1.

The following is last month's contribution format income statement:

What is the company's margin of safety in dollars?

Break-even in total sales dollars = Fixed expenses Contribution margin ratio

= $500,000 0.40 = $1,250,000
Margin of safety in dollars = Sales - Break-even sales
= $1,500,000 - $1,250,000 = $250,000

2. The following data pertain to Wistron Company's two products:

If fixed expenses for the company as a whole are $60,000 and the product mix is constant, what
would the overall break-even point for the company would be?

Overall CM ratio = Total contribution margin Total sales

= $72,000 $180,000 = 0.40
Break-even point in total sales dollars = Fixed expenses Overall contribution margin ratio
= $60,000 0.40 = $150,000
 3. A company that makes organic fertilizer has supplied the following data:

The company's degree of operating leverage is closest to what?

Total contribution margin = Sales - Variable expenses

= $1,560,000 - $660,000 - $180,000
= $720,000
Degree of operating leverage = Contribution margin/Net operating income
= $720,000 $58,000 = 12.41 (rounded)

4. Carver Company produces a product which sells for $30. Variable manufacturing costs
are $15 per unit. Fixed manufacturing costs are $5 per unit based on the current level of
activity, and fixed selling and administrative costs are $4 per unit. A selling commission
of 10% of the selling price is paid on each unit sold. What is the contribution margin per
unit?

Contribution margin per unit

= Sales price - Variable manufacturing costs per unit
Contribution margin per unit = $30 - $15 - ($30 x 10%) = $12

5. Scobie Corporation's fixed monthly expenses are $16,000 and its contribution margin
ratio is 57%. Assuming that the fixed monthly expenses do not change, what is the best
estimate of the company's net operating income in a month when sales are $69,000?
 6. Jatry Corporation's budgeted sales are $300,000, its budgeted variable expenses are
$210,000, and its budgeted fixed expenses are $60,000. What is the company's break-
even in dollar sales?

Contribution margin = $300,000 - $210,000 = $90,000

Contribution margin ratio = $90,000 $300,000 = 30%
Break-even in total sales dollars = Fixed expenses Contribution margin ratio
= $60,000 30% = $200,000

7. Scobie Corporation's fixed monthly expenses are $16,000 and its contribution margin
ratio is 57%. Assuming that the fixed monthly expenses do not change, what is the best
estimate of the company's net operating income in a month when sales are $69,000?

8. Erdmann Corporation has provided its contribution format income statement for July.
The company produces and sells a single product.

If the company sells 8,100 units, its net operating income should be closest to what?
Unit contribution margin = Total contribution margin Number of units
= $221,200 7,900 = $28
Total contribution margin @ 8,100 units = 8,100 units x $28 = $226,800

9 Dorian Company produces and sells a single product. The product sells for $60 per unit
and has a contribution margin ratio of 40%. The company's monthly fixed expenses are
$28,800.

The variable expense per unit is:

Variable expense ratio = 1 - Contribution margin ratio

= 1 - .40 = .60
Variable expense per unit = Selling price x Variable expense ratio
= $60 x .60 = $36.00

10 Ringstaff Corporation produces and sells a single product. Data concerning that product
appear below:

The company is currently selling 7,000 units per month. Fixed expenses are $615,000 per month.
The marketing manager believes that a $21,000 increase in the monthly advertising budget
would result in a 180 unit increase in monthly sales. What should be the overall effect on the
company's monthly net operating income of this change?
Increase in net operating income: $225,600 - $225,000 = $600