CORRECT > 1: The following is Aykroyd Corporation's contribution format income statement for last month:Sales$4,000,000Less variable expenses2,800,000Contribution

margin1,200,000Less fixed expenses720,000Net income $ 480,000The company has no beginning or ending inventories. A total of 80,000 units were produced and sold last month. What is the company's contribution margin ratio? > a. 30% > b. 70% > c. 150% > d. 250% > Your Answer: 30% > Feedback: The correct answer is A (Learning Objective 3):The company's contribution margin ratio is determined as follows. Contribution margin (CM) of $1,200,000/Sales of $4,000,000 = CM ratio of 30%. > > INCORRECT > 2: The following is Aykroyd Corporation's contribution format income statement for last month:Sales $4,000,000Less variable expenses2,800,000Contribution margin1,200,000Less fixed expenses720,000Net income$ 480,000The company has no beginning or ending inventories. A total of 80,000 units were produced and sold last month. (Note that this is the same data provided for the previous question.) What is the company's break-even in units? > a. 0 units > b. 48,000 units > c. 72,000 units > d. 80,000 units > Your Answer: 0 units > Feedback: The correct answer is B (Learning Objectives 1 and 5):First, determine the contribution margin (CM) per unit as follows:Total contribution margin/Number of units sold = CM per unit$1,200,000/80,000 = $15 per unitThen, the break-even point (in units) is determined as follows:Fixed expenses/CM per unit = Break-even point (in units) $720,000/$15 per unit = 48,000 units > > INCORRECT > 3: The following is Aykroyd Corporation's contribution format income statement for last month:Sales$4,000,000Less variable expenses 2,800,000Contribution margin 1,200,000Less fixed expenses 720,000Net income$ 480,000The company has no beginning or ending inventories. A total of 80,000 units were produced and sold last month. (Note that this is the same data provided for the previous question.) If sales increase by 400 units, how much should net income increase? > a. $1,600 > b. $6,000 > c. $10,000 > d. $19,200 > Your Answer: $1,600 > Feedback: The correct answer is B (Learning Objectives 1 and 3):First, determine the

contribution margin (CM) per unit as follows:Total contribution margin/number of units sold = CM per unit$1,200,000/80,000 = $15 per unitThen, determine the impact of the increase in sales on net income as follows:Increase in sales (in units) x CM per unit = Increase in net income400 units x $15 per unit = $6,000 > > CORRECT > 4: The following is Aykroyd Corporation's contribution format income statement for last month:Sales$4,000,000Less variable expenses 2,800,000Contribution margin 1,200,000Less fixed expenses 720,000Net income$ 480,000The company has no beginning or ending inventories. A total of 80,000 units were produced and sold last month. (Note that this is the same data provided for the previous question.) How many units would the company have to sell to attain target profits of $600,000? > a. 88,000 > b. 100,000 > c. 106,668 > d. 150,000 > Your Answer: 88,000 > Feedback: The correct answer is A (Learning Objectives 1 and 6):First, determine the contribution margin (CM) per unit as follows:Total contribution margin/Number of units sold = CM per unit$1,200,000/80,000 = $15 per unitThen, the unit sales required to achieve the targeted profit are determined as follows:(Fixed expenses + Targeted profit)/CM per unit = Break-even point (in units)($720,000 + $600,000)/$15 per unit = $1,320,000/$15 = 88,000 units > > INCORRECT > 5: The following is Aykroyd Corporation's contribution format income statement for last month:Sales$4,000,000Less variable expenses 2,800,000Contribution margin 1,200,000Less fixed expenses 720,000Net income$ 480,000The company has no beginning or ending inventories. A total of 80,000 units were produced and sold last month. (Note that this is the same data provided for the previous question.) What is the company's margin of safety in dollars? > a. $480,000 > b. $1,600,000 > c. $2,400,000 > d. $3,520,000 > Your Answer: $480,000 > Feedback: The correct answer is B (Learning Objectives 3, 5, and 7):First, determine the contribution margin (CM) ratio as follows:Contribution margin (CM)/Sales = CM ratio$1,200,000/$4,000,000 = 30%Then, determine the break-even point (in sales dollars) as follows:Fixed expenses/CM ratio = Break-even point (in sales dollars)$720,000/.30 = $2,400,000Finally, determine the margin of safety as follows:Sales - Break-even sales = Margin of safety (in dollars)$4,000,000 - $2,400,000 = $1,600,000 > > INCORRECT > 6: The following is Aykroyd Corporation's contribution format income statement for last month:Sales$4,000,000Less variable expenses 2,800,000Contribution margin

1,200,000Less fixed expenses 720,000Net income$ 480,000The company has no beginning or ending inventories. A total of 80,000 units were produced and sold last month. (Note that this is the same data provided for the previous question.) What is the company's degree of operating leverage? > a. 0.12 > b. 0.4 > c. 2.5 > d. 3.3 > Your Answer: 0.12 > Feedback: The correct answer is C (Learning Objective 8):The company's degree of operating leverage is determined as follows: Degree of operating leverage = Contribution margin/Net incomeDegree of operating leverage = $1,200,000/$480,000 = 2.5 > > INCORRECT > 7: Penway Company sells three products: A, B and C. Product A's unit contribution margin is higher than Product B's and Product B's is higher than Products C's. Which one of the following events is most likely to increase the company's overall break-even point? > a. The installation of new automated equipment and subsequent lay-off of factory workers. > b. A decrease in Product C's selling price. > c. An increase in the overall market demand for Product B. > d. A change in the relative market demand for the products, with the increase favoring Product C relative to Product B and Product A. > Your Answer: The installation of new automated equipment and subsequent lay-off of factory workers. > Feedback: The correct answer is D (Learning Objective 9):Since Product C's unit contribution margin is lower than Product B's which is lower than Products A's, a change in the relative market demand for the products, with the increase favoring Product C relative to Product B and Product A, would be the most likely scenario to increase the company's overall break-even point. Less contribution margin would be generated as a result of the change in relative market demand; thus, the break-even point would increase. > > INCORRECT > 8: Dillon Company produces a product that sells for $120. A selling commission of 10% of the selling price is paid on each unit sold. Variable manufacturing costs are $60 per unit. Fixed manufacturing costs are $20 per unit based on the current level of activity, and fixed selling and administrative costs are $16 per unit. The contribution margin per unit is: > a. $104. > b. $72. > c. $60. > d. $48. > Your Answer: $104.

> Feedback: The correct answer is D (Learning Objective 1):The contribution margin per unit is determined as follows: Sales price$120Variable manufacturing costs$60Selling costs ($120 x 10%)1272Contribution margin$48 > > INCORRECT > 9: Chase Company has provided the following data:Sales price$200 per unitSales6,000 unitsFixed cost$300,000Variable cost$100 per unitIf the dollar contribution margin per unit is increased by 10%, total fixed cost is decreased by 20%, and all other factors remain the same, net income will: > a. decrease by $60,000. > b. increase by $60,000. > c. increase by $120,000. > d. increase by $420,000. > Your Answer: decrease by $60,000. > Feedback: The correct answer is C (Learning Objective 1):Net income will change as follows:  CurrentChangeRevisedSales (6,000 x $200)$1,200,000Less variable expenses (6,000 x $100)600,000Contribution margin600,000$ 60,000 (1)$660,000Less fixed expenses300,000(60,000) (2)240,000Net income$300,000$ 120,000$420,000Calculations: (1) $600,000 x 10% = $60,000(2) $300,000 x 20% = $60,000 > > CORRECT > 10: Curtin Company sells a single product. The product has a selling price of $50 per unit and variable expenses of 80% of sales. If the company's fixed expenses total $150,000 per year, then it will have a break-even of: > a. $750,000 > b. $187,500 > c. $15,000 > d. $3,750 > Your Answer: $750,000 > Feedback: The correct answer is A (Learning Objectives 1 and 5):First, the contribution margin (CM) percentage is determined as follows: Sales percentage (100%) minus Variable expenses percentage equals CM percentage100% 80% = 20%Then, the breakeven point is determined as follows:Fixed costs divided by CM percentage equals breakeven point (in sales dollars)$150,000/20% = $750,000 >