7. Menlove Company had the following income statement for the most recent year:

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1 1. Which of the following formulas is used to calculate the contribution margin ratio? A. (Sales - Fixed expenses) Sales B. (Sales - Cost of goods sold) Sales C. (Sales - Variable expenses) Sales D. (Sales - Total expenses) Sales 2. The break-even point in unit sales is found by dividing total fixed expenses by: A. the contribution margin ratio. B. the variable expenses per unit. C. the sales price per unit. D. the contribution margin per unit. 3. The break-even point in unit sales increases when variable expenses: A. increase and the selling price remains unchanged. B. decrease and the selling price remains unchanged. C. decrease and the selling price increases. D. remain unchanged and the selling price increases. 4. The margin of safety percentage is computed as: A. Break-even sales Total sales. B. Total sales - Break-even sales. C. (Total sales - Break-even sales) Break-even sales. D. (Total sales - Break-even sales) Total sales. 5. The amount by which a company's sales can decline before losses are incurred is called the: A. contribution margin. B. degree of operating leverage. C. margin of safety. D. contribution margin ratio. 6. The degree of operating leverage can be calculated as: A. contribution margin divided by sales. B. gross margin divided by net operating income. C. net operating income divided by sales. D. contribution margin divided by net operating income.

2 7. Menlove Company had the following income statement for the most recent year: Given this data, the unit contribution margin was: A. $2 per unit B. $15 per unit C. $6 per unit D. $4 per unit 8. Mancuso Corporation has provided its contribution format income statement for January. The company produces and sells a single product. If the company sells 3,100 units, its total contribution margin should be closest to: A. $27,045 B. $181,000 C. $162,400 D. $173, Dimitrov Corporation, a company that produces and sells a single product, has provided its contribution format income statement for July. If the company sells 6,900 units, its net operating income should be closest to: A. $35,979 B. $34,500 C. $36,500 D. $32,000

3 10. The following monthly data in contribution format are available for the MN Company and its only product, Product SD: The company produced and sold 300 units during the month and had no beginning or ending inventories. Required: a. Without resorting to calculations, what is the total contribution margin at the break-even point? b. Management is contemplating the use of plastic gearing rather than metal gearing in Product SD. This change would reduce variable expenses by $18 per unit. The company's sales manager predicts that this would reduce the overall quality of the product and thus would result in a decline in sales to a level of 250 units per month. Should this change be made? c. Assume that MN Company is currently selling 300 units of Product SD per month. Management wants to increase sales and feels this can be done by cutting the selling price by $22 per unit and increasing the advertising budget by $20,000 per month. Management believes that these actions will increase unit sales by 50 percent. Should these changes be made? d. Assume that MN Company is currently selling 300 units of Product SD. Management wants to automate a portion of the production process for Product SD. The new equipment would reduce direct labor costs by $20 per unit but would result in a monthly rental cost for the new robotic equipment of $10,000. Management believes that the new equipment will increase the reliability of Product SD thus resulting in an increase in monthly sales of 12%. Should these changes be made?

4 a. The total contribution margin would be $40,000 since it is equal to the fixed expenses at the breakeven point. b. The $18 decrease in variable costs will cause the contribution margin per unit to increase from $170 to $188. The less costly components should not be used in the manufacture of Product SD. Net operating income will decrease by $4,000. c. The decrease in selling price per unit will cause the unit contribution margin to decrease from $170 to $148. The changes should not be made. d. The use of the automated process would affect both fixed and variable costs. Fixed expenses will increase by $10,000 from $40,000 to $50,000. Variable costs will decrease by $20 from $109 to $89, and the unit contribution margin will increase from $170 to $190. The changes should be made.

5 11. Selling and administrative expenses are considered to be: A. a product cost under variable costing. B. a product cost under absorption costing. C. part of fixed manufacturing overhead under variable costing. D. a period cost under variable costing. 12. A common cost that should not be assigned to a particular product on a segmented income statement is: A. the product's advertising costs. B. the salary of the corporation president. C. direct materials costs. D. the product manager's salary. 13. Segment margin is sales minus: A. variable expenses. B. traceable fixed expenses. C. variable expenses and common fixed expenses. D. variable expenses and traceable fixed expenses. 14. Gangwer Corporation produces a single product and has the following cost structure: The absorption costing unit product cost is: A. $95 B. $119 C. $61 D. $56

6 15. Olds Inc., which produces a single product, has provided the following data for its most recent month of operations: There were no beginning or ending inventories. The absorption costing unit product cost was: A. $97 B. $130 C. $99 D. $ A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: What is the absorption costing unit product cost for the month? A. $102 B. $130 C. $97 D. $125

7 17. Swiatek Corporation produces a single product and has the following cost structure: The variable costing unit product cost is: A. $161 B. $225 C. $153 D. $ A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: What is the total period cost for the month under absorption costing? A. $58,300 B. $37,100 C. $259,900 D. $201,600

8 19. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: The total gross margin for the month under absorption costing is: A. $42,000 B. $14,700 C. $69,000 D. $79,800

9 20. Last year, Salada Corporation's variable costing net operating income was $97,000. Fixed manufacturing overhead costs released from inventory under absorption costing amounted to $14,000. What was the absorption costing net operating income last year? A. $14,000 B. $111,000 C. $97,000 D. $83, Gore Corporation has two divisions: the Business Products Division and the Export Products Division. The Business Products Division's divisional segment margin is $55,700 and the Export Products Division's divisional segment margin is $70,600. The total amount of common fixed expenses not traceable to the individual divisions is $107,400. What is the company's net operating income? A. $233,700 B. $(126,300) C. $126,300 D. $18, Sugiki Corporation has two divisions: the Alpha Division and the Delta Division. The Alpha Division has sales of $820,000, variable expenses of $369,000, and traceable fixed expenses of $347,300. The Delta Division has sales of $460,000, variable expenses of $294,400, and traceable fixed expenses of $134,100. The total amount of common fixed expenses not traceable to the individual divisions is $97,300. What is the company's net operating income? A. $135,200 B. $37,900 C. $616,600 D. $519,300

10 Green Enterprises produces a single product. The following data were provided by the company for the most recent period: 23. For the period above, one would expect the net operating income under absorption costing to be: A. higher than the net operating income under variable costing. B. lower than the net operating income under variable costing. C. the same as the net operating income under variable costing. D. The relation between absorption costing net operating income and variable costing net operating income cannot be determined. Whitney, Inc., produces a single product. The following data pertain to one month's operations: 24. The carrying value on the balance sheet of the ending finished goods inventory under variable costing would be: A. $16,000 B. $10,000 C. $19,000 D. $12,000

11 25. The carrying value on the balance sheet of the ending finished goods inventory under absorption costing would be: A. $16,000 B. $10,000 C. $12,000 D. $21, Gaucher Corporation has provided the following data from its activity-based costing accounting system: The activity rate for the "designing products" activity cost pool is closest to: A. $78 per product design hour B. $582,016 per product design hour C. $128 per product design hour D. $89 per product design hour 27. Wecker Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products: Data concerning two products appear below: How much overhead cost would be assigned to Product V09X using the activity-based costing system? A. $ B. $91, C. $10, D. $5, A transaction driver is: A. An event that causes a transaction to begin. B. A measure of the amount of time required to perform an activity. C. An event that causes a transaction to end. D. A simple count of the number of times an activity occurs.