How much will net operating income change

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Reference no: EM131116982

1. Jensen Company manufactures and sells a single product with a positive contribution margin. If the selling price and the variable expense per unit both increase 5% and fixed expenses do not change, what is the effect on the contribution margin per unit and the contribution margin ratio?

 

 

Contribution margin per unit

Contribution margin ratio

Option A

No change

No change

Option B

Increase

Increase

Option C

Increase

No change

Option D

Increase

Decrease

Option A
Option D
Option C
Option B

2. Break-even analysis assumes that:

· The average variable expense per unit is constant.
· Total costs are constant.
· The average fixed expense per unit is constant.
· Variable expenses are nonlinear.

3. If Q equals the level of output, P is the selling price per unit, V is the variable expense per unit, and F is the fixed expense, then the break-even point in units is:

· F ÷ (P-V)
· Q ÷ (P-V)
· V ÷ (P-V)
· F ÷ [Q(P-V)]

4. All other things the same, which of the following would be true of the contribution margin and variable expenses of a company with high fixed costs and low variable costs as compared to a company with low fixed costs and high variable costs? CHOOSE ONE OPTION:

 

Contribution Margin

Variable Costs

Option A

Higher

Higher

Option B

Lower

Higher

Option C

Higher

Lower

Option D

Lower

Lower

Franklin Company has a margin of safety percentage of 20% based on its actual sales. The break-even point is $200,000 and the variable expenses are 45% of sales. Given this information, the actual profit is:

· $18,000
· $22,500
· $22,000
· $27,500

6. A company has provided the following data:

Sales

3,000 units

Sales price

$70 per unit

Variable cost

$50 per unit

Fixed cost

$25,000


$25,000

If the sales volume decreases by 25%, the variable cost per unit increases by 15%, and all other factors remain the same, net operating income will:

· increase by $20,625.
· decrease by $31,875.
· decrease by $3,125.
· decrease by $15,000.

Sprockets Corporation has provided the following cost data for last year when 100,000 units were produced and sold:

Raw materials

$200,000

Direct labor

$100,000

Manufacturing overhead

$200,000

Selling and administrative expense

$150,000

All costs are variable except for $100,000 of manufacturing overhead and $100,000 of selling and administrative expense. There are no beginning or ending inventories. If the selling price is $10 per unit, the net operating income from producing and selling 110,000 units would be:

· $450,000
· $560,000
· $405,000
· $385,000

8. Valentine Company had the following income statement for the most recent year:

Sales (17,000 units)

$357,000

Variable expenses

$255,000

Contribution margin

$102,000

Fixed expenses

$68,000

Net operating income

$34,000

Given this data, the unit contribution margin was:

· $6 per unit
· $2 per unit
· $4 per unit
· $15 per unit

9. Butaffuco Corporation has provided its contribution format income statement for January. The company produces and sells a single product.

Sales (2,900 units)

$269,700

Variable expenses

$107,300

Contribution margin

$162,400

Fixed expenses

$137,100

Net operating income

$25,300

If the company sells 3,100 units, its total contribution margin should be closest to:

· $181,000
· $173,600
· $162,400
· $24,047

10. Greasy Inc. produces and sells a single product. The company has provided its contribution format income statement for May.

Sales (4,500 units)

$427,500

Variable expenses

$265,500

Contribution margin

$162,000

Fixed expenses

$135,300

Net operating income

$26,700

If the company sells 4,300 units, its net operating income should be closest to:

· $26,700
· $19,500
· $25,513
· $7,700

11. The Simpson Company manufactures and sells a single product which sells for $50 per unit and has a contribution margin ratio of 30%. The company's monthly fixed expenses are $25,000. If Herald desires a monthly target net operating income equal to 20% of sales dollars, sales in units will have to be (rounded):

· 1,000 units
· 1,666 units
· 5,000 units
· 2,500 units

12. Rexin Company sells a single product for $20 per unit. If variable expenses are 60% of sales and fixed expenses total $9,600, the break-even point will be:

· $9,600
· $14,400
· $16,000
· $24,000

13. Emily, Inc. sells a product for $10 per unit. The variable expenses are $6 per unit, and the fixed expenses total $35,000 per period. By how much will net operating income change if sales are expected to increase by $40,000?:

· $24,000 increase
· $16,000 increase
· $11,000 decrease
· $5,000 increase

14. Union Corporation produces and sells a single product. Data concerning that product appear below:

 

Per Unit

Percent of Sales

Selling price

$180

100%

Variable expenses 

$90

50%

Contribution margin 

$90

50%

The company is currently selling 2,000 units per month. Fixed expenses are $131,000 per month. The marketing manager believes that an $18,000 increase in the monthly advertising budget would result in a 170 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?:

· decrease of $18,000
· increase of $15,300
· increase of $2,700
· decrease of $2,700

15. Hempsen Corporation sells its product for $12 per unit. Next year, fixed expenses are expected to be $400,000 and variable expenses are expected to be $8 per unit. How many units must the company sell to generate net operating income of $80,000?:

· 60,000 units
· 50,000 units
· 100,000 units
· 120,000 units.

Reference no: EM131116982

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