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2017 IntroductiontoManagerialAccounting|

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IntroductiontoManagerialAccounting
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Thecorrectanswerforeachquestionisindicatedbya .
CarringtonCompanyproducesaproductthatsellsfor$60.Variablemanufacturingcosts
are$30perunit.Fixedmanufacturingcostsare$10perunitbasedonthecurrentlevel
1 CORRECT ofactivity,andfixedsellingandadministrativecostsare$8perunit.Aselling
commissionof10%ofthesellingpriceispaidoneachunitsold.Thecontribution
marginperunitis:
A)$24.
B)$30.
C)$36.
D)$54.
Feedback:
Salesprice $60

Variablemanufacturingcosts $30

Sellingcosts($60x10%) 6 36

Contributionmargin $24

Acompanyhasprovidedthefollowingdata:
Sales 6,000units

Salesprice $100perunit

2 INCORRECT
Variablecost $50perunit

Fixedcost $150,000
Ifthedollarcontributionmarginperunitisincreasedby10%,totalfixedcostis
decreasedby20%,andallotherfactorsremainthesame,netincomewill:
A)decreaseby$30,000.
B)increaseby$30,000.
C)increaseby$60,000.
D)increaseby$210,000.
Feedback:

Current Change Revised

Sales(6,000x$100) $600,000

Lessvariableexpenses(6,000x 300,000
$50)

Contributionmargin 300,000 $30,000(1) $330,000

Lessfixedexpenses 150,000 (30,000)(2) 120,000

Netincome $150,000 $60,000 $210,000

(1)$300,000x10%=$30,000

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26.03.2017 IntroductiontoManagerialAccounting|

(2)$150,000x20%=$30,000
CapuletCompanysellsasingleproduct.Theproducthasasellingpriceof$50perunit
3 INCORRECT andvariableexpensesof80%ofsales.Ifthecompany'sfixedexpensestotal$75,000
peryear,thenitwillhaveabreakevenof:
A)$1,875.
B)$7,500.
C)$93,750.
D)$375,000.
Feedback:Thecontributionmargin(CM)percentagemaybecalculatedas:
Salespercentage(100%)minusVariableexpensespercentageequalsCM
percentage
100%80%=20%
Then,thebreakevenpointmaybecalculatedas:
FixedcostsdividedbyCMpercentageequalsbreakevenpoint(insales
dollars)
$75,00020%=$375,000
ThefollowingisMontagueCorporation'scontributionformatincomestatementforlast
month:
Sales $2,000,000

Lessvariableexpenses 1,400,000

4 CORRECT Contributionmargin 600,000

Lessfixedexpenses 360,000

Netincome $240,000
Thecompanyhasnobeginningorendinginventories.Atotalof40,000unitswere
producedandsoldlastmonth.Whatisthecompany'scontributionmarginratio?
A)30%
B)70%
C)150%
D)250%
Feedback:Contributionmargin(CM)Sales=CMratio
$600,000$2,000,000=.30or30%
ThefollowingisMontagueCorporation'scontributionformatincomestatementforlast
month:
Sales $2,000,000

Lessvariableexpenses 1,400,000

Contributionmargin 600,000
5 INCORRECT
Lessfixedexpenses 360,000

Netincome $240,000
Thecompanyhasnobeginningorendinginventories.Atotalof40,000unitswere
producedandsoldlastmonth.(Notethatthisisthesamedataasprovidedinthe
previousquestion.)Whatisthecompany'sbreakeveninunits?
A)0units
B)24,000units
C)36,000units
D)40,000units

ThefollowingisMontagueCorporation'scontributionformatincomestatementforlast
month:
Sales $2,000,000

Lessvariableexpenses 1,400,000

Contributionmargin 600,000
6 INCORRECT
Lessfixedexpenses 360,000

Netincome $240,000
Thecompanyhasnobeginningorendinginventories.Atotalof40,000unitswere
producedandsoldlastmonth.(Notethatthisisthesamedataasprovidedinthe
previousquestion.)Ifsalesincreaseby200units,howmuchshouldnetincome
increase?
A)$800
B)$3,000
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26.03.2017 IntroductiontoManagerialAccounting|

C)$5,000
D)$9,600

ThefollowingisMontagueCorporation'scontributionformatincomestatementforlast
month:
Sales $2,000,000

Lessvariableexpenses 1,400,000

Contributionmargin 600,000
7 CORRECT
Lessfixedexpenses 360,000

Netincome $240,000
Thecompanyhasnobeginningorendinginventories.Atotalof40,000unitswere
producedandsoldlastmonth.(Notethatthisisthesamedataasprovidedinthe
previousquestion.)Howmanyunitswouldthecompanyhavetoselltoattaintarget
profitsof$300,000?
A)44,000
B)50,000
C)53,334
D)75,000

ThefollowingisMontagueCorporation'scontributionformatincomestatementforlast
month:
Sales $2,000,000

Lessvariableexpenses 1,400,000

Contributionmargin 600,000
8 INCORRECT
Lessfixedexpenses 360,000

Netincome $240,000
Thecompanyhasnobeginningorendinginventories.Atotalof40,000unitswere
producedandsoldlastmonth.(Notethatthisisthesamedataasprovidedinthe
previousquestion.)Whatisthecompany'smarginofsafetyindollars?
A)$240,000
B)$800,000
C)$1,200,000
D)$1,760,000

9 INCORRECT ThefollowingisMontagueCorporation'scontributionformatincomestatementforlast
month:
Sales $2,000,000

Lessvariableexpenses 1,400,000

Contributionmargin 600,000

Lessfixedexpenses 360,000

Netincome $240,000
Thecompanyhasnobeginningorendinginventories.Atotalof40,000unitswere
producedandsoldlastmonth.(Notethatthisisthesamedataasprovidedinthe
previousquestion.)Whatisthecompany'sdegreeofoperatingleverage?
A)0.12
B)0.4
C)2.5
D)3.3

PenwayCompanysellsthreeproducts:A,BandC.ProductA'sunitcontributionmargin
10 INCORRECT ishigherthanProductB'swhichishigherthanProductsC's.Whichoneofthefollowing
eventsismostlikelytoincreasethecompany'soverallbreakevenpoint?
A)Theinstallationofnewautomatedequipmentandsubsequentlayoffoffactory
workers.
B)AdecreaseinProductC'ssellingprice.
C)AnincreaseintheoverallmarketdemandforProductB.
D)Achangeintherelativemarketdemandfortheproducts,withtheincrease
favoringProductArelativetoProductBandProductC.

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