni ts) 0
Variableexpenses 97,
000
Cont r
ibutionmar gin 103,
000
Fixedexpenses 80,
000
Netoper at i
ngi ncome $23,000
Degreeofoper atingl everage=Contri
but
ionmargi
n/Netoper
ati
ngincome
=$103,000/ $23,000=4. 48

Uset
hef
oll
owi
ngt
oanswerquest
ions109-
111:

Amanuf
act
urerofcedarshi
ngl
eshassuppl
i
edt
hef
oll
owi
ngdat
a:

Bundl
esofcedarshakespr
oducedandsol
d 360,
000
$2,
412,
00
Sal
esr
evenue 0
$1,
170,
00
Var
iabl
emanuf acturi
ngexpense 0
Fi
xedmanuf actur
ingexpense $714,
000
Var
iabl
eselli
ngandadmi nist
rati
veexpense $414,
000
Fi
xedsell
i
ngandadmi ni
strat
iveexpense $82,
000
Netoper
atingincome $32,
000

6-
78 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

109.Thecompany'
sbr
eak-
eveni
nuni
tsal
esi
scl
osestt
o:
A) 118,806
B) 206,957
C) 346,087
D) 14,775

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Medi
um

Sol
uti
on:

Sal
espri
ceperuni t=$2,412,
000÷360, 000uni
ts=$6.70
Var
iabl
eexpenseperuni t=($1,170,
000+$414,000)÷360,
000uni
ts=$4.
40
Sal
es=Variableexpenses+Fi xedexpenses+Profi
t
$6.
70Q=$4. 40Q+$796, 000+$0
$2.
30Q=$796, 000
Q=$796,000÷$2. 30perunit=346,087units(
rounded)

110.Thecompany
'scont
ri
but
ionmar
ginr
ati
oiscl
osestt
o:
A) 72.6%
B) 65.7%
C) 34.3%
D) 27.4%

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Easy

Sol
uti
on:

Cont
ri
but
ionmar
gin=Sal
es-Vari
ableexpenses
Cont
ri
but
ionmar
gin=$2,
412,
000-$1,584,
000=$828,000
Cont
ri
but
ionmar
ginr
ati
o=Contri
buti
onmar gin÷Sal
es
Cont
ri
but
ionmar
ginr
ati
o=$828,000÷$2,412,000
Cont
ri
but
ionmar
ginr
ati
o=34.3%

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
79
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

111.Thecompany
'sdegr
eeofoper
ati
ngl
ever
agei
scl
osestt
o:
A) 11.25
B) 25.88
C) 1.99
D) 75.38

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 8 Lev
el:
 
 Medi
um

Sol
uti
on:

Sales $2,
412,000
Variableexpenses 1,
584,000
Cont r
ibuti
onmar gin 828,000
Fixedexpenses 796,000
Netoper ati
ngi ncome $ 32, 000
Degr
eeofoper at
ingl ever
age=Contr
ibuti
onmar
gin/
Netoper
ati
ngi
ncome
=$828,000/$32,000=25. 88

Uset
hef
oll
owi
ngt
oanswerquest
ions112-
113:

Car
rInc.pr
oducessmal
lmot
orst
hatsel
lfor$15each.Costdat
aont
hemot
orsar
e
pr
ovidedbel
ow:

Sal
esi
nuni
tspery
ear 7,
000
$5.
00per
Var
iabl
epr
oduct
ioncost uni
t
$2.
00per
Var
iabl
esel
l
ingexpense uni
t
$1.
50per
Var
iableadmi ni
strat
iveexpense uni
t
Fi
xedexpensespery ear:
Buil
dingr ent $10,
000
Equipmentdepr eci
ation 4,
000
Sell
ingexpense 8,
000
Admi nist
rati
veexpense 15,
000
Tot
alfixedexpenses $37,
000

6-
80 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

112.Thecont
ri
but
ionmar
ginr
ati
ois(
roundt
onear
estt
ent
hofaper
cent
):
A) 56.7%
B) 43.3%
C) 66.7%
D) 53.3%

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Easy

Sol
uti
on:

Uni
tcont
ri
but
ionmargi
n=$15.00-($5.00+$2.00+$1.50)=$6.
50
Cont
ri
but
ionmargi
nrat
io=Contr
ibuti
onmar gi
n÷Sales
Cont
ri
but
ionmargi
nrat
io=$6.
50÷$15. 00
Cont
ri
but
ionmargi
nrat
io=43.
3%

113.I
fthesel
li
ngpri
ceisi
ncr
easedby10percent
,whatwi
l
lbet
henewbr
eak-
even
poi
nti
nunits(
roundt
othenear
estuni
t)
?
A) 3,895uni
ts
B) 4,625uni
ts
C) 3,700uni
ts
D) 3,217uni
ts

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Easy

Sol
uti
on:

Vari
abl
eexpenseperuni t=$5.
00+$2. 00+$1.
50=$8.50
Sal
es=Variableexpenses+Fixedexpenses+Prof
it
$16.
50Q=$8. 50Q+$37, 000+$0
$8.
00Q=$37, 000
Q=$37,000÷$8. 00perunit=4,625unit
s

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
81
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Uset
hef
oll
owi
ngt
oanswerquest
ions114-
115:

(CPA,adapt
ed)TheMaxwel
lCompanymanuf
act
uresandsel
l
sasi
ngl
epr
oduct
.
Budgeteddataf
oll
ow:

120,000
For
ecast edannual salesvolume uni
ts
Sel
lingpriceperuni t $25.00
Vari
ableexpensesperuni t:
Rawmat eri
als $11.00
Directlabor 5.00
Manuf act uri
ngoverhead 2.50
Sel l
i
ngexpenses  
  
1.30
Totalvari
abl eexpensesperunit $19.80
Annual f
ixedexpenses:
Manuf act uri
ngoverhead $192,
000
Sel l
i
ngandadmi nistrat
ive  
276,
000
Totalfi
xedexpenses $468,
000

114.Maxwel
l
'sbreak-
evenpoi
nti
nuni
tsi
s:
A) 76,667
B) 90,000
C) 130,000
D) 72,000

Ans:
  
B AACSB:  
Anal
yti
c AI CPA 
BB: 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Easy Source:
 
 CPA;
 adapt
ed

Sol
uti
on:

Sal
es=Vari
abl
eexpenses+Fi
xedexpenses+Pr
ofi
t
$25.
00Q=$19.
80Q+$468,000+$0
$5.
20Q=$468,
000
Q=$468,
000÷$5.20peruni
t=90,
000units

6-
82 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

115.I
fMax wellCompany'
sdir
ectl
aborcost
sincrease8per
cent,
whatsell
i
ngpri
ce
perunitofpr
oductmusti
tcharget
omai nt
ainthesamecontr
ibut
ionmar
gin
rat
io?
A) $25. 51
B) $27. 00
C) $25. 40
D) $26. 64

Ans:
  A AACSB: 
 Anal
yti
c AICPA BB:
 
 Cri
ti
cal 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3;
 5 Lev
el:
 
 Hard Source:
  
CPA; 
adapted

Sol
uti
on:

Currentcont r
ibuti
onmar ginperunit=Sell
ingpriceperuni
t−Total
variableexpensesperuni t=$25.00−$19. 80=$5. 20
Cur rentcontribut
ionmar ginrat
io=Cont ri
butionmar gi
n÷Selli
ngpri
ceperuni
t
$5.20÷$25. 00=20. 8%
Directlaborperuni t×0. 08=I ncreaseinvariabl
eexpense
$5.00×0. 08=$0. 40
Newt otalvariabl
eexpensesperuni t=$19. 80+$0. 40=$20.20
0.208=( Sell
ingprice−$20. 20)÷Selli
ngpr i
ce
0.208×Sel l
ingprice=Sel li
ngprice−$20.20
$20. 20=Sel li
ngpr i
ce−0. 208×Sel l
ingpri
ce
$20. 20=0. 792×Sel lingpr i
ce
Selli
ngpr ice=$25. 51

Uset
hef
oll
owi
ngt
oanswerquest
ions116-
117:

Thef
oll
owi
ngdat
awaspr
ovi
dedbyGr
eenCor
por
ati
on:

Product Product Product

A B C
$120,00 $100,00
Sal
esindol
lar
s $80,000 0 0
Cont
ri
buti
onmargi
nrat
io 30% 45% 27%

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
83
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

116.Thecont
ri
but
ionmar
ginr
ati
ofort
hecompanyasawhol
eis:
A) 34%
B) 65%
C) 35%
D) 66.7%

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 3 Lev
el:
 
 Easy

Sol
uti
on:

Pr
oduct Pr
oduct Pr
oduct
A B C Total
$120,
00 $100,
00 $300,00
Sales $80,
000 0 0 0
Contri
buti
onmargin
(
Sales×Contr
ibuti
on
marginr
ati
o) $24,
000 $54,
000 $27,
000 105,
000

Over
all
CM rat
io=Total
contr
ibut
ionmar
gin/
Tot
alsal
es
=$105,
000/
$300,000=35%

117.I
ftotalunitssoldremai
nunchanged,
butthesal
esmixshi
ftsmoreheav
il
y
towardProductB, onewoul
dexpecttheover
all
cont
ri
buti
onmarginr
ati
oto:
A) i ncrease
B) decr ease
C) r emai nunchanged
D) noneoft hese

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 9 Lev
el:
 
 Easy

Uset
hef
oll
owi
ngt
oanswerquest
ions118-
120:

Nextyear
,MuddFaceCosmet
ics,
asinglepr
oductcompany
,expect
stosel
l9,
000jar
s
ofmir
aclegl
aze.
MuddFaceisbudgeti
ngthefol
l
owingoper
ati
ngresul
tsf
ornexty
ear:

$450,
00
Sal
es 0
 
135,
00
Vari
ableexpenses 0
Contr
ibut
ionmar gi
n 315,
000
 
252,
00
Fi
xedexpenses 0

6-
84 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

$ 
63,
00
Netoper
ati
ngi
ncome 0

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
85
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

118.Howmanyjarsofgl
azewoul
dMuddFacehav
etosel
lnexty
eari
nor
dert
o
br
eak-
even?
A) 2,700
B) 5,040
C) 6,750
D) 7,200

Ans:
  
D AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Medi
um

Sol
uti
on:

Percent
Total ofSales
Sal
es $450,000 100.0%
Vari
ableexpenses  
  
135,000  
30.0%
Contr
ibut
ionmar gi
nandcont
ri
but
ionmar
gin $ 315,
00
r
ati
o 0  
70.0%

Break-evenintot
alsal
esdol lars=Fi
xedexpenses/
CM rat
io
=$252, 000/0.
700=$360, 000
Sell
ingpr i
ceperuni
t=$450, 000÷9,000jar
s=$50perj ar
Break-eveninuni
ts=Br eak-evensal
esdoll
ars÷Sell
ingpr
iceperuni
t
=$360, 000÷$50=7, 200j ars

119.Whatwoul
dMuddFace'stotalsalesdoll
arshav
etobenexty
eari
nor
dert
o
i
ncr
easeit
sproject
ednetoper
atingincomeby25%?
A) $465,750
B) $472,500
C) $499,500
D) $562,500

Ans:
  B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4;
 6 Lev
el:
 
 Medium

Sol
uti
on:

Cont
ribut
ionmarginrati
o=$315,000÷$450,000=70%
Desi
rednetoperat
ingincome=( $63,
000×1.25)=$78,750
Sal
esdoll
arsneededt oear
n$78,750=( Fi
xedexpenses+Targetnetoper
ati
ng
i
ncome)÷Cont r
ibuti
onmar gi
nrati
o=( $252,
000+$78,750)÷0.70=$472,500

6-
86 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

120.I
fsal
esnextyearatMuddFacear e10%hi
ghert
hanexpect
ed,
itsnetoper
ati
ng
i
ncomeshouldbe:
A) $4,410higherthanexpected.
B) $6,300higherthanexpected.
C) $31,500higherthanexpected.
D) $44,100higherthanexpected.

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Medi
um

Sol
uti
on:

Degreeofoper
atinglever
age=Contr
ibut
ionmargi
n÷Netoperat
ingincome
=$315,000÷$63,000=5
Ther
efore,i
ncr
easeinnetoperat
ingi
ncomewi l
lbe5×10%,or50%,higher
.
Curr
entnetoperati
ngincome×50%=$63, 000×50%=$31,
500increase

Uset
hef
oll
owi
ngt
oanswerquest
ions121-
122:

Mr
s.Raf
terhassuppl
i
edt
hef
oll
owi
ngdat
aforhersmal
lbusi
ness:

Sel
l
ingpri
ce $10peruni
t
Var
iabl
eexpenses $6peruni
t
$400per
Rent week
$600per
Sal
ari
es week
$200per
Ot
herf
ixedexpenses week

121.I
f500unitsar
esol
dinaweek,
thenetoper
ati
ngi
ncome(
loss)woul
dbe:
A) $1,800
B) $(2,000)
C) $2,000
D) $800

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Easy

Sol
uti
on:

Sal
es $5,
000
Vari
ableexpenses  3,
000
Contr
ibut
ionmar gi
n 2,
000

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
87
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Fi
xedexpenses  1,
200
Netoper
ati
ngincome $ 800

6-
88 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

122.I
fsal
escommi ssions$(
1.00peruni
t)aredi
sconti
nuedi
nfav
orofa$300
i
ncr
easeinsal
ar i
es,t
hebreak-
evenpointi
nunit
swould:
A) incr
ease
B) decrease
C) remainthesame
D) noneoft hese

Ans:
  C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4;
 5 Lev
el:
 
 Medium

Uset
hef
oll
owi
ngt
oanswerquest
ions123-
126:

Nexty
ear,RadShir
tCompanyexpectst
osel
l32,
000shi
rt
s.Radi
sbudget
ingt
he
f
oll
owingoperat
ingresul
tsf
ornexty
ear
:

$800,
00
Sal
es 0
 
288,
00
Vari
ableexpenses 0
Contr
ibut
ionmar gi
n 512,
000
 
192,
00
Fi
xedexpenses 0
$320,
00
Netoper
ati
ngi
ncome 0

123.Whati
sRad'
smar
ginofsaf
etyf
ornexty
ear
?
A) $480,
000
B) $500,
000
C) $512,
000
D) $608,
000

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 7 Lev
el:
 
 Medi
um

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
89
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Sol
uti
on:
Percentof
Total Sales
Sales $800,000 100.0%
Variableexpenses  
  
288,000  36%
Cont r
ibut
ionmar gi
nandcont
ri
but
ion
mar gi
nrati
o $ 
512,
000  
64%

Br
eak-eveni
nt ot
alsal
esdoll
ars=Fi
xedex
penses/
CM r
ati
o
=$192,000/
0.64=$300,000

Margi
nofsaf
etyi
ndol
lar
s=Sales−Br
eak-
evensal
es
=$800,
000−$300,
000=$500,
000

124.Whati
sRad'
sdegr
eeofoper
ati
ngl
ever
agef
ornexty
ear
?
A) 1.50
B) 1.56
C) 1.60
D) 2.50

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 8 Lev
el:
 
 Easy

Sol
uti
on:

Degr
eeofoper
ati
ngl
ever
age=Cont
ri
but
ionmar
gin/
Netoper
ati
ngi
ncome
=$512,
000/
$320,
000=1.
60

6-
90 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

125.Howmanyshi rt
swouldRadhav
etosel
lnexty
eari
nor
dert
ogener
ate$480,
000
ofnetoperat
ingi
ncome?
A) 38, 400
B) 48, 000
C) 60, 000
D) 42, 000

Ans:
  
D AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 6 Lev
el:
 
 Medi
um

Sol
uti
on:

Sal
espri
ce=$800,000÷32, 000unit
s=$25
Vari
abl
eexpenseperunit=$288,000÷32, 000uni
ts=$9
Sal
es=Variabl
eexpenses+Fi xedexpenses+Targetpr
ofi
t
$25Q=$9Q+$192, 000+$480, 000
$16Q=$672,000
Q=$672,000÷$16peruni t=42,000unit
s

126.Radisconsider
ingi
ncr
easingi
tsadver
tisi
ngby$48,
000nextyear
.Byhowmuch
woul
dsaleshav etoi
ncreasei
norderforRadtosti
l
lgener
atea$320,000net
oper
ati
ngi ncome?
A) $48, 000
B) $75, 000
C) $76, 800
D) $120, 000

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Hard

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
91
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Sol
uti
on:

Pr
opose
Cur
rent d
$800,00
Sales 0
 
288,00
Variableexpenses 0
$560,
00 *
Cont r
ibuti
onmar gin 512,000 0
 
192,00 240,000
Fixedexpenses 0
$320,00 $320,00
Netoper ati
ngincome 0 0
*Wor kbackwar dstoobt ai
nthenumber .
Sal
espr i
ce=$800, 000÷32, 000unit
s=$25
Variableexpenseperuni t=$288,000÷32, 000uni
ts=$9
Cont r
ibuti
onmar ginperunit=$25−$9=$16
$560,000÷$16=35, 000units
35,
000−32, 000=3, 000unitincr
ease
3,
000×$25=$75, 000i ncr
easeinsales

Uset
hef
oll
owi
ngt
oanswerquest
ions127-
130:

HoupeCorpor
ati
onpr
oducesandsel
l
sasi
ngl
epr
oduct
.Dat
aconcer
ningt
hatpr
oduct
appearbel
ow:

Per Percentof
Unit Sales
Sel
li
ngprice $140 100%
Vari
ableexpenses   
 42  
30%
Contr
ibut
ionmar gi
n $ 98  
70%

Fi
xedexpensesare$490,
000permont
h.Thecompanyiscurr
entl
ysell
i
ng6,
000uni
ts
permonth.Consi
dereachoft
hefol
l
owingquest
ionsi
ndependent
ly.

6-
92 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

127.Thisquest i
onistobeconsi deredindependentl
yofal lot
herquesti
onsr el
ati
ng
toHoupeCor por
ation.Refertotheorigi
naldatawhenanswer i
ngthi
squest i
on.
Themar ketingmanagerbel iev
est hata$14,000increaseinthemont hl
y
advert
isi
ngbudgetwoul dresultina150unitincreaseinmont hl
ysales.What
shoul
dbet heoveralleff
ectont hecompany '
smont hlynetoperat
ingincomeof
thi
schange?
A) i ncreaseof$700
B) i ncreaseof$14, 700
C) decr easeof$14, 000
D) decr easeof$700

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Easy

Sol
uti
on:

6,
000 6,
150
unit
s unit
s
Sales( 6,
000units×$140,
6,150uni
ts×$140) $840,
000 $861,
000
Variableexpenses(6,
000unit
s×$42,6,
150
unit
s×$42) 252,
000 258,
300
Cont r
ibuti
onmar gi
n 588,
000 602,
700
Fi
xedexpenses 490,
000 504,
000
Netoper ati
ngincome $98,
000 $98,
700

I
ncr
easei
nnetoper
ati
ngi
ncome:
$98,
700−$98,
000=$700

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
93
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

128.Thi
squest i
onistobeconsi deredi ndependentlyofal
lotherquest i
onsr el
ati
ng
toHoupeCor por
ati
on.Ref ertot heorigi
naldatawhenanswer ingthisquesti
on.
Managementi sconsider
ingusi nganewcomponentt hatwoul dincreasethe
uni
tvariablecostby$5.Si ncethenewcomponentwoul dincreaset hefeat
ures
oft
hecompany '
sproduct,themar ket
ingmanagerpr edi
ctst hatmont hl
ysales
wouldincreaseby300uni t
s.Whatshoul dbet heoveral
leffectont he
company '
smont hlynetoper at
ingi ncomeoft hischange?
A) decr easeof$2,100
B) decr easeof$27,900
C) i ncreaseof$2,100
D) i ncreaseof$27,900

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Easy

Sol
uti
on:

6,
000 6,
300
unit
s unit
s
Sal
es(
6,000uni
ts×$140,
6,300uni
ts×$140)
$840,
000 $882,
000
Vari
ableexpenses(6,
000uni
ts×$42,
6,300
units×$47) 252,
000 296,
100
Contr
ibuti
onmar gi
n 588,
000 585,
900
Fi
xedexpenses 490,
000 490,
000
Netoperati
ngincome $98,
000 $95,
900

Decr
easei
nnetoper
ati
ngi
ncome:
$98,
000−$95,
900=$2,
100

6-
94 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

129.Thisquest i
oni stobeconsi deredi ndependentl
yofallotherquesti
onsr elat
ing
toHoupeCor por
ation.Refertotheor igi
naldatawhenanswer ingthisquest i
on.
Themar ket i
ngmanagerwoul dl iketocuttheselli
ngpriceby$7andi ncrease
theadvertisingbudgetby$28, 000permont h.Themar ketingmanagerpr edicts
thatt
heset wochangeswoul dincr easemont hl
ysalesby500uni ts.What
shoul
dbet heov eralleff
ectont hecompany '
smont hl
ynetoper at
ingincomeof
thi
schange?
A) decr easeof$17, 500
B) i ncreaseof$17, 500
C) decr easeof$24, 500
D) i ncreaseof$38, 500

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Medi
um

Sol
uti
on:

6,
000 6,
500
unit
s unit
s
Sales( 6,
000units×$140,
6,500uni
ts×
$133) $840,
000 $864,
500
Variableexpenses(6,
000unit
s×$42,6,
500
unit
s×$42) 252,
000 273,
000
Cont r
ibuti
onmar gi
n 588,
000 591,
500
Fi
xedexpenses 490,
000 518,
000
Netoper ati
ngincome $98,
000 $73,
500

Decr
easei
nnetoper
ati
ngi
ncome:
$98,
000−$73,
500=$24,
500

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
95
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

130.Thisquest i
oni stobeconsi deredindependent lyofal l
ot herquesti
onsr elat
ing
toHoupeCor por ati
on.Refertotheor i
ginal datawhenanswer i
ngthisquestion.
Themar ketingmanagerwoul dli
ket ointroducesalescommi ssi
onsasan
i
ncentivef ort hesalesst aff
.Themar ket i
ngmanagerhaspr oposeda
commi ssi onof$11peruni t
.Inexchange, t
hesalesst affwoul daccepta
decreasei nt heirsalari
esof$58,000permont h.(
Thisi st hecompany '
ssav i
ngs
fortheent ir
esal esst af
f.)Themar keti
ngmanagerpr edictsthatint
roducingthis
salesincent i
v ewoul dincreasemont hlysalesby100uni ts.Whatshouldbet he
overal
l effectont hecompany '
smont hlynetoperatingincomeoft hischange?
A) i ncr easeof$700
B) i ncr easeof$56, 900
C) decr easeof$115, 300
D) i ncr easeof$588, 700

Ans:
  
A AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Medi
um

Sol
uti
on:

6,
000 6,
100
unit
s unit
s
Sales( 6,
000units×$140,
6,100uni
ts×$140) $840,
000 $854,
000
Variableexpenses(6,
000unit
s×$42,6,
100
unit
s×$53) 252,
000 323,
300
Cont r
ibuti
onmar gi
n 588,
000 530,
700
Fi
xedexpenses 490,
000 432,
000
Netoper ati
ngincome $98,
000 $98,
700

I
ncr
easei
nnetoper
ati
ngi
ncome:
$98,
700−$98,
000=$700

Uset
hef
oll
owi
ngt
oanswerquest
ions131-
134:

Dat
aconcer
ningLemel
i
nCor
por
ati
on'
ssi
ngl
epr
oductappearbel
ow:

Per Percentof
Uni
t Sales
Sel
li
ngprice $230 100%
Vari
ableexpenses  
115  
50%
Contr
ibut
ionmar gi
n $115  
50%

Thecompanyi
scurrent
lysel
l
ing7,000uni
tspermont
h.Fi
xedexpensesar
e$581,
000
permont
h.Consi
dereachofthefoll
owi
ngquesti
onsi
ndependent
ly.

6-
96 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

131.Thisquest i
onistobeconsi deredindependentlyofal
lotherquest i
onsr el
ati
ng
toLemel i
nCor porati
on. Refert
ot heori
ginaldatawhenanswer ingthisquesti
on.
Managementi sconsi deri
ngusi nganewcomponentt hatwoul dincreasethe
uni
tvariablecostby$3.Si ncethenewcomponentwoul dincreaset hefeat
ures
ofthecompany '
spr oduct,themar ket
ingmanagerpr edi
ctst hatmont hl
ysales
wouldincreaseby200uni t
s.Whatshoul dbet heoveral
leffectont he
company '
smont hlynetoper at
ingincomeoft hischange?
A) decr easeof$22, 400
B) decr easeof$1, 400
C) i ncreaseof$22, 400
D) i ncreaseof$1, 400

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Easy

Sol
uti
on:

7,000 7,200
uni
ts uni
ts
Sales( 7,
000units×$230,7,
200uni
ts× $1,
610,00 $1,
656,00
$230) 0 0
Variableexpenses(7,
000unit
s×$115,
7,200
unit
s×$118) 805,
000 849,
600
Cont r
ibuti
onmar gi
n 805,
000 806,
400
Fi
xedexpenses 581,
000 581,
000
Netoper ati
ngincome $ 224,
000 $ 225,
400

I
ncr
easei
nnetoper
ati
ngi
ncome:
$225,
400−$224,
000=$1,
400

132.Thisquest i
onist obeconsideredindependentl
yofal lot
herquest i
onsr el
ati
ng
toLemelinCor porati
on.Refert
ot heori
ginaldat
awhenanswer ingthisquesti
on.
Themar ketingmanagerbel iev
est hata$11,000increaseinthemont hl
y
advert
isi
ngbudgetwoul dresultina100unitincreaseinmont hlysales.What
shoul
dbet heov eral
leff
ectont hecompany '
smont hlynetoper at
ingincomeof
thi
schange?
A) decr easeof$11, 000
B) i ncreaseof$11, 500
C) decr easeof$500
D) i ncreaseof$500

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Easy

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
97
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Sol
uti
on:

7,000 7,100
uni
ts uni
ts
Sales( 7,
000units×$230,
7,100uni
ts× $1,
610,00 $1,
633,00
$230) 0 0
Variableexpenses(7,
000unit
s×$115,
7,100units×$115) 805,
000 816,
500
Cont r
ibuti
onmar gi
n 805,
000 816,
500
Fi
xedexpenses 581,
000 592,
000
Netoper ati
ngincome $ 224,
000 $ 224,
500

I
ncr
easei
nnetoper
ati
ngi
ncome:
$224,
500−$224,
000=$500

133.Thisquest i
oni stobeconsi deredindependent l
yofallotherquesti
onsrelati
ng
toLemel inCor porat
ion.Refertotheorigi
nal datawhenanswer i
ngthisquesti
on.
Themar ketingmanagerwoul dli
ket oint
roducesal escommi ssi
onsasan
i
ncent ivefort hesalesst af
f.Themar keti
ngmanagerhaspr oposeda
commi ssionof$20peruni t
.Inexchange, thesalesstaffwouldaccepta
decreasei nt heirsalar
iesof$113, 000permont h.(
Thisisthecompany '
s
savingsf ortheent i
resalesstaff
.)Themar keti
ngmanagerpr edict
sthat
i
ntroduci ngt hissalesincenti
vewoul dincreasemont hlysalesby300uni t
s.
Whatshoul dbet heov eral
leff
ectont hecompany '
smont hl
ynetoper at
ing
i
ncomeoft hischange?
A) decr easeof$224, 500
B) i ncreaseof$107, 000
C) i ncreaseof$1, 500
D) i ncreaseof$806, 500

Ans:
  
C AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Medi
um

Sol
uti
on:

7,000 7,300
uni
ts uni
ts
Sales( 7,
000units×$230,7,
300uni
ts× $1,
610,00 $1,
679,00
$230) 0 0
Variableexpenses(7,
000unit
s×$115,
7,300
unit
s×$135) 805,
000 985,
500
Cont r
ibuti
onmar gi
n 805,
000 693,
500
Fi
xedexpenses 581,
000 468,
000
Netoper ati
ngincome $ 224,
000 $ 225,
500

6-
98 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

I
ncr
easei
nnetoper
ati
ngi
ncome:
$225,
500−$224,
000=$1,
500

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
99
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

134.Thisquest i
oni stobeconsideredi ndependentlyofal
l otherquesti
onsr el
ating
toLemelinCor porati
on.Refertot heori
ginaldatawhenanswer i
ngthisquest i
on.
Themar ket i
ngmanagerwoul dliketocutt hesell
ingpriceby$18andi ncrease
theadvertisingbudgetby$37,000permont h.Themar ketingmanagerpr edicts
thatt
heset wochangeswoul dincr easemont hlysal
esby1, 600unit
s.What
shoul
dbet heov eral
leff
ectont hecompany 'smonthlynetoper at
ingincomeof
thi
schange?
A) i ncreaseof$118, 200
B) i ncreaseof$302, 200
C) decr easeof$118, 200
D) decr easeof$7, 800

Ans:
  
D AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Medi
um

Sol
uti
on:

7,000 8,600
uni
ts uni
ts
Sales( 7,
000units×$230,
8,600uni
ts× $1,
610,00 $1,
823,20
$212) 0 0
Variableexpenses(7,
000unit
s×$115,
8,600units×$115) 805,
000 989,
000
Cont r
ibuti
onmar gi
n 805,
000 834,
200
Fi
xedexpenses 581,
000 618,
000
Netoper ati
ngincome $ 224,
000 $ 216,
200

Decr
easei
nnetoper
ati
ngi
ncome:
$224,
000−$216,
200=$7,
800

Uset
hef
oll
owi
ngt
oanswerquest
ions135-
138:

Thor
nbr
oughCorpor
ati
onpr
oducesandsel
l
sasi
ngl
epr
oductwi
tht
hef
oll
owi
ng
char
act
eri
sti
cs:

Per Percentof
Unit Sales
Sel
li
ngprice $220 100%
Vari
ableexpenses  
  
44  
20%
Contr
ibut
ionmar gi
n $176  
80%

Thecompanyi
scurrent
lysel
l
ing7,000uni
tspermont
h.Fi
xedexpensesar
e$901,
000
permont
h.Consi
dereachofthefoll
owi
ngquesti
onsi
ndependent
ly.

6-
100 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

135.Thisquest i
onistobeconsi deredindependentlyofallotherquest i
onsr elati
ng
toThornbr oughCorporat
ion.Ref ertotheori
ginaldatawhenanswer ingthis
questi
on.
Managementi sconsider
ingusi nganewcomponentt hatwoul dincreaset he
uni
tvariablecostby$11.Sincet henewcomponentwoul dincreaset hefeatures
ofthecompany '
sproduct,themar ketingmanagerpr edi
ctst hatmont hl
ysales
wouldincreaseby500uni t
s.Whatshoul dbetheov eral
leffectont he
company '
smont hlynetoper at
ingi ncomeofthischange?
A) i ncreaseof$82,500
B) decr easeof$5,500
C) decr easeof$82,500
D) i ncreaseof$5,500

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Easy

Sol
uti
on:

7,000 7,500
uni
ts uni
ts
Sales( 7,
000units×$220,
7,500uni
ts× $1,
540,00 $1,
650,00
$220) 0 0
Variableexpenses(7,
000unit
s×$44,7,
500
unit
s×$55) 308,
000 412,
500
Cont r
ibuti
onmar gi
n 1,
232,
000 1,237,
500
Fi
xedexpenses 901,
000 901,
000
Netoper ati
ngincome $ 331,
000 $ 336,
500

I
ncr
easei
nnetoper
ati
ngi
ncome:
$336,
500−$331,
000=$5,
500

136.Thisquest i
onistobeconsi der
edindependentlyofallot
herquesti
onsr el
ati
ng
toThornbr oughCorporati
on.Refert
otheoriginaldatawhenanswer i
ngt hi
s
questi
on.
Themar ket i
ngmanagerbel i
evesthata$28,000increaseinthemont hl
y
advert
isi
ngbudgetwoul dresul
tina190unitincreaseinmont hl
ysales.What
shoul
dbet heoveral
leffectonthecompany '
smont hlynetoperat
ingincomeof
thi
schange?
A) decr easeof$28,000
B) i ncreaseof$33,440
C) i ncreaseof$5,440
D) decr easeof$5,440

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Easy

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
101
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

6-
102 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Sol
uti
on:

7,000 7,190
uni
ts uni
ts
Sales( 7,
000units×$220,
7,190uni
ts× $1,
540,00 $1,
581,80
$220) 0 0
Variableexpenses(7,
000unit
s×$44,7,
190
unit
s×$44) 308,
000 316,
360
Cont r
ibuti
onmar gi
n 1,
232,
000 1,265,
440
Fi
xedexpenses 901,
000 929,
000
Netoper ati
ngincome $ 331,
000 $ 336,
440

I
ncr
easei
nnetoper
ati
ngi
ncome:
$336,
440−$331,
000=$5,
440

137.Thisquest i
oni stobeconsi deredi ndependentlyofallotherquesti
onsr el
ating
toThornbr oughCor porati
on.Ref ertotheoriginaldatawhenanswer i
ngt his
questi
on.
Themar ket i
ngmanagerwoul dl iketocutthesel l
ingpriceby$18andi ncrease
theadvertisingbudgetby$53, 000permont h.Themar ketingmanagerpr edict
s
thatt
heset wochangeswoul dincr easemont hlysalesby1, 000unit
s.What
shoul
dbet heov eral
leffectont hecompany '
smont hlynetoper at
ingincomeof
thi
schange?
A) decr easeof$105, 000
B) i ncreaseof$149, 000
C) i ncreaseof$105, 000
D) decr easeof$21, 000

Ans:
  
D AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Medi
um

Sol
uti
on:

7,000 8,
000
uni
ts unit
s
Sales( 7,
000unit
s×$220,8,000uni
ts×$202) $1,
540,00 $1,616,
00
0 0
Variableexpenses(7,
000unit
s×$44,8,
000
unit
s×$44) 308,000 352,
000
Cont r
ibuti
onmar gi
n 1,
232,000 1,264,
000
Fi
xedexpenses 901,000 954,
000
Netoper ati
ngincome $ 331,000 $ 310,
000

Decr
easei
nnetoper
ati
ngi
ncome:
$331,
000−$310,
000=$21,
000

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
103
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

6-
104 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

138.Thisquest i
oni stobeconsi deredindependent lyofal l
ot herquesti
onsr elat
ing
toThor nbr oughCor porati
on.Refert ot heor i
ginaldatawhenanswer i
ngt his
questi
on.
Themar ket i
ngmanagerwoul dli
ket oi ntroducesalescommi ssi
onsasan
i
ncentivef ort hesalesstaff.Themar ket i
ngmanagerhaspr oposeda
commi ssi onof$11peruni t.Inexchange, t
hesalesst affwoul daccepta
decreasei nt heirsal
ari
esof$65, 000permont h.(
Thisi st hecompany '
ssav i
ngs
fortheent iresalesstaff.
)Themar ketingmanagerpr edictsthatint
roducingthis
salesincent ivewouldincreasemont hlysal esby300uni ts.Whatshouldbet he
overal
l effectont hecompany '
smont hl ynetoperatingincomeoft hischange?
A) i ncr easeof$1, 269,500
B) i ncr easeof$37, 500
C) i ncr easeof$61, 700
D) decr easeof$92, 500

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 4 Lev
el:
 
 Medi
um

Sol
uti
on:

7,000 7,
300
uni
ts unit
s
$1,
540,00 $1,606,
00
Sales( 7,
000units×$220,
7,300uni
ts×$220) 0 0
Variableexpenses(7,
000unit
s×$44,7,
300
unit
s×$55) 308,000 401,
500
Cont r
ibuti
onmar gi
n 1,
232,000 1,204,
500
Fi
xedexpenses 901,000 836,
000
Netoper ati
ngincome $ 331,000 $ 368,
500

I
ncr
easei
nnetoper
ati
ngi
ncome:
$368,
500−$331,
000=$37,
500

Uset
hef
oll
owi
ngt
oanswerquest
ions139-
140:

Tri
ciaCorporat
ionisasi
ngl
eproductf
ir
mt hatsel
lsi
tsproductf
or$2.50peruni
t.
Vari
ableexpenseperuni
tatTr
ici
ais$1.00.Tr
ici
aexpect
sf i
xedexpensest
ototal
$18,
000f ornextyear
.

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
105
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

139.Howmanyuni
tswoul
dTr
ici
ahav
etosel
lnexty
eari
nor
dert
obr
eak-
even?
A) 7,
200
B) 12,
000
C) 30,
000
D) 45,
000

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Easy

Sol
uti
on:

Sal
es=Var
iableexpenses+Fixedexpenses+Pr
ofi
t
$2.
50Q=$1.00Q+$18, 000+$0
$1.
50Q=$18,000
Q=$18,
000÷$1. 50perunit=12,
000units

140.WhatwouldTri
cia'
stotal
salesdol
l
arshav
etobenexty
eari
nor
dert
ogener
ate
$45,
000ofnetoperati
ngincome?
A) $30,000
B) $42,000
C) $75,000
D) $105,000

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 6 Lev
el:
 
 Easy

Sol
uti
on:

Contri
buti
onmar gin=Sal espri
ce-Variabl
eexpenseperuni
t
Contri
buti
onmar gin=$2. 50-$1.00=$1.50
CM rati
o=$1. 50÷$2.50=0. 60
Totalsal
esdol l
arstoatt
aintargetprof
it
=(Fixedexpenses+Tar getprofi
t)/
CM rati
o
=($18,000+$45, 000)
/0.60=$105, 000

6-
106 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Uset
hef
oll
owi
ngt
oanswerquest
ions141-
142:

Zanett
iCor
por
ati
onpr
oducesandsel
l
sasi
ngl
epr
oduct
.Dat
aconcer
ningt
hatpr
oduct
appearbel
ow:

Sel
l
ingpri
ceperuni
t $110.
00
Var
iabl
eexpenseperuni
t $34.
10
$132,
06
Fi
xedexpensepermont
h 6

141.Thebr
eak-
eveni
nmont
hlyuni
tsal
esi
scl
osestt
o:
A) 3,873
B) 1,740
C) 1,201
D) 2,271

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Easy

Sol
uti
on:

Sal
es=Variabl
eexpenses+Fi
xedexpenses+Pr
ofi
t
$110.
00Q=$34.10Q+$132,066+$0
$75.
90Q=$132,066
Q=$132,066÷$75.90peruni
t=1,
740units

142.Thebr
eak-
eveni
nmont
hlydol
l
arsal
esi
scl
osestt
o:
A) $191,
400
B) $249,
810
C) $426,
030
D) $132,
110

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Easy

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
107
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Sol
uti
on:
Percent
PerUnit ofSales
$110.
0
Sal
es 0 100.0%
Vari
ableexpenses  
  34.
10  
31.0%
Contr
ibut
ionmar gi
nandcont
ri
but
ionmar
gin
r
ati
o $75.
90  
69.
0%

Br
eak-eveni
nt ot
alsal
esdoll
ars=Fi
xedex
penses/
CM r
ati
o
=$132,066/
0.69=$191,400

Uset
hef
oll
owi
ngt
oanswerquest
ions143-
144:

Dat
aconcer
ningSi
nisi
Cor
por
ati
on'
ssi
ngl
epr
oductappearbel
ow:

Sel
l
ingpri
ceperuni
t $200.
00
Var
iabl
eexpenseperuni
t $58.
00
$407,
54
Fi
xedexpensepermont
h 0

143.Thebr
eak-
eveni
nmont
hlyuni
tsal
esi
scl
osestt
o:
A) 2,038
B) 7,027
C) 2,870
D) 3,978

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Easy

Sol
uti
on:

Sal
es=Vari
abl
eexpenses+Fixedexpenses+Pr
ofi
t
$200Q=$58Q+$407,540+$0
$142Q=$407,
540
Q=$407,
540÷$142perunit=2,870unit
s

6-
108 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

144.Thebr
eak-ev
eninmont
hlydol
l
arsal
esi
scl
osestt
o:
A) $407,600
B) $1,405,
400
C) $574,000
D) $795,600

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Easy

Sol
uti
on:
Percent
PerUni
t ofSales
Sal
es $200 100.0%
Vari
ableexpenses   
 58  
29.0%
Contr
ibut
ionmar gi
nandcont
ri
but
ionmar
gin
r
ati
o $142  
71.
0%

Br
eak-eveni
nt ot
alsal
esdoll
ars=Fi
xedex
penses/
CM r
ati
o
=$407,540/
0.71=$574,000

Uset
hef
oll
owi
ngt
oanswerquest
ions145-
146:

HeathmanInc.producesandsell
sasi
ngl
eproduct
.Thesell
i
ngpriceoftheproductis
$230.00peruni
tanditsvar
iabl
ecosti
s$89.
70peruni
t.Thefi
xedexpenseis$308,660
permonth.

145.Thebr
eak-
eveni
nmont
hlyuni
tsal
esi
scl
osestt
o:
A) 2,328
B) 1,342
C) 3,441
D) 2,200

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Easy

Sol
uti
on:

Sal
es=Variabl
eexpenses+Fixedexpenses+Pr
ofi
t
$230.
00Q=$89.70Q+$308,660+$0
$140.
30Q=$308,660
Q=$308,660÷$140.30perunit=2,
200units

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
109
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

146.Thebr
eak-
eveni
nmont
hlydol
l
arsal
esi
scl
osestt
o:
A) $791,
436
B) $535,
365
C) $506,
000
D) $308,
660

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 5 Lev
el:
 
 Easy

Sol
uti
on:
Percent
PerUni
t ofSales
Sal
es $230.
00 100. 0%
Vari
ableexpenses    
89.
70  39.0%
Contr
ibut
ionmar gi
nandcont
ri
but
ionmar
gin
r
ati
o $140.
30  
61.
0%

Br
eak-eveni
nt ot
alsal
esdoll
ars=Fi
xedex
penses/
CM r
ati
o
=$308,660/
0.61=$506,000

Uset
hef
oll
owi
ngt
oanswerquest
ions147-
148:

Mazi
arzCorporat
ionproducesandsel
l
sasi
ngl
epr
oduct
.Dat
aconcer
ningt
hat
pr
oductappearbelow:

Sel
l
ingpri
ceperuni
t $220.
00
Var
iabl
eexpenseperuni
t $72.
60
$548,
32
Fi
xedexpensepermont
h 8

147.Assumet hecompany'
smonthl
ytar
getpr
ofi
tis$14,
000.
Theuni
tsal
est
oat
tai
n
thatt
argetprof
iti
scl
osestt
o:
A) 7, 746
B) 2, 556
C) 4, 706
D) 3, 815

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 6 Lev
el:
 
 Easy

Sol
uti
on:

Sal
es=Vari
abl
eexpenses+Fi
xedexpenses+Tar
getpr
ofi
t
$220.
00Q=$72.
60Q+$548,328+$14,000

6-
110 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

$147.
40Q=$562,328
Q=$562,328÷$147.40peruni
t=3,
815uni
ts(
rounded)

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
111
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

148.Assumethecompany'
smont hl
ytargetpr
ofi
tis$16,
000.Thedol
l
arsal
est
o
at
taint
hatt
argetpr
ofi
tiscl
osestto:
A) $564,328
B) $1,710,
085
C) $1,038,
898
D) $842,281

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 6 Lev
el:
 
 Easy

Sol
uti
on:

Contri
buti
onmar ginperunit=Salespr i
ce-Vari
abl
eexpenseperuni
t
Contri
buti
onmar ginperunit=$220. 00-$72.
60=$147.40
CM rati
o=$147. 40÷$220. 00=0. 67
Totalsal
esdollarstoatt
aintargetprofi
t
=(Fixedexpenses+Tar getprofi
t)/CM r
ati
o
=($548,328+$16, 000)
/0.67=$842, 281(r
ounded)

Uset
hef
oll
owi
ngt
oanswerquest
ions149-
150:

Dat
aconcer
ningSt
ri
teCor
por
ati
on'
ssi
ngl
epr
oductappearbel
ow:

Sel
l
ingpri
ceperuni
t $150.
00
Var
iabl
eexpenseperuni
t $42.
00
$421,
20
Fi
xedexpensepermont
h 0

149.Assumet hecompany'
smonthl
ytar
getpr
ofi
tis$17,
000.
Theuni
tsal
est
oat
tai
n
thatt
argetprof
iti
scl
osestt
o:
A) 5, 804
B) 2, 921
C) 4, 057
D) 10, 433

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 6 Lev
el:
 
 Easy

Sol
uti
on:

Sal
es=Vari
abl
eexpenses+Fixedexpenses+Targetpr
ofi
t
$150Q=$42Q+$421,200+$17,000
$108Q=$438,
200
Q=$438,
200÷$108perunit=4,057unit
s(rounded)

6-
112 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
113
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

150.Assumethecompany'
smont hl
ytargetpr
ofi
tis$8,
000.Thedol
l
arsal
est
o
at
taint
hatt
argetpr
ofi
tiscl
osestto:
A) $596,111
B) $1,532,
857
C) $852,723
D) $429,200

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 6 Lev
el:
 
 Easy

Sol
uti
on:

Contri
buti
onmar ginperunit=Salespr i
ce-Var i
abl
eexpenseperuni
t
Contri
buti
onmar ginperunit=$150. 00-$42.00=$108.00
CM rati
o=$108. 00÷$150. 00=0. 72
Totalsal
esdollarstoatt
aintargetprofi
t
=(Fixedexpenses+Tar getprofi
t)/CM r
atio
=($421,200+$8, 000)
/0.72=$596, 111(rounded)

Uset
hef
oll
owi
ngt
oanswerquest
ions151-
152:

SpeckmanEnterpri
ses,
Inc.
,producesandsell
sasi
ngl
eproductwhosesel
l
ingpri
cei
s
$200.00peruni
tandwhosev ariabl
eexpensei
s$68.
00perunit
.Thecompany'
s
monthlyfi
xedexpenseis$514,800.

151.Assumet hecompany'
smonthl
ytar
getpr
ofi
tis$11,
000.
Theuni
tsal
est
oat
tai
n
thatt
argetprof
iti
scl
osestt
o:
A) 2, 629
B) 3, 983
C) 4, 781
D) 7, 732

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 6 Lev
el:
 
 Easy

Sol
uti
on:

Sal
es=Variabl
eexpenses+Fixedexpenses+Targetpr
ofi
t
$200.
00Q=$68.00Q+$514,800+$11, 000
$132.
00Q=$525,800
Q=$525,800÷$132perunit=3,983units(
rounded)

6-
114 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

152.Assumethecompany'
smont hl
ytargetpr
ofi
tis$12,
000.Thedol
l
arsal
est
o
at
taint
hatt
argetpr
ofi
tiscl
osestto:
A) $1,549,
412
B) $798,182
C) $526,800
D) $958,131

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 6 Lev
el:
 
 Easy

Sol
uti
on:

Contri
buti
onmar ginperunit=Salespr i
ce-Vari
abl
eexpenseperuni
t
Contri
buti
onmar ginperunit=$200. 00-$68.
00=$132.00
CM rati
o=$132. 00÷$200. 00=0. 66
Totalsal
esdollarstoatt
aintargetprofi
t
=(Fixedexpenses+Tar getprofi
t)/CM r
ati
o
=($514,800+$12, 000)
/0.66=$798, 182(r
ounded)

Uset
hef
oll
owi
ngt
oanswerquest
ions153-
154:

Jer
rel
Corpor
ati
onsel
l
saproductf
or$230peruni
t.Thepr
oduct
'scur
rentsal
esar
e
24,
000uni
tsandit
sbr
eak-
evensal
esare17,
280unit
s.

153.Whati
sthemarginofsaf
etyi
ndol
l
ars?
A) $5,520,
000
B) $1,545,
600
C) $3,974,
400
D) $3,680,
000

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 7 Lev
el:
 
 Easy

Sol
uti
on:

Marginofsaf etyi
ndoll
ars:
Break-evensales=$230peruni
t×17,280uni t
s=$3,974,
400
Currentsales=$230perunit×24,
000uni t
s=$5,520,
000
Marginofsaf etyi
ndoll
ars=Sal
es−Br eak-ev
ensales
=$5,520,000−$3, 974,
400=$1,
545,
600

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
115
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

154.Themar
ginofsaf
etyasaper
cent
ageofsal
esi
scl
osestt
o:
A) 61%
B) 28%
C) 72%
D) 39%

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 7 Lev
el:
 
 Easy

Sol
uti
on:

Mar ginofsafetyi
ndoll
ars:
Break-evensales=$230peruni t×17,280uni t
s=$3,974,
400
Currentsales=$230peruni t×24,000uni t
s=$5,520,
000
Mar ginofsafetyi
ndoll
ars=Sal es−Br eak-ev
ensales
=$5, 520,
000−$3, 974,
400=$1, 545,
600
Mar ginofsafet
yasaper centageofsales=Mar gi
nofsafet
yindol
l
ars÷Cur
rent
sales=$1, 545,
600÷$5,520,000=28%

Uset
hef
oll
owi
ngt
oanswerquest
ions155-
156:

Mar
uskaCor
por
ati
onhaspr
ovi
dedt
hef
oll
owi
ngdat
aconcer
ningi
tsonl
ypr
oduct
:

$180per
Sel
l
ingpr
ice uni
t
29,
800
Cur
rentsal
es uni
ts
25,
032
Br
eak-
evensal
es uni
ts

6-
116 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

155.Whati
sthemarginofsaf
etyi
ndol
l
ars?
A) $4,505,
760
B) $858,240
C) $3,576,
000
D) $5,364,
000

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 7 Lev
el:
 
 Easy

Sol
uti
on:

Marginofsaf etyi
ndoll
ars:
Break-evensales=$180peruni
t×25,032=$4, 505,
760
Currentsales=$180perunit×29,
800=$5, 364,
000
Marginofsaf etyi
ndoll
ars=Sal
es−Br eak-
evensales
=$5,364,000−$4, 505,
760=$858,
240

156.Themar
ginofsaf
etyasaper
cent
ageofsal
esi
scl
osestt
o:
A) 19%
B) 16%
C) 84%
D) 81%

Ans:
  
B AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 7 Lev
el:
 
 Easy

Sol
uti
on:

Mar ginofsafetyindol
l
ars:
Break-evensales=$180peruni t×25,032=$4, 505,
760
Currentsales=$180peruni t×29,800=$5, 364,
000
Mar ginofsafetyindol
l
ars=Sal es−Br eak-
evensales
=$5, 364,
000−$4, 505,
760=$858, 240
Mar ginofsafetyasapercentageofsales=Mar gi
nofsafet
yindol
l
ars÷Cur
rent
sales=$858, 240÷$5,364,000=16%

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
117
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Uset
hef
oll
owi
ngt
oanswerquest
ions157-
158:

Boi
sCor
por
ati
onhaspr
ovi
dedi
tscont
ri
but
ionf
ormati
ncomest
atementf
orJanuar
y.

$426,40
Sal
es 0
 
260,00
Vari
ableexpenses 0
Contr
ibut
ionmar gi
n 166,400
 
120,90
Fi
xedexpenses 0
$ 
45,50
Netoper
ati
ngi
ncome 0

157.Thedegr
eeofoper
ati
ngl
ever
agei
scl
osestt
o:
A) 0.11
B) 9.37
C) 0.27
D) 3.66

Ans:
  
D AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 8 Lev
el:
 
 Easy

Sol
uti
on:

Degr
eeofoper
ati
ngl
everage=Cont
ri
but
ionmar
gin/
Netoper
ati
ngi
ncome
=$166,
400/
$45,
500=3.66

158.I
fthecompany
'ssal
esi
ncr
easeby7%,
it
snetoper
ati
ngi
ncomeshoul
dincr
ease
byabout
:
A) 26%
B) 7%
C) 66%
D) 11%

Ans:
  
A AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 8 Lev
el:
 
 Easy

Sol
uti
on:

Degreeofoper at
inglev
er age=Contr
ibut
ionmargi
n/Netoper
ati
ngi
ncome
=$166, 400/$45,500=3.66
Percentincreaseinnetoper at
ingi
ncome
=Per centincreaseinsales×Degreeofoperat
ingl
everage

6-
118 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

=7%×3.
66=26%

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
119
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Uset
hef
oll
owi
ngt
oanswerquest
ions159-
160:

TheJul
ycont
ri
but
ionf
ormati
ncomest
atementofDoxt
aterCor
por
ati
onappear
s
bel
ow:

$564,40
Sal
es 0
 
312,80
Vari
ableexpenses 0
Contr
ibut
ionmar gi
n 251,600
 
193,80
Fi
xedexpenses 0
$ 
57,80
Netoper
ati
ngi
ncome 0

159.Thedegr
eeofoper
ati
ngl
ever
agei
scl
osestt
o:
A) 0.23
B) 0.10
C) 4.35
D) 9.76

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 8 Lev
el:
 
 Easy

Sol
uti
on:

Degr
eeofoper
ati
ngl
everage=Cont
ri
but
ionmar
gin/
Netoper
ati
ngi
ncome
=$251,
600/
$57,
800=4.35

160.I
fthecompany'ssalesi
ncr
easeby19%,
itsnetoper
ati
ngi
ncomeshoul
d
i
ncreasebyabout:
A) 10%
B) 19%
C) 83%
D) 186%

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 8 Lev
el:
 
 Easy

Sol
uti
on:

Degreeofoper
ati
ngl
everage=Contr
ibut
ionmar
gin/
Netoper
ati
ngi
ncome
=$251,600/
$57,
800=4.35
Percenti
ncr
easei
nnetoperat
ingi
ncome

6-
120 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

=Per
centi
ncr
easei
nsal
es×Degr
eeofoper
ati
ngl
ever
age
=19%×4.35=83%

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
121
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Uset
hef
oll
owi
ngt
oanswerquest
ions161-
162:

Taylor,
Inc.producesonlytwopr oduct
s, Acdom andBelnom.Theseaccountfor60%
and40%oft hetot
alsalesdoll
arsofTaylor,r
especti
vel
y.Theuni
tv ar
iabl
eexpenseasa
percentageoftheselli
ngpriceis60%f orAcdom and85%f orBelnom.Totalfi
xed
expensesar e$150,000.Therearenoot hercost
s.

161.Whati
sTayl
or'
sbr
eak-
evenpoi
nti
nsal
esdol
l
ars?
A) $150,
000
B) $214,
286
C) $300,
000
D) $500,
000

Ans:
  
D AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 9 Lev
el:
 
 Har
d

Sol
uti
on:

Eachpr oduct’
scont ri
but i
onmar gi
nr at
eis( 1−v ari
abl
eexpenseper cent
age)
Acdom =1−0. 6=0. 4
Belnom =1−0. 85=0. 15
Tocalculat et
hewei ght edav eragecont ri
butionmar gi
n,multi
plyeachproduct
’s
contri
butionmar ginrat i
obyi tsper centageoft otal
salesdol
lars:
(60%×0. 4%)+( 40%×0. 15%)=
0.24%+0. 06%=0. 30%
Tocalculat et
hebr eak-ev enpoi ntinsalesdol l
ars:
Fixedexpenses÷Wei ghtedav er agecont r
ibuti
onmar ginrat
io
=$150,000÷0. 30=$500, 000

6-
122 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

162.Assumingthatthetot
al f
ixedexpensesofTaylorincr
easeby30%andt hesal
es
mixremainsconstant
, whatamountofsal esdoll
arswouldbenecessaryt
o
generat
eanetoper at
ingincomeof$9, 000?
A) $204, 000
B) $464, 000
C) $659, 000
D) $680, 000

Ans:
  
D AACSB:  
Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 9 Lev
el:
 
 Har
d

Sol
uti
on:

Eachpr oduct’
scont ri
butionmar ginrat
ei s(1−v ari
abl
eexpensepercent
age)
Acdom =1−0. 6=0. 4
Belnom =1−0. 85=0. 15
Tocal cul at
ethewei ghtedav er agecontribut
ionmar gi
n,mult
ipl
yeachproduct
’s
cont r
ibut i
onmar ginrati
obyi tspercentageoft otalsalesdol
lar
s:
(60%×0. 4%)+(40%×0. 15%)=0. 24+0. 06=0. 30
Newf ixedexpenses=( $150, 000×1. 30)=$195, 000
Salesdol l
arsneeded=( Fixedexpenses+Tar getnetoperati
ngincome)÷
Wei ght edaveragecont r
ibut i
onmar gi
nr ati
o
=($195, 000+$9, 000)÷0. 30=$680, 000

Uset
hef
oll
owi
ngt
oanswerquest
ions163-
164:

Diet
ri
ckCor
porati
onpr
oducesandsel
l
stwopr
oduct
s.Dat
aconcer
ningt
hosepr
oduct
s
fort
hemostrecentmont
happearbel
ow:

Product Product
B32L K84B
Sal
es $46,000 $27,000
Var
iabl
eexpenses $13,800 $14,670

Fi
xedexpensesf
ort
heent
ir
ecompanywer
e$42,
550.

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
123
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

163.Thebr
eak-ev
enpoi
ntf
ort
heent
ir
ecompanyi
scl
osestt
o:
A) $42,550
B) $71,020
C) $69,754
D) $30,450

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 9 Lev
el:
 
 Easy

Sol
uti
on:
Product Product
B32L K84B Tot
al
Sal
es $46,000 $27,000 $73,
000
Vari
ableexpenses   
13,800  14,670  28,
470
Contr
ibuti
onmar gi
n $32,200 $12,330 44,530
Fi
xedexpenses  
  
42,
550
Netoperati
ngincome $ 1,
980

Over
allCM rati
o=Total contri
but
ionmargin/
Totalsal
es
=$44,
530/ $73,
000=0. 61
Br
eak-evenpointi
ntotal sal
esdoll
ars=Fixedexpenses/
Over
all
CM r
ati
o
=$42,
550/ 0.
61=$69,754( r
ounded)

164.Ift
hesal
esmi xwer etoshi
fttowar
dProductB32Lwitht
otal
salesr
emai
ning
const
ant
,theov er
allbr
eak-
evenpointf
ortheenti
recompany:
A) couldincreaseordecrease.
B) woulddecr ease.
C) wouldnotchange.
D) wouldincrease.

Ans:
  
B AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 9 Lev
el:
 
 Medi
um

Uset
hef
oll
owi
ngt
oanswerquest
ions165-
166:

Ingr
um Corpor
ati
onproducesandsel l
stwopr oducts.I
nthemostrecentmonth,
ProductR38Thadsal
esof$20, 000andv ar
iableexpensesof$7,
400.ProductX08S
hadsalesof$39,
000andv ar
iableexpensesof$6,170.Andthefi
xedexpensesofthe
enti
recompanywere$41,160.

6-
124 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

165.Thebr
eak-ev
enpoi
ntf
ort
heent
ir
ecompanyi
scl
osestt
o:
A) $41,160
B) $17,840
C) $53,455
D) $54,730

Ans:
  
C AACSB:  
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng
LO: 
 9 Lev
el:
 
 Easy

Sol
uti
on:
Product Product
R38T X08S Total
Sal
es $20,000 $39,000 $59,000
Vari
ableexpenses  
  7,
400  6, 170  13,570
Contr
ibuti
onmar gi
n $12,600 $32,830 45, 430
Fi
xedexpenses  
41,160
Netoperati
ngincome $ 
4,270

Over
allCM rati
o=Total contri
but
ionmargin/
Totalsal
es
=$45,
430/ $59,
000=0. 77
Br
eak-evenpointi
ntotal sal
esdoll
ars=Fixedexpenses/
Over
all
CM r
ati
o
=$41,
160/ 0.
77=$53,455( r
ounded)

166.Ift
hesal
esmi xwer etoshi
fttowar
dProductR38Twitht
otal
sal
esr
emai
ning
const
ant
,theov er
allbr
eak-
evenpointf
ortheenti
recompany
:
A) wouldnotchange.
B) wouldincrease.
C) woulddecr ease.
D) couldincreaseordecrease.

Ans:
  
B AACSB: 
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EssayQuest
ions

167.Thefol
lowi
ngisAr
kadi
aCor
por
ati
on'
scont
ri
but
ionf
ormati
ncomest
atement
forl
astmonth:

$1,200,
00
Sal
es 0
 
  
 800,
00
Vari
ableexpenses 0
Contr
ibut
ionmar gi
n 400,000
 
  
 300,
00
Fi
xedexpenses 0
$  100,
00
Netoper
ati
ngi
ncome 0

Thecompanyhasnobegi
nni
ngorendi
ngi
nvent
ori
esandpr
oducedandsol
d
20,
000uni
tsduri
ngt
hemonth.

Requi
red:

a.Whati sthecompany'
scontribut
ionmar ginrat
io?
b.Whati sthecompany'
sbreak-eveninunits?
c.Ifsalesincreaseby100units,byhowmuchshoul dnetoperati
ngincome
i
ncrease?
d.Howmanyuni tswoul
dthecompanyhav etosellt
oattai
ntargetpr
ofit
sof
$125,000?
e.Whati sthecompany'
smar ginofsafetyindoll
ars?
f. Whati sthecompany'
sdegreeofoper ati
ngl ev
erage?

6-
126 Gar
ri
son/
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een/
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ialAccount
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ume-
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itRel
ati
onshi
ps

Ans:

a.Cont
ri
buti
onmargi
nrati
o:
CM r
ati
o=Contr
ibut
ionmargi
n÷Sal
es=$400,
000÷$1,
200,
000=0.
333

b.Break-evenunits:
Sell
ingpr i
ce($1,200,000÷20,
000uni
ts)=$60peruni
t
Vari
abl eexpenses( $800,
000÷20,
000unit
s)=$40peruni
t

Sal
es=Vari
abl
eexpenses+Fi
xedexpenses+Pr
ofi
t
$60Q=$40Q+$300,000+$0
$20Q=$300,
000
Q=$300,
000÷$20perunit=15,
000unit
s

c.I
ncr
easeinnetoper at
ingincomef r
om addi
ti
onalsal
esof100uni
ts:
$60per
Sel
li
ngpr i
ce unit
$40per
Vari
ableexpenses unit
$20per
Uni
tcont r
ibut
ionmar gin unit
Addit
ionalsal
es ×100units
I
ncreaseinnetoper at
ingincome $2,000

d.Sal
est
oattai
ntargetprof
it
:
Sal
es=Vari
ableexpenses+Fixedexpenses+Pr
ofi
t
$60Q=$40Q+$300, 000+$125,000
$20Q=$425,
000
Q=$425,
000÷$20peruni t=21,250unit
s

e.Marginofsaf
etyi
ndol
lar
s:
Br
eak-evensal
es=$60peruni
t×15,000units=$900,
000
Marginofsaf
etyi
ndol
lar
s=Sales−Br eak-
evensal
es
=$1,200,
000−$900,
000=$300,000

f
. Degr
eeofoper
ati
nglev
erage=Cont
ri
but
ionmar
gin÷Netoper
ati
ngi
ncome
=$400,
000÷$100,
000=4. 0

AACSB: 
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yti
c AI
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BB:
 
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it
ical
 
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nki
ng AI
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FN:
 
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ti
ng LO:
 
 1;
 
3; 
5; 
6; 
7; 
8
Lev
el:
 
 Easy

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168.TheGarr
yCorpor
ati
on'
smostr
ecentcont
ri
but
ionf
ormati
ncomest
atementi
s
shownbelow:

Per
Tot al uni
t
$225,00
Sal
es(
15,
000uni
ts) 0 $15
 
135,00
Vari
ableexpenses 0   
 9
Contr
ibut
ionmar gi
n 90,000 $ 
6
Fi
xedexpenses  
  
35,000
$ 
55,00
Netoper
ati
ngi
ncome 0

Requi
red:

Prepareanewcont ri
butionf ormatincomest atementundereachoft he
fol
lowingconditi
ons( consi dereachcasei ndependent l
y):
a.Thesal esv ol
umei ncr easesby10%andt hepr icedecr easesby$0.50per
uni
t .
b.Thesel li
ngpr i
cedecr eases$1.00peruni t
,fixedexpensesi ncr
easeby
$15,000,andthesal esv olumedecr easesby5%.
c.Thesel li
ngpr i
ceincr easesby25%, vari
ableexpensei ncreasesby$0.75per
uni
t ,
andt hesalesvol umedecr easesby15%.
d.Thesel li
ngpr i
ceincr easesby$1. 50peruni t
, var i
abl
ecosti ncr
easesby
$1.00perunit,f
ixedex pensesdecreaseby$15, 000,andsalesvolume
decreasesby12%.

6-
128 Gar
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ume-
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itRel
ati
onshi
ps

Ans:

a Per
. Total uni
t
16,
500
Vol
ume unit
s
Sal
es $239,250 $14.50
Vari
ableexpenses  
148,500    
9.00
Contr
ibuti
onmar gi
n 90,
750 $ 5.50
Fi
xedexpenses   
 35,
000
Netoperati
ngincome $ 55,
750

b Per
. Total uni
t
14,
250
Vol
ume unit
s
Sal
es $199,500 $14.00
Vari
ableexpenses  
128,250    
9.00
Contr
ibuti
onmar gi
n 71,
250 $ 5.00
Fi
xedexpenses   
 50,
000
Netoperati
ngincome $ 21,
250

c Per
. Total uni
t
12,
750
Vol
ume unit
s
Sal
es $239,
063 $18.
75
Vari
ableexpenses 124,
313 9.
75
Contr
ibuti
onmar gi
n 114,
750 $9.00
Fi
xedexpenses 35,
000
Netoperati
ngincome $79,
750

d Per
. Total unit
13,
200
Vol
ume unit
s
Sal
es $217,800 $16.50
Vari
ableexpenses  
132,000  10.00
Contr
ibuti
onmar gi
n 85,
800 $ 6.50
Fi
xedexpenses   
 20,
000
Netoperati
ngincome $ 65,
800

AACSB: 
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yti
c AI
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it
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nki
ng AI
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FN:
 
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ement LO:
 
 1;
 
4
Lev
el:
 
 Easy

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6-
130 Gar
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169.McConkeyCorpor
ati
onproducesandsell
sasingl
eproduct
.Thecompany
's
cont
ri
buti
onformati
ncomestatementforJul
yappear
sbelow:

$357,50
Sal
es(
5,500uni
ts) 0
 
236,50
Vari
ableexpenses 0
Contr
ibut
ionmar gi
n 121,000
 
102,20
Fi
xedexpenses 0
$ 
18,80
Netoper
ati
ngi
ncome 0

Requi
red:

Redothecompany'
scontr
ibut
ionf
ormati
ncomest
atementassumi
ngt
hatt
he
companysel
ls5,
800unit
s.

Ans:

$377,00
Sal
es(
5,800uni
ts) 0
 
249,40
Vari
ableexpenses 0
Contr
ibut
ionmar gi
n 127,600
 
102,20
Fi
xedexpenses 0
$ 
25,40
Netoper
ati
ngi
ncome 0

AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Measur
ement LO:
 
 1
Lev
el:
 
 Easy

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ri
son/
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een/
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ialAccount
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er6Cost
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ume-
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itRel
ati
onshi
ps

170.Gianni
niI
nc.
,whichproducesandsell
sasingl
epr
oduct
,haspr
ovi
dedt
he
fol
lowi
ngcontr
ibut
ionformatincomestat
ementf
orMarch:

$477,90
Sal
es(
5,900uni
ts) 0
 
206,50
Vari
ableexpenses 0
Contr
ibut
ionmar gi
n 271,400
 
190,80
Fi
xedexpenses 0
$ 
80,60
Netoper
ati
ngi
ncome 0

Requi
red:

Redothecompany'
scontr
ibut
ionf
ormati
ncomest
atementassumi
ngt
hatt
he
companysel
ls5,
500unit
s.

Ans:

$445,50
Sal
es(
5,500uni
ts) 0
 
192,50
Vari
ableexpenses 0
Contr
ibut
ionmar gi
n 253,000
 
190,80
Fi
xedexpenses 0
$ 
62,20
Netoper
ati
ngi
ncome 0

AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Measur
ement LO:
 
 1
Lev
el:
 
 Easy

6-
132 Gar
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een/
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ialAccount
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171.MechemCor porat
ionproducesandsel
l
sasingl
eproduct.
InApri
l
,thecompany
sol
d2,100units.I
tstot
alsaleswer
e$205,
800,i
tstot
alvari
abl
eexpenseswere
$107,
100,anditstot
alfi
xedexpenseswer
e$82,400.

Requi
red:

a.Constr
uctt
hecompany'
scontr
ibut
ionfor
matincomestat
ementforApr
ili
n
goodform.
b.Redothecompany'
scont
ri
buti
onformatincomest
atementassumi
ngthat
thecompanysel
l
s2,200uni
ts.

Ans:

a $205,80
. Sal
es(
2,100uni
ts) 0
 
107,10
Vari
ableexpenses 0
Contr
ibut
ionmar gi
n 98,700
Fi
xedexpenses  
  
82,400
$ 
16,30
Netoper
ati
ngi
ncome 0

b $215,60
. Sal
es(
2,200uni
ts) 0
 
112,20
Vari
ableexpenses 0
Contr
ibut
ionmar gi
n 103,400
Fi
xedexpenses  
  
82,400
$ 
21,00
Netoper
ati
ngi
ncome 0

AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Measur
ement LO:
 
 1
Lev
el:
 
 Easy

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ri
son/
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een/
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ialAccount
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ps

172.InJuly
,MeersCorpor
ati
onsold3,
700unit
sofit
sonl
yproduct
.It
stot
alsal
es
were$107,
300,it
stot
alvar
iabl
eexpenseswer
e$66,
600,andi
tstot
alfi
xed
expenseswere$34,
800.

Requi
red:

a.Constr
uctt
hecompany'
scontr
ibut
ionfor
matincomestat
ementforJul
yin
goodform.
b.Redothecompany'
scont
ri
buti
onformatincomest
atementassumi
ngthat
thecompanysel
l
s3,400uni
ts.

Ans:

a $107,30
. Sal
es( 3,
700units) 0
Vari
ableexpenses  
  
66,600
Contr
ibuti
onmar gi
n 40,700
Fi
xedexpenses  
  
34,800
Netoperati
ngincome $ 
  
5,900

b $98,60
. Sal
es( 3,
400units) 0
Vari
ableexpenses  
61,200
Contr
ibuti
onmar gi
n 37,400
Fi
xedexpenses  
34,800
Netoperati
ngincome $ 
2,600

AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
 Cr
it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Measur
ement LO:
 
 1
Lev
el:
 
 Easy

6-
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een/
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ialAccount
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itRel
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ps

173.SpencerCompany'
smostr
ecentmont
hlycont
ri
but
ionf
ormati
ncome
st
atementisgi
venbel
ow:

Sal
es $60,
000
Vari
ableexpenses  
45,
000
Contr
ibuti
onmar gi
n 15,
000
Fi
xedexpenses  
18,
000
Netoperati
ngloss ($3,
000)

Thecompanysell
sit
sonl
ypr
oductf
or$10peruni
t.Ther
ewer
enobegi
nni
ngor
endi
nginv
entor
ies.

Requi
red:

a.Whataretot
alsal
esindollarsatthebreak-evenpoint?
b.Whataretot
alvar
iabl
eexpensesatt hebreak- evenpoi
nt?
c.Whatisthecompany'
scont ri
buti
onmar ginratio?
d.I
funitsal
eswereincr
easedby10%andf i
xedexpenseswer er
educedby
$2,
000,whatwoul
dbet hecompany '
sexpectednetoper at
ingincome?
(Pr
epareanewincomest atement.)

Ans:

a.Thecontri
buti
onmargi
nrati
ois$15,
000÷$60,
000=25%.Ther
efor
e,t
he
break-
eveninsal
esdol
lar
sis$18,
000÷25%=$72,000.

b.Thev ar
iabl
ecostr
ati
ois$45,
000÷$60,
000=75%.Ther
efor
e,t
hev
ari
abl
e
expensesatthebr
eak-
evenpoi
ntar
e$72,
000×75%=$54,000.

c.25%Seepar
t(a)abov
e.

d $66,
00
. Sal
es( $60,
000×1. 1) 0
Vari
ableexpenses( $45,
000×1.
1) 49,
500
Contr
ibuti
onmar gi
n 16,
500
Fi
xedexpenses( $18,000−$2,
000) 16,
000
Netoperati
ngincome $500

AACSB: 
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yti
c AI
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BB:
 
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it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng LO:
 
 3;
 
4; 
5
Lev
el:
 
 Medium

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ri
son/
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een/
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ialAccount
ing,
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itRel
ati
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ps

174.Sarr
attCorpor
ati
on'
scontri
but
ionmargi
nrat
ioi
s62%andit
sfi
xedmont
hly
expensesare$91,
000.Assumethatt
hecompany'
ssal
esf
orMayar
eexpected
tobe$193,000.

Requi
red:

Est
imatet
hecompany'snetoperat
ingi
ncomeforMay
.Assumet
hatt
hef
ixed
monthl
yexpensesdonotchange.Showyourwor
k!

Ans:

$193,00
Sal
es 0
Contr
ibut
ionmargi
nrati
o 62%
Contr
ibut
ionmargi
n(sal
es×cont
ri
but
ionmar
gin $119,66
r
ati
o) 0
Fi
xedexpenses  
  
91,000
$  
28,66
Netoper
ati
ngi
ncome 0

AACSB: 
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yti
c AI
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it
ical
 
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nki
ng AI
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FN:
 
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ti
ng LO:
 
 3
Lev
el:
 
 Easy

175.ThemanagementofMer
kli
nCor
porati
onexpect
ssal
esinMaytobe$105,000.
Thecompany'
scont
ri
but
ionmar
ginrat
ioi
s70%anditsf
ixedmont
hlyexpenses
are$48,
000.

Requi
red:

Est
imatet
hecompany'snetoperat
ingi
ncomeforMay
.Assumet
hatt
hef
ixed
monthl
yexpensesdonotchange.Showyourwor
k!

Ans:

$105,
00
Sal
es 0
Contr
ibuti
onmargi
nrati
o 70%
Contr
ibuti
onmargi
n(sal
es×cont
ri
but
ionmar
gin
r
ati
o) $73,
500
Fi
xedexpenses  
48,
000
Netoperati
ngi
ncome $25,
500

AACSB:
 
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yti
c AI
CPA 
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it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng LO:
 
 3

6-
136 Gar
ri
son/
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een/
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,Manager
ialAccount
ing,
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ft
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ti
on
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er6Cost
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ume-
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itRel
ati
onshi
ps

Lev
el:
 
 Easy

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son/
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een/
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ati
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ps

176.Huit
ronInc.expect
sitssal
esinSept
embertobe$143,000.Thecompany'
s
cont
ribut
ionmar gi
nrati
ois65%anditsf
ixedmont
hlyexpensesare$62,
000.

Requi
red:

Esti
mat
ethecompany '
snetoper
ati
ngincomeforSept
ember
.Assumet
hatt
he
fi
xedmont
hlyexpensesdonotchange.Showy
ourwork!

Ans:

$143,
00
Sal
es 0
Cont
ributi
onmargi
nrati
o 65%
Cont
ributi
onmargi
n(sal
es×cont
ri
but
ionmar
ginr
ati
o) $92,
950
Fi
xedexpenses 62,
000
Netoperati
ngi
ncome $30,
950

AACSB: 
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yti
c AI
CPA 
BB:
 
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it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng LO:
 
 3
Lev
el:
 
 Easy

6-
138 Gar
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son/
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een/
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ialAccount
ing,
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itRel
ati
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ps

177.Bel
li-
Pit
t,I
nc,pr
oducesasi
ngleproduct
.Theresul
tsofthecompany
's
operati
onsforaty
pical
montharesummar i
zedincontr
ibut
ionf
ormatas
fol
lows:

$540,00
Sal
es 0
 
360,00
Vari
ableexpenses 0
Contr
ibut
ionmar gi
n 180,000
 
120,00
Fi
xedexpenses 0
$ 
60,00
Netoper
ati
ngi
ncome 0

Thecompanypr
oducedandsol
d120,000ki
logr
amsofproductdur
ingt
he
month.Ther
ewer
enobeginni
ngorendingi
nvent
ori
es.

Requi
red:

a.Gi
venthepresentsi
tuation,comput e
1.Thebreak-evensalesinkilograms.
2.Thebreak-evensalesindol l
ars.
3.Thesalesinkil
ogramst hatwoul dber
equi
redt
opr
oducenetoper
ati
ng
incomeof$90,000.
4.Themar gi
nofsaf etyindollar
s.

b.Ani mportantpartofpr ocessi

ngisper for
medbyamachi net hati
scurrent
ly
beingleasedf or$20,000permont h.Bel l
i
-Pi
tthasbeenof f er
edan
arr
angementwher ebyi twouldpay$0. 10royalt
yperki logram processedby
themachi neratherthant hemonthlylease.
1.Shoul dt hecompanychooset heleaseort heroy alt
ypl an?
2.Undert heroyal
typlancomput ebreak- ev
enpoi ntinki l
ograms.
3.Undert heroyal
typlancomput ebreak- ev
enpoi ntindol lars.
4.Undert heroyal
typlandet er
minethesal esinkilogramst hatwouldbe
requir
edt oproducenetoper ati
ngincomeof$90, 000.

Ans:

a Per
. kg.
100.
0
Sal
es $4.50 %
Vari
ableexpense  
3.00  
66.
7%
Contr
ibut
ionmargin $1.50  
33.
3%

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
139
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

1.Sal
es=Vari
ableexpenses+Fixedexpenses+Tar
getpr
ofi
t
$4.
50Q=$3.00Q+$120, 000+$0
$1.
50Q=$120,000
Q=$120,
000÷$1. 50perunit=80,
000units

6-
140 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

2.80,
000uni
ts×$4.
50peruni
t=$360,
000

3.Sal
es=Vari
ableexpenses+Fixedexpenses+Tar
getpr
ofi
t
$4.
50Q=$3.00Q+$120, 000+$90,000
$1.
50Q=$210,000
Q=$210,
000÷$1. 50perunit=140,000uni
ts

4.Margi
nofsaf
ety=Sal
es−Sal
esatbr
eakev
en=$540,
000−$360,
000
=$180,
000

b.
1
. AsIs Proposed
Amoun Amoun
PerUnit t PerUnit t
$540,00 $540,00
Sal
es 0 $4. 50 0 $4. 50
 
360,00  
372,00
Vari
ableexpense 0  
3.00 0  3.
10
Contr
ibut
ionmargin 180,000 1.50 168,000 1.
40
 
120,00  
100,00
Fi
xedexpense 0  
1.00 0  0.
83
$ 
60,00 $ 
68,00
Netoper
ati
ngi
ncome 0 $0. 50 0 $0. 57

Si
ncenetoperat
ingi
ncomeincr
easesby$8,
000t
her
oyal
tyi
sagoodpl
an,
pr
ovi
dedsalesremai
nsatthesamelevel
.

2.Sal
es=Vari
ableexpenses+Fixedexpenses+Tar
getpr
ofi
t
$4.
50Q=$3.10Q+$100, 000+$0
$1.
40Q=$100,000
Q=$100,
000÷$1. 40perunit=71,
429units

3.71,
429uni
ts×$4.
50uni
t=$321,
429

4.Sal
es=Vari
ableexpenses+Fixedexpenses+Tar
getpr
ofi
t
$4.
50Q=$3.10Q+$100, 000+$90,000
$1.
40Q=$190,000
Q=$190,
000÷$1. 40perunit=135,714uni
ts

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5; 
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el:
 
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een/
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ialAccount
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er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

178.ShelhorseCorporat
ionpr
oducesandsel
l
sasi
ngl
epr
oduct
.Dat
aconcer
ning
thatproductappearbel
ow:

Per Percentof
Unit Sales
Sel
li
ngprice $140 100%
Vari
ableexpenses   
 56  
40%
Contr
ibut
ionmar gi
n $ 84  
60%

Fi
xedexpensesar
e$275,
000permont
h.Thecompanyi
scur
rent
lysel
l
ing4,
000
uni
tspermonth.

Requi
red:

Themarketingmanagerbeli
evesthata$13,
000increaseinthemont hl
y
adver
ti
singbudgetwouldresul
tina150unitincr
easeinmont hl
ysales.What
shoul
dbet heover
allef
fectonthecompany'smonthlynetoperat
ingincomeof
thi
schange?Showy ourwork!

Ans:

Incr
easeint
otalcontr
ibuti
onmargi
n($84peruni
t×150
uni
ts) $12,600
Lessincr
ementalfi
xedexpenses  
13,000
Changeinnetoperat
ingincome (
$   
 400)

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ng LO:
 
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el:
 
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179.Dat
aconcer
ningCav
aluzzi
Cor
por
ati
on'
ssi
ngl
epr
oductappearbel
ow:

Per Percentof
Unit Sales
Sel
li
ngprice $110 100%
Vari
ableexpenses   
 44  
40%
Contr
ibut
ionmar gi
n $ 66  
60%

Fi
xedexpensesar
e$440,
000permont
h.Thecompanyi
scur
rent
lysel
l
ing8,
000
uni
tspermonth.

Requi
red:

Themarketi
ngmanagerbeli
evesthata$8,
000increasei
nthemonthl
y
adver
ti
singbudgetwoul
dresul
tina150uniti
ncreaseinmonthl
ysal
es.What

6-
142 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

shoul
dbet heov
eral
lef
fectonthecompany
'smont
hlynetoper
ati
ngi
ncomeof
thi
schange?Showyourwork!

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
143
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Ans:

$9,90
Incr
easeint
otalcontr
ibuti
onmargi
n($66peruni
t×150uni
ts) 0
Lessincr
ementalfi
xedexpenses  
8,000
$1,90
Changeinnetoperat
ingincome 0

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180.NaumannCorpor
ationpr
oducesandsel
l
sasi
ngl
epr
oduct
.Dat
aconcer
ning
t
hatpr
oductappearbel
ow:

Per Percentof
Unit Sales
Sel
li
ngprice $100 100%
Vari
ableexpenses   
 30  
30%
Contr
ibut
ionmar gi
n $ 70  
70%

Fi
xedexpensesar
e$234,
000permont
h.Thecompanyi
scur
rent
lysel
l
ing4,
000
uni
tspermonth.

Requi
red:

Managementi sconsider
ingusinganewcomponentt hatwouldi
ncreasethe
uni
tvariabl
ecostby$7.Si ncet
henewcomponentwoul di
mprovethe
company ’
sproduct
, themarket
ingmanagerpredict
sthatmonthl
ysaleswould
i
ncreaseby500uni ts.Whatshouldbetheoveral
leff
ectonthecompany’s
monthlynetoperat
ingincomeoft hi
schangeiffi
xedexpensesareunaff
ected?
Showy ourwork!

Ans:

Newvar
iablecostperunit($30+$7) $37
Newcontr
ibuti
onmar gi
nperunit($100−$37) $63
Newuni
tmont hlysal
es(4,000uni
ts+500unit
s) 4,500
$283,50
Newt ot
alcontr
ibut
ionmargi
n:4,
500uni
ts×$63perunit 0
Curr
enttot
alcontri
buti
onmargi
n:4,
000uni
ts×$70perunit  280,00
0
Changeintotal
contri
buti
onmargi
nandinnetoper
ati
ng
income $   
3,500

6-
144 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Si
ncefi
xedexpensesarenotaf
fectedbythi
schange,t
hechangei
nnet
oper
ati
ngincomewill
beequaltothechangeintot
alcont
ri
buti
onmar
gin.

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it
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Lev
el:
 
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Gar
ri
son/
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een/
Brewer
,Manager
ialAccount
ing,
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ft
hEdi
ti
on 6-
145
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

181.Dat
aconcer
ningMi
l
ianCor
por
ati
on'
ssi
ngl
epr
oductappearbel
ow:

Per Percentof
Unit Sales
Sel
li
ngprice $130 100%
Vari
ableexpenses   
 39  
30%
Contr
ibut
ionmar gi
n $ 91  
70%

Fi
xedexpensesare$66,
000permont
h.Thecompanyi
scur
rent
lysel
l
ing1,
000
uni
tspermonth.

Requi
red:

Managementi sconsi der

ingusinganewcomponentt hatwouldincreasethe
uni
tvariabl
ecostby$15.Si ncet henewcomponentwoul di
mpr ovethe
company '
sproduct
, themar ket
ingmanagerpredict
sthatmonthlysaleswould
i
ncreaseby200uni ts.Whatshoul dbetheoveral
leff
ectonthecompany 's
monthlynetoperat
ingi ncomeoft hi
schangeiffi
xedexpensesareunaf f
ected?
Showy ourwork!

Ans:

Newvar
iablecostperunit($39+$15) $54
Newcontr
ibuti
onmar gi
nperunit($130−$54) $76
Newuni
tmont hlysal
es(1,000uni
ts+200unit
s) 1,
200
$91,
20
Newt ot
alcontr
ibut
ionmargi
n:1,
200uni
ts×$76perunit 0
Curr
enttotal
contri
buti
onmargi
n:1,
000uni
ts×$91perunit  
91,
000
Changeintotal
contri
buti
onmargi
nandinnetoper
ati
ng
income $ 
  
 200

Si
ncefi
xedexpensesarenotaf
fectedbythi
schange,t
hechangei
nnet
oper
ati
ngincomewill
beequaltothechangeintot
alcont
ri
buti
onmar
gin.

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it
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Lev
el:
 
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6-
146 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
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ft
hEdi
ti
on
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er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

182.BethardCorporat
ionpr
oducesandsel
l
sasi
ngl
epr
oduct
.Dat
aconcer
ningt
hat
productappearbelow:

Per Per
centof
Unit Sal
es
Sel
li
ngprice $120 100%
Vari
ableexpenses   
 24  
20%
Contr
ibut
ionmar gi
n $ 96  
80%

Fi
xedexpensesar
e$354,
000permont
h.Thecompanyi
scur
rent
lysel
l
ing5,
000
uni
tspermonth.

Requi
red:

Themar keti
ngmanagerwoul dliketocutt
heselli
ngpriceby$8andincr
ease
theadvert
isingbudgetby$23,000permonth.Themar keti
ngmanagerpredi
cts
thatt
heset wochangeswoul dincreasemonthl
ysalesby600unit
s.What
shoul
dbet heov er
allef
fectonthecompany '
smont hl
ynetoper
ati
ngincomeof
thi
schange?Showy ourwork!

Ans:

Newsel
li
ngprice($120−$8) $112
Newcontr
ibut
ionmar gi
n($112−$24) $88
Newuni
tmont hl
ysales(5,
000units+600uni
ts) 5,
600
Newtot
alcontri
buti
onmar gi
n:5,
600uni
ts×$88peruni
t
$492,
800
Presentt
otal
contri
buti
onmar gi
n:5,
000uni
ts×$96per
uni
t  
480,
000
Changeintot
alcontr
ibuti
onmargin 12,
800
Lessincr
easeinadvert
isi
ngbudget  
  
23,
000
Changeinnetoperat
ingincome (
$10,
200)

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it
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ng LO:
 
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Lev
el:
 
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Gar
ri
son/
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een/
Brewer
,Manager
ialAccount
ing,
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ft
hEdi
ti
on 6-
147
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

183.Dat
aconcer
ningNeunerCor
por
ati
on'
ssi
ngl
epr
oductappearbel
ow:

Per Per
centof
Unit Sal
es
Sel
li
ngprice $220 100%
Vari
ableexpenses  
  
88  
40%
Contr
ibut
ionmar gi
n $132  
60%

Fi
xedexpensesar
e$425,
000permont
h.Thecompanyi
scur
rent
lysel
l
ing4,
000
uni
tspermonth.

Requi
red:

Themar keti
ngmanagerwoul dliketocutt
heselli
ngpriceby$11andi ncrease
theadvert
isingbudgetby$23,700permonth.Themar keti
ngmanagerpr edict
s
thatt
heset wochangeswoul dincreasemonthl
ysalesby400units.What
shoul
dbet heov er
allef
fectonthecompany '
smont hl
ynetoperat
ingincomeof
thi
schange?Showy ourwork!

Ans:

Newsel
li
ngprice($220−$11) $209
Newcont
ribut
ionmar gi
n($209−$88) $121
Newuni
tmont hl
ysales(4,
000uni
ts+400uni
ts) 4,
400
$532,
40
Newt otalcontri
butionmar gi
n:4,400uni
ts×$121peruni
t 0
Presenttotalcontr
ibuti
onmar gin:4,
000uni
ts×$132per
uni
t  
528,
000
Changei ntotalcontri
buti
onmar gin 4,
400
Lessincreaseinadv erti
singbudget  
  
23,
700
Changei nnetoper ati
ngincome (
$19,
300)

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it
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el:
 
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6-
148 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
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ft
hEdi
ti
on
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er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

184.Hamiel
Corporati
onproducesandsel
l
sasi
ngl
epr
oduct
.Dat
aconcer
ningt
hat
pr
oductappearbelow:

Per Percentof
Uni
t Sales
Sel
li
ngprice $240 100%
Vari
ableexpenses  
168  
70%
Contr
ibut
ionmar gi
n $72  
30%

Fi
xedexpensesar
e$301,
000permont
h.Thecompanyi
scur
rent
lysel
l
ing5,
000
uni
tspermonth.

Requi
red:

Themar ket i
ngmanagerwoul dli
ketoi ntroducesalescommissi
onsasan
i
ncent i
vefort hesal
esst aff
.Themar ket i
ngmanagerhaspr oposeda
commi ssionof$16peruni t
.Inexchange, t
hesalesstaf
fwouldacceptan
overall
decr easeintheirsal
ari
esof$68, 000permont h.Themarket
ingmanager
predict
sthati nt
roducingthissal
esincent ivewouldincr
easemonthlysal
esby
200uni t
s.Whatshoul dbetheoveralleffectonthecompany '
smont hl
ynet
operati
ngi ncomeoft hischange?Showy ourwork!

Ans:

Newcont
ri
but
ionmargi
n($72−$16) $56
Newuni
tmonthl
ysal
es(5,
000uni
ts+200uni
ts) 5,
200
$291,
20
Newt otalcontri
butionmar gi
n:5,200uni
ts×$56peruni
t 0
Presenttotalcontr
ibuti
onmar gin:5,
000uni
ts×$72per
unit  
360,000
Changei ntotalcontri
but
ionmar gin (68,
800)
Pl
ussav ingsinsalespersons’salari
es   
68,000
Changei nnetoper ati
ngincome (
$  
  
 800)

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yti
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it
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ti
ng LO:
 
 4
Lev
el:
 
 Easy

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ri
son/
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een/
Brewer
,Manager
ialAccount
ing,
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ft
hEdi
ti
on 6-
149
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

185.Dat
aconcer
ningWi
slocki
Cor
por
ati
on'
ssi
ngl
epr
oductappearbel
ow:

Per Percentof
Unit Sales
Sel
li
ngprice $130 100%
Vari
ableexpenses  
  
26  
20%
Contr
ibut
ionmar gi
n $104  
80%

Fi
xedexpensesar
e$466,
000permont
h.Thecompanyi
scur
rent
lysel
l
ing6,
000
uni
tspermonth.

Requi
red:

Themar ket i
ngmanagerwoul dli
ketoi ntroducesalescommissi
onsasan
i
ncent i
vefort hesal
esst aff
.Themar ket i
ngmanagerhaspr oposeda
commi ssionof$11peruni t
.Inexchange, t
hesalesstaf
fwouldacceptan
overall
decr easeintheirsal
ari
esof$55, 000permont h.Themarket
ingmanager
predict
sthati nt
roducingthissal
esincent ivewouldincr
easemonthlysal
esby
100uni t
s.Whatshoul dbetheoveralleffectonthecompany '
smont hl
ynet
operati
ngi ncomeoft hischange?Showy ourwork!

Ans:

Newcont
ri
but
ionmargi
n($104−$11) $93
Newuni
tmonthl
ysal
es(6,
000uni
ts+100uni
ts) 6,
100
$567,
30
Newt otalcontri
buti
onmar gin:6,100uni
ts×$93peruni
t 0
Presenttotalcontr
ibuti
onmar gin:6,
000uni
ts×$104per
unit  
624,000
Changei ntotalcontr
ibut
ionmar gin (56,700)
Pl
ussav ingsinsalespersons’salari
es  
  
55,000
(
$  
 1,700
Changei
nnetoper
ati
ngi
ncome )

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yti
c AI
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it
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ng LO:
 
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Lev
el:
 
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6-
150 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

186.Merl
inEnt
erpri
sesmanuf
act
uresacel
lulartel
ephone.Thecompany
'spar
ti
al
cont
ri
buti
onformati
ncomestat
ementforthemostr ecenty
eari
sbel
ow.

Per Rat
i
Total Uni
t o
$300,
00
Sal
es 0 $60
Vari
ableexpenses 55%
Contr
ibuti
onmar gi
n
Fi
xedexpenses 108,
000
Netoperati
ngincome

Requi
red:

a.Compl et
ethecont r
ibuti
onincomestatementabov e.
b.Deter
mi nethebreakevensalesandunitsusingeit
hert heequat
ionort
he
contr
ibuti
onapproach.
c.Deter
mi nethesalesnecessarytoearnapr of
itof$54,000.
d.Deter
mi nethemar ginofsafet
ypercentagefortheyearabove.

Ans:

a.Var
iabl
eexpenses=0.55×$300,000=$165,
000
Var
iabl
eexpensesperuni
t=0.55×$60=$33

Per
Tot al Uni
t Rati
o
$300,00 100
Sal
es 0 $60 %
 
165,00
Vari
ableexpenses 0 33  55%
Contr
ibut
ionmar gi
n 135,000 $27  45%
 
108,00
Fi
xedexpenses 0
$ 
27,00
Netoper
ati
ngi
ncome 0

b.Br
eak-
eveni
nuni
tsales=$108,
000/$27peruni
t=4,000uni
ts
Br
eak-
eveni
ndol
larsal
es=$108,000/
0.45=$240,
000

c.Dol
l
arsal
est
oat
tai
ntar
getpr
ofi
t=(
$108,
000+$54,
000)
/0.
45=$360,
000

d.Mar
ginofsaf
ety=$300,
000−$240,
000=$60,000
Mar
ginofsaf
etyper
cent
age=$60,
000/$300,
000=20%

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
151
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

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yti
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it
ical
 
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ng LO:
 
 5;
 
6; 
7
Lev
el:
 
 Easy

6-
152 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

187.Fr
ischCorpor
ati
onproducesandsel
l
sasi
ngl
epr
oduct
.Dat
aconcer
ningt
hat
pr
oductappearbel
ow:

Sell
ingpri
ceperuni
t $170.
00
Variabl
eexpenseper
unit $83.
30
Fi
xedexpenseper $138,
72
month 0

Requi
red:

Det
ermi
net
hemont
hlybr
eak-
eveni
nei
theruni
tort
otal
dol
l
arsal
es.Showy
our
wor
k!

Ans:
Percent
Per of
Uni
t Sales
$170.
0
Sel
li
ngpriceperunit 0 100%
Vari
ableexpenseperuni
t  
  
83.
30  
49%
Contr
ibut
ionmar gi
nperuni
tandcont
ri
but
ionmar
gin
r
ati
o $ 
86.
70  
51%

Br
eak-eveni
nunitsal
es=Fixedexpenses/
Uni
tcont
ri
but
ionmar
gin
=$138,720/
$86.
70=1, 600

Br
eak-eveni
nt ot
alsal
esdoll
ars=Fi
xedex
penses/
CM r
ati
o
=$138,720/
0.51=$272,000

AACSB: 
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yti
c AI
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it
ical
 
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ng AI
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FN:
 
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ng LO:
 
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Lev
el:
 
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Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
153
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

188.Hamernik,
Inc.
,producesandsell
sasingl
eproductwhosesel
l
ingpri
ceis
$240.
00perunitandwhosev ar
iabl
eexpenseis$72.
00peruni
t.Thecompany
's
fi
xedexpenseis$372,960permonth.

Requi
red:

Det
ermi
net
hemont
hlybr
eak-
eveni
nei
theruni
tort
otal
dol
l
arsal
es.Showy
our
wor
k!

Ans:
Percent
Per of
Uni
t Sales
$240.
0
Sel
li
ngpriceperunit 0 100%
Vari
ableexpenseperuni
t  
  
72.
00  
30%
Contr
ibut
ionmar gi
nperuni
tandcont
ri
but
ionmar
gin $168.
0
r
ati
o 0  
70%

Br
eak-eveni
nunitsal
es=Fi
xedexpenses/
Uni
tcont
ri
but
ionmar
gin
=$372,960/
$168=2,220

Br
eak-eveni
nt ot
alsal
esdoll
ars=Fi
xedex
penses/
CM r
ati
o
=$372,960/
0.70=$532,800

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yti
c AI
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it
ical
 
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nki
ng AI
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FN:
 
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ti
ng LO:
 
 5
Lev
el:
 
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6-
154 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

189.YamakawaCor porat
ionproducesandsel
l
sasi
ngl
epr
oduct
.Dat
aconcer
ning
thatpr
oductappearbelow:

Sel
l
ingpri
ceperuni
t $200.
00
Var
iabl
eexpenseperuni
t $64.
00
$670,
48
Fi
xedexpensepermont
h 0

Requi
red:

Det
ermi
net
hemont
hlybr
eak-
eveni
nuni
tsal
es.Showy
ourwor
k!

Ans:

$200.
0
Sel
l
ingpri
ceperuni
t 0
Var
iabl
eexpenseperuni
t  
  
64.
00
$136.
0
Cont
ri
but
ionmar
ginperuni
t 0

Br
eak-eveni
nunitsal
es=Fi
xedexpenses/
Uni
tcont
ri
but
ionmar
gin
=$670,480/
$136=4,930

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yti
c AI
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it
ical
 
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ng AI
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ng LO:
 
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Lev
el:
 
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190.Liz,I
nc.
,producesandsell
sasingl
eproduct
.Theproductsel
l
sfor$130.00per
unitandit
sv ar
iabl
eexpensei
s$48.10perunit
.Thecompany'smonthl
yfixed
expenseis$223,587.

Requi
red:

Det
ermi
net
hemont
hlybr
eak-
eveni
nuni
tsal
es.Showy
ourwor
k!

Ans:

$130.0
Sel
l
ingpri
ceperuni
t 0
Var
iabl
eexpenseperuni
t  
  
48.10
$ 
81.9
Cont
ri
but
ionmar
ginperuni
t 0

Br
eak-eveni
nunitsal
es=Fixedexpenses/
Uni
tcont
ri
but
ionmar
gin
=$223,587/
$81.
90=2, 730

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
155
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

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yti
c AI
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it
ical
 
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nki
ng AI
CPA 
FN:
 
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ti
ng LO:
 
 5
Lev
el:
 
 Easy

6-
156 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

191.Cl
eghornCorpor
ati
onpr
oducesandsel
l
sasi
ngl
epr
oduct
.Dat
aconcer
ningt
hat
pr
oductappearbel
ow:

Sel
l
ingpri
ceperuni
t $160.
00
Var
iabl
eexpenseperuni
t $70.
40
$153,
21
Fi
xedexpensepermont
h 6

Requi
red:

Det
ermi
net
hemont
hlybr
eak-
eveni
ntot
aldol
l
arsal
es.Showy
ourwor
k!

Ans:
Per Percent
Uni
t ofSales
$160.
0
Sel
li
ngpriceperunit 0 100%
Vari
ableexpenseperuni
t  
  
70.
40  44%
Contr
ibut
ionmar gi
nperuni
tandcont
ri
but
ionmar
gin
r
ati
o $ 
89.
60  
56%

Br
eak-eveni
nt ot
alsal
esdoll
ars=Fi
xedex
penses/
CM r
ati
o
=$153,216/
0.56=$273,600

AACSB: 
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yti
c AI
CPA 
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it
ical
 
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nki
ng AI
CPA 
FN:
 
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ti
ng LO:
 
 5
Lev
el:
 
 Easy

192.MalensekInt
ernat
ional
,I
nc.,pr
oducesandsell
sasingl
eproduct
.Theproduct
sel
l
sf or$240.
00perunitanditsvar
iabl
eexpensei
s$55.20peruni
t.The
company '
smonthlyfi
xedexpenseis$249,
480.

Requi
red:

Det
ermi
net
hemont
hlybr
eak-
eveni
ntot
aldol
l
arsal
es.Showy
ourwor
k!

Ans:
Per Percent
Uni
t ofSales
$240.
0
Sel
li
ngpriceperunit 0 100%
Vari
ableexpenseperuni
t  
  
55.
20  23%
Contr
ibut
ionmar gi
nperuni
tandcont
ri
but
ionmar
gin $184.
8
r
ati
o 0 77%

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
157
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Br
eak-eveni
nt ot
alsal
esdoll
ars=Fi
xedex
penses/
CM r
ati
o
=$249,480/
0.77=$324,000

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yti
c AI
CPA 
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it
ical
 
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ng AI
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ng LO:
 
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Lev
el:
 
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6-
158 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

193.Br
ihonCorporat
ionproducesandsel
l
sasi
ngl
epr
oduct
.Dat
aconcer
ningt
hat
pr
oductappearbelow:

Sel
l
ingpri
ceperuni
t $230.
00
Var
iabl
eexpenseperuni
t $103.
50
$518,
65
Fi
xedexpensepermont
h 0

Requi
red:

a.Assumethecompany '
smont hl
yt argetprofi
tis$12,
650.Det
ermi
net
heuni
t
sal
estoattai
nthattar
getprofi
t.Showy ourwork!
b.Assumethecompany '
smont hl
yt argetprofi
tis$63,
250.Det
ermi
net
he
dol
larsal
estoattai
nthatt
argetpr ofi
t.Showy ourwor
k!

Ans:

Per Per
centof
Uni
t Sal
es
$230.0
Sel
l
ingpri
ceperuni
t 0 100%
Var
iabl
eexpenseperuni
t  
103.50  
45%
$126.5
Cont
ri
but
ionmar
ginperuni
tandCM r
ati
o 0  
55%

a.Unitsal
estoattai
ntargetprof
it
=(Fixedexpenses+Targetprofi
t)
/Uni
tcont
ri
but
ionmar
gin
=($518,650+$12,650)/$126.
50=4,200

b.Totalsal
esdollar
stoatt
aintargetprof
it
=(Fixedexpenses+Targetprofi
t)/CM r
ati
o
=($518,650+$63,250)
/0.55=$1, 058,
000

AACSB: 
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yti
c AI
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it
ical
 
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nki
ng AI
CPA 
FN:
 
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ti
ng LO:
 
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Lev
el:
 
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Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
159
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

194.RachalCorpor
ati
onproducesandsell
sasingl
eproductwhosesell
ingpr
icei
s
$150.00peruni
tandwhosev ar
iabl
eexpensei
s$57.00peruni
t.Thecompany'
s
monthlyfi
xedexpensei
s$381,300.

Requi
red:

a.Assumethecompany '
smont hl
yt argetprofi
tis$9,
300.Determinetheuni
t
sal
estoattai
nthattar
getprofi
t.Showy ourwork!
b.Assumethecompany '
smont hl
yt argetprofi
tis$18,
600.Determinethe
dol
larsal
estoattai
nthatt
argetpr ofi
t.Showy ourwor
k!

Ans:

Per Per
centof
Unit Sal
es
$150.0
Sel
li
ngpriceperunit 0 100%
Vari
ableexpenseperuni
t   
 57.
00  
38%
Contr
ibut
ionmar gi
nperuni
tandCM r
ati
o $ 93.
00  
62%

a.Unitsal
estoattai
ntar
getpr of
it
=(Fixedexpenses+Targetprofi
t)
/Uni
tcont
ri
but
ionmar
gin
=($381,300+$9,300)
/$93.00=4,200

b.Totalsal
esdollar
stoatt
aintargetprofi
t
=(Fixedexpenses+Targetprofi
t)/
CM rati
o
=($381,300+$18,600)
/0.62=$645, 000

AACSB: 
 Anal
yti
c AI
CPA 
BB:
 
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it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng LO:
 
 6
Lev
el:
 
 Easy

6-
160 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

195.HawverCorpor
ati
onpr
oducesandsel
l
sasi
ngl
epr
oduct
.Dat
aconcer
ningt
hat
pr
oductappearbel
ow:

Sel
l
ingpri
ceperuni
t $180.
00
Var
iabl
eexpenseperuni
t $81.
00
$594,
00
Fi
xedexpensepermont
h 0

Requi
red:

Assumethecompany'
smonthl
yt ar
getpr
ofi
tis$19,
800.Det
ermi
net
heuni
t
sal
estoatt
aint
hatt
argetpr
ofi
t.Showyourwork!

Ans:

$180.0
Sel
l
ingpri
ceperuni
t 0
Var
iabl
eexpenseperuni
t  
  
81.00
$ 
99.0
Cont
ri
but
ionmar
ginperuni
t 0

Unitsal
estoattai
ntargetprof
it
=(Fixedexpenses+Targetprofi
t)
/Uni
tcont
ri
but
ionmar
gin
=($594,000+$19,800)/$99.
00=6,200

AACSB: 
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yti
c AI
CPA 
BB:
 
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it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
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ti
ng LO:
 
 6
Lev
el:
 
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Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
161
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

196.Theselli
ngpriceofOldCor
porat
ion'
sonl
yproducti
s$180.
00peruni
tandit
s
var
iableexpenseis$37.
80perunit
.Thecompany'
smonthl
yfi
xedexpensei
s
$483,480.

Requi
red:

Assumethecompany'
smonthl
yt ar
getpr
ofi
tis$56,
880.Det
ermi
net
heuni
t
sal
estoatt
aint
hatt
argetpr
ofi
t.Showyourwork!

Ans:

$180.
0
Sel
l
ingpr
iceperuni
t 0
  
  
37.
8
Var
iabl
eexpenseperuni
t 0
$142.
2
Cont
ri
but
ionmar
ginperuni
t 0

Unitsal
estoattai
ntargetprof
it
=(Fixedexpenses+Targetprofi
t)
/Uni
tcont
ri
but
ionmar
gin
=($483,480+$56,880)/$142.
20=3,800

AACSB: 
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yti
c AI
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it
ical
 
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nki
ng AI
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ti
ng LO:
 
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Lev
el:
 
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197.BussyCor
por
ati
onproducesandsell
sasi ngl
eproductwhosecont
ri
but
ion
margi
nrat
ioi
s54%.Thecompany '
smont hlyf
ixedexpensei
s$561,
600andthe
company'
smonthl
ytar
getprof
iti
s$34,560.

Requi
red:

Det
ermi
net
hedol
l
arsal
est
oat
tai
nthecompany
'st
argetpr
ofi
t.Showy
ourwor
k!

Ans:

Totalsal
esdollar
stoatt
aintargetprof
it
=(Fixedexpenses+Targetprofi
t)/CM r
ati
o
=($561,600+$34,560)
/0.54=$1, 104,
000

AACSB: 
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yti
c AI
CPA 
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it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
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ti
ng LO:
 
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Lev
el:
 
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6-
162 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

198.Thecont
ribut
ionmar gi
nrati
oofKuckCorporat
ion'
sonl
yproductis75%.The
company'
smont hl
yfixedexpensei
s$585,000andthecompany'smonthl
y
tar
getpr
ofiti
s$11,250.

Requi
red:

Det
ermi
net
hedol
l
arsal
est
oat
tai
nthecompany
'st
argetpr
ofi
t.Showy
ourwor
k!

Ans:

Totalsal
esdollar
stoatt
aintargetprofi
t
=(Fixedexpenses+Targetprofi
t)/
CM rati
o
=($585,000+$11,250)
/0.75=$795, 000

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yti
c AI
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it
ical
 
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ng AI
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ti
ng LO:
 
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Lev
el:
 
 Easy

199.Knezevi
chCorporati
onmakesaproductt
hatsel
l
sfor$230peruni
t.The
product
'scur
rentsal
esar
e36,900unit
sandit
sbreak-
evensal
esar
e32,103
unit
s.

Requi
red:

Comput
ethemar
ginofsaf
etyi
nbot
hdol
l
arsandasaper
cent
ageofsal
es.

Ans:

$8,487,
00
Sales(atthecurr
entvol
umeof36,900uni
ts)(a) 0
 
7,383,
69
Break-ev
ensales(at32,
103unit
s) 0
$1,103,
31
Mar gi
nofsafety(i
ndoll
ars)(
b) 0
Mar gi
nofsafetyasapercent
ageofsal
es,(b)÷(a) 13%

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yti
c AI
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it
ical
 
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nki
ng AI
CPA 
FN:
 
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ti
ng LO:
 
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Lev
el:
 
 Easy

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
163
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

200.DickusCor
porat
ion'
sonlyproductsel
l
sfor$100peruni
t.I
tscur
rentsal
esar
e
35,600uni
tsandit
sbreak-
evensalesare29,
192uni
ts.

Requi
red:

Comput
ethemar
ginofsaf
etyi
nbot
hdol
l
arsandasaper
cent
ageofsal
es.

Ans:

$3,560,
00
Sales(atthecurr
entvol
umeof35,600uni
ts)(a) 0
 
2,919,
20
Break-ev
ensales(at29,
192unit
s) 0
$  640,
80
Mar gi
nofsafety(i
ndoll
ars)(
b) 0
Mar gi
nofsafetyasapercent
ageofsal
es,(b)÷(a) 18%

AACSB: 
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yti
c AI
CPA 
BB:
 
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it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
 Repor
ti
ng LO:
 
 7
Lev
el:
 
 Easy

201.Hasl
em I
nc.haspr
ovi
dedt
hef
oll
owi
ngdat
aconcer
ningi
tsonl
ypr
oduct
:

$100per
Sel
l
ingpr
ice unit
37,
300
Cur
rentsal
es unit
s
26,
483
Br
eak-
evensal
es unit
s

Requi
red:

Comput
ethemar
ginofsaf
etyi
nbot
hdol
l
arsandasaper
cent
ageofsal
es.

Ans:

$3,
730,
00
Sales(atthecurr
entvol
umeof37,300uni
ts)(a) 0
Break-ev
ensales(at26,
483unit
s) 2,
648,
300
$1,
081,
70
Mar gi
nofsafety(i
ndoll
ars)(
b) 0
Mar gi
nofsafetyasapercent
ageofsal
es,(b)÷(a) 29%

AACSB: 
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yti
c AI
CPA 
BB:
 
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it
ical
 
Thi
nki
ng AI
CPA 
FN:
 
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ti
ng LO:
 
 7
Lev
el:
 
 Easy

6-
164 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on 6-
165
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

202.McquageCor
por
ati
onhaspr
ovi
dedi
tscont
ri
but
ionf
ormati
ncomest
atement
f
orJuly
.

$558,00
Sal
es 0
 
306,90
Vari
ableexpenses 0
Contr
ibut
ionmar gi
n 251,100
 
209,80
Fi
xedexpenses 0
$ 
41,30
Netoper
ati
ngi
ncome 0

Requi
red:

a.Comput et
hedegreeofoperat
ingleveragetotwodecimal pl
aces.
b.Usingthedegr
eeofoperat
ingleverage,esti
matethepercent
agechangei
n
netoperat
ingi
ncomethatshouldresultfrom a19%incr
easeinsales.

Ans:

a.Degreeofoper at
inglev
er age=Contr
ibut
ionmargi
n/Netoper
ati
ngi
ncome
=$251, 100/$41,300=6.08
b.Percentincreaseinnetoper at
ingi
ncome
=Per centincreaseinsales×Degreeofoperat
ingl
everage
=19%×6. 08=115. 52%

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yti
c AI
CPA 
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it
ical
 
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nki
ng AI
CPA 
FN:
 
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ti
ng LO:
 
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Lev
el:
 
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6-
166 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
Chapt
er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

203.LubkeCor
por
ati
on'
scont
ri
but
ionf
ormati
ncomest
atementf
ort
hemostr
ecent
monthfol
l
ows:

$506,00
Sal
es 0
 
236,50
Vari
ableexpenses 0
Contr
ibut
ionmar gi
n 269,500
 
241,70
Fi
xedexpenses 0
$ 
27,80
Netoper
ati
ngi
ncome 0

Requi
red:

a.Comput et
hedegreeofoperat
ingleveragetotwodecimal pl
aces.
b.Usingthedegr
eeofoperat
ingleverage,esti
matethepercent
agechangei
n
netoperat
ingi
ncomethatshouldresultfrom a3%incr
easeinsales.

Ans:

a.Degreeofoper at
ingleverage=Contr
ibut
ionmargi
n/Netoper
ati
ngi
ncome
=$269, 500/$27,800=9. 69
b.Percentincreasei nnetoperat
ingi
ncome
=Per centincreaseinsales×Degreeofoperat
ingl
everage
=3%×9. 69=29. 07%

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yti
c AI
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it
ical
 
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ng AI
CPA 
FN:
 
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ti
ng LO:
 
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Lev
el:
 
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Gar
ri
son/
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een/
Brewer
,Manager
ialAccount
ing,
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ti
on 6-
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er6Cost
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ume-
Prof
itRel
ati
onshi
ps

204.I
nthemostrecentmont
h,Sar
dell
aCorpor
ati
on'
stot
alcont
ri
but
ionmar
ginwas
$46,
200andit
snetoper
ati
ngincome$13,
200.

Requi
red:

a.Comput et
hedegreeofoperat
ingleveragetotwodecimal pl
aces.
b.Usingthedegr
eeofoperat
ingleverage,esti
matethepercent
agechangei
n
netoperat
ingi
ncomethatshouldresultfrom a10%incr
easeinsales.

Ans:

a.Degreeofoper at
ingleverage=Contr
ibut
ionmargi
n/Netoper
ati
ngi
ncome
=$46, 200/$13,200=3. 50
b.Percentincreaseinnetoper at
ingi
ncome
=Per centi
ncr easeinsales×Degreeofoperat
ingl
everage
=10%×3. 50=35. 00%

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yti
c AI
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it
ical
 
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ng AI
CPA 
FN:
 
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ti
ng LO:
 
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Lev
el:
 
 Easy

6-
168 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
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er6Cost
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ume-
Prof
itRel
ati
onshi
ps

205.Brancat
iInc.producesandsell
stwoproduct
s.Dat
aconcer
ningt
hosepr
oduct
s
forthemostr ecentmonthappearbel
ow:

Product Pr oduct
W07C B29Z
Sal
es $25,000 $27, 000
Var
iabl
eexpenses $7,
000 $8,600

Fi
xedexpensesf
ort
heent
ir
ecompanywer
e$32,
860.

Requi
red:

a.Deter
minet heoveral
lbreak-evenpointf
orthecompany
.Showy ourwork!
b.I
fthesalesmi xshi
ftstowar dProductW07Cwi t
hnochangeint
ot al
sal
es,
whatwil
l happentothebr eak-
evenpointfort
hecompany?Expl
ain.

Ans:

a Pr
oduct Pr
oduct
. W07C B29Z Tot al
$52,00
Sal
es $25,000 $27,000 0
Vari
ableexpenses  
  
7,000  
  
8,600  
15,600
Contr
ibuti
onmar gi
n $18,000 $18,400 36,400
Fi
xedexpenses  
32,860
Netoperati
ngincome $ 
3,540

Over
allCM rati
o=Total contr
ibut
ionmargin/
Totalsal
es
=$36,
400/ $52,
000=0. 70
Br
eak-evenpointi
ntotal sal
esdoll
ars=Fixedexpenses/
Over
all
CM r
ati
o
=$32,
860/ 0.
70=$46,943

b Product Product
. W07C B29Z
Sal
es(a) $25,000 $27,000
Cont
ri
buti
onmargi
n(b) $18,000 $18,400
CM r
ati
o(b)÷(
a) 0.720 0.681

SinceProductW07C’sCM rat
ioi
sgreaterthanProductB29Z’
s,ashi
fti
nthe
salesmixtowardProductW07Cwil
lresultinadecreasei
nthecompany’s
overal
lbreak-
evenpoint
.

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yti
c AI
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it
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ng LO:
 
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el:
 
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ri
son/
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een/
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,Manager
ialAccount
ing,
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ft
hEdi
ti
on 6-
169
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er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

6-
170 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on
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er6Cost
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ume-
Prof
itRel
ati
onshi
ps

206.VerenInc.pr
oducesandsell
stwoproduct
s.Duringthemostrecentmonth,
ProductF73A'
ssaleswere$27,
000anditsvar
iableexpenseswere$9,
450.
ProductL75P'
ssaleswere$14,
000anditsvar
iableexpenseswere$5,
310.The
company '
sfi
xedexpenseswere$21,
060.

Requi
red:

a.Deter
minet heover
allbreak-evenpointf
orthecompany.Showyourwork!
b.I
fthesalesmi xshi
ft
st owar dProductF73Awithnochangeint
otalsal
es,
whatwil
l happentothebr eak-
evenpointfort
hecompany?Expl
ain.

Ans:

a Pr
oduct Pr
oduct
. F73A L75P Tot al
$41,00
Sal
es $27,000 $14,000 0
Vari
ableexpenses  
  
9,450   
 5,
310  
14,760
Contr
ibuti
onmar gi
n $17,550 $ 8,
690 26,240
Fi
xedexpenses  
21,060
Netoperati
ngincome $ 
5,180

Over
allCM rati
o=Total contr
ibut
ionmargin/
Totalsal
es
=$26,
240/ $41,
000=0. 64
Br
eak-evenpointi
ntotal sal
esdoll
ars=Fixedexpenses/
Over
all
CM r
ati
o
=$21,
060/ 0.
64=$32,906

b Product Product
. F73A L75P
Sal
es(a) $27,000 $14,000
Cont
ri
buti
onmargi
n(b) $17,550 $8,690
CM r
ati
o(b)÷(
a) 0.650 0.621

SinceProductF73A’
sCM rati
oisgreaterthanProductL75P’
s,ashi
fti
nthe
salesmixtowardProductF73Awil
lresultinadecreaseint
hecompany’s
overal
lbreak-
evenpoint
.

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yti
c AI
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it
ical
 
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ng AI
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FN:
 
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ti
ng LO:
 
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Lev
el:
 
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ri
son/
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een/
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,Manager
ialAccount
ing,
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hEdi
ti
on 6-
171
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er6Cost
-Vol
ume-
Prof
itRel
ati
onshi
ps

6-
172 Gar
ri
son/
Nor
een/
Brewer
,Manager
ialAccount
ing,
Twel
ft
hEdi
ti
on