True/False Questions: Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-7

True/False Questions
1. One way to compute the total contribution margin is to add total fixed expenses to net
operating income.
Ans: True AACSB: eflecti!e Thin"ing A#C$A BB: Critical Thin"ing
A#C$A %&: eporting 'O: 1 'e!el: (edium
). On a C*$ graph for a profitable company+ the total re!enue line will be steeper than
the total cost line.
Ans: True AACSB: Analytic A#C$A BB: Critical Thin"ing
A#C$A %&: eporting 'O: ) 'e!el: ,asy
-. #n two companies ma"ing the same product and with the same total sales and total
expenses+ the contribution margin ratio will be lower in the company with a
higher proportion of fixed expenses in its cost structure.
Ans: %alse AACSB: Analytic A#C$A BB: Critical Thin"ing
A#C$A %&: eporting 'O: - 'e!el: (edium
.. #f the !ariable expense per unit increases+ and all other factors remain constant+ the
contribution margin ratio will increase.
/. The impact on net operating income of any gi!en dollar change in total sales can be
estimated by multiplying the C( ratio by the dollar change in total sales.
A#C$A %&: eporting 'O: - 'e!el: ,asy
0. A company with sales of 123+333 and !ariable expenses of 1.3+333 should spend
113+333 on increased ad!ertising if the increased ad!ertising will increase sales by
1)3+333.
A#C$A %&: eporting 'O: . 'e!el: (edium
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-7
2. The formula for the brea"4e!en point is the same as the formula to attain a gi!en target
profit for the special case where the target profit is 5ero.
A#C$A %&: eporting 'O: /6 0 'e!el: (edium
7. An increase in total fixed expenses will not affect the brea"4e!en point so long as the
contribution margin ratio remains unchanged.
A#C$A %&: eporting 'O: / 'e!el: (edium
8. All other things the same+ a reduction in the !ariable expense per unit will cause the
brea"4e!en point to rise.
13. The unit sales !olume necessary to reach a target profit is determined by di!iding the
target profit by the contribution margin per unit.
Ans: %alse AACSB: eflecti!e Thin"ing A#C$A BB: Critical Thin"ing
11. All other things the same+ the margin of safety in dollars at a gi!en le!el of sales
will tend to be lower for a capital4intensi!e company than for a labor4intensi!e
company with high !ariable expenses.
1). The margin of safety in dollars e9uals the excess of budgeted :or actual; sales o!er the
brea"4e!en !olume of sales.
A#C$A %&: eporting 'O: 2 'e!el: ,asy
1-. A company with high operating le!erage will experience a lower reduction in net
operating income in a period of declining sales than will a company with low
operating le!erage.
1.. #f < is the 9uantity of a product sold+ $ is the price per unit+ * is the !ariable expense
per unit+ and % is the total fixed expense+ then the degree of operating le!erage is e9ual
to: =<:$4*;> ? =<:$4*;4%>
A#C$A %&: eporting 'O: 7 'e!el: @ard
1/. A shift in the sales mix from products with high contribution margin ratios toward
products with low contribution margin ratios will raise the brea"4e!en point.
Multiple Choice Questions
10. Contribution margin can be defined as:
A; the amount of sales re!enue necessary to co!er !ariable expenses.
B; sales re!enue minus fixed expenses.
C; the amount of sales re!enue necessary to co!er fixed and !ariable expenses.
A; sales re!enue minus !ariable expenses.
Ans: A AACSB: eflecti!e Thin"ing A#C$A BB: Critical Thin"ing
12. Bhich of the following statements is correct with regard to a C*$ graphC
A; A C*$ graph shows the maximum possible profit.
B; A C*$ graph shows the brea"4e!en point as the intersection of the total sales
re!enue line and the total expense line.
C; A C*$ graph assumes that total expense !aries in direct proportion to unit sales.
A; A C*$ graph shows the operating le!erage as the gap between total sales
re!enue and total expense at the actual le!el of sales.
Ans: B AACSB: eflecti!e Thin"ing A#C$A BB: Critical Thin"ing
A#C$A %&: eporting 'O: ) 'e!el: ,asy
17. #f both the fixed and !ariable expenses associated with a product decrease+ what will
be the effect on the contribution margin ratio and the brea"4e!en point+ respecti!elyC
Contribution margin ratio Brea"-e!en point
A; Aecrease #ncrease
B; #ncrease Aecrease
C; Aecrease Aecrease
A; #ncrease #ncrease
Ans: B AACSB: Analytic A#C$A BB: Critical Thin"ing
A#C$A %&: eporting 'O: -6 / 'e!el: (edium Source: C(A6 adapted
18. Bhich of the following is true regarding the contribution margin ratio of a single
product companyC
A; As fixed expenses decrease, the contribution margin ratio increases.
B; The contribution margin ratio multiplied by the selling price per unit e9uals the
contribution margin per unit.
C; The contribution margin ratio will decline as unit sales decline.
A; The contribution margin ratio e9uals the selling price per unit less the !ariable
expense ratio.
)3. #f a company is operating at the brea"4e!en point:
A; its contribution margin will be e9ual to its !ariable expenses.
B; its margin of safety will be e9ual to 5ero.
C; its fixed expenses will be e9ual to its !ariable expenses.
A; its selling price will be e9ual to its !ariable expense per unit.
)1. At the brea"4e!en point:
A; sales would be e9ual to contribution margin.
B; contribution margin would be e9ual to fixed expenses.
C; contribution margin would be e9ual to net operating income.
A; sales would be e9ual to fixed expenses.
)). The brea"4e!en point would be increased by:

A; a decrease in total fixed expenses.
B; a decrease in the ratio of !ariable expenses to sales.
C; an increase in the contribution margin ratio.
A; none of these.
Ans: A AACSB: Analytic A#C$A BB: Critical Thin"ing
)-. Bhich of the following strategies could be used to reduce the brea"4e!en pointC
%ixed expenses Contribution margin
A; #ncrease #ncrease
B; Aecrease Aecrease
C; Aecrease #ncrease
A; #ncrease Aecrease
Ans: C AACSB: Analytic A#C$A BB: Critical Thin"ing
A#C$A %&: eporting 'O: / 'e!el: ,asy
).. Brea"-e!en analysis assumes that:
A; Total re!enue is constant.
B; Dnit !ariable expense is constant.
C; Dnit fixed expense is constant.
A; Selling prices must fall in order to generate more re!enue.
Ans: B AACSB: eflecti!e Thin"ing A#C$A BB: Critical Thin"ing
)/. Target profit analysis is used to answer which of the following 9uestionsC
A; Bhat sales !olume is needed to co!er all expensesC
B; Bhat sales !olume is needed to co!er fixed expensesC
C; Bhat sales !olume is needed to earn a specific amount of net operating incomeC
A; Bhat sales !olume is needed to a!oid a lossC
Ans: C AACSB: eflecti!e Thin"ing A#C$A BB: Critical Thin"ing
)0. The margin of safety can be calculated by:
A; Sales E :%ixed expensesFContribution margin ratio;.
B; Sales E :%ixed expensesF*ariable expense per unit;.
C; Sales E :%ixed expenses G *ariable expenses;.
A; Sales E &et operating income.
)2. #f the degree of operating le!erage is .+ then a one percent change in 9uantity sold
should result in a four percent change in:
A; unit contribution margin.
B; re!enue.
C; !ariable expense.
A; net operating income.
A#C$A %&: eporting 'O: 7 'e!el: ,asy Source: C(A6 adapted
)7. Bhich of the following is the correct calculation for the degree of operating le!erageC
A; net operating income di!ided by total expenses.
B; net operating income di!ided by total contribution margin.
C; total contribution margin di!ided by net operating income.
A; !ariable expense di!ided by total contribution margin.
Ans: C AACSB: eflecti!e Thin"ing A#C$A BB: Critical Thin"ing
)8. Bhich of the following is an assumption underlying standard C*$ analysisC
A; #n multiproduct companies, the sales mix is constant.
B; #n manufacturing companies, in!entories always change.
C; The price of a product or ser!ice is expected to change as !olume changes.
A; %ixed expenses will change as !olume increases.
-3. @opi Corporation expects the following operating results for next year:
Sales...........................................................
(argin of safety.........................................
1.33+33
3
1133+33
3
Contribution margin ratio.......................... 2/H
Aegree of operating le!erage..................... .
Bhat is @opi expecting total fixed expenses to be next yearC
A; 12/+333
B; 1133+333
C; 1)33+333
A; 1))/+333
A#C$A %&: eporting 'O: 16 -6 7 'e!el: @ard
Solution:
Current sales 4 Brea"e!en sales I (argin of safety
Substituting the gi!en information into the abo!e e9uation+ we will ha!e:
1.33+333 E Brea"e!en sales I 1133+333
Brea"e!en sales I 1-33+333
Brea"e!en sales I %ixed expenses ? Contribution margin ratio
1-33+333 I %ixed expenses ? 3.2/
%ixed expenses I 1))/+333
-1. ,scareno Corporation has pro!ided its contribution format income statement for June.
The company produces and sells a single product.
Sales :7+.33 units;.........................
120.+.3
3
*ariable expenses.......................... ../+)33
Contribution margin...................... -18+)33
%ixed expenses............................... )/3+833
&et operating income..................... 1 07+-33
#f the company sells 7+)33 units+ its total contribution margin should be closest to:
A; 1-31+333
B; 1-11+033
C; 1-18+)33
A; 100+02.
Solution:
Current contribution margin ? Current sales in units I Contribution margin per unit
1-18+)33 ? 7+.33 I 1-7 contribution margin per unit
#f 7+)33 units are sold+ the total contribution margin will be 7+)33 K 1-7+ or 1-11+033.
-). o!ins"y Corporation+ a company that produces and sells a single product+ has
pro!ided its contribution format income statement for &o!ember.
Sales :/+233 units;.............
1-18+)3
3
*ariable expenses.............. 177+133
Contribution margin.......... 1-1+133
%ixed expenses................... 130+/33
&et operating income......... 1 ).+033
#f the company sells /+-33 units+ its net operating income should be closest to:
A; 1).+033
B; 1)+)33
C; 1))+72.
A; 11/+.33
Solution:
Current sales dollars ? Current sales in units I Sales price per unit
1-18+)33 ? /+233 I 1/0 sales price per unit
Current !ariable expenses ? Current sales in units I *ariable expense per unit
1177+133 ? /+233 I 1-- !ariable expense per unit
Sales :/+-33 units K 1/0;....................... 1)80+733
*ariable expenses :/+-33 units K 1--;. . 12.+833
Contribution margin.............................. 1)1+833
%ixed expenses...................................... 130+/33
&et operating income............................ 1 1/+.33
--. Sorin #nc.+ a company that produces and sells a single product+ has pro!ided its
contribution format income statement for January.
Sales :.+)33 units;.........................
11//+.3
3
*ariable expenses.......................... 133+733
Contribution margin...................... /.+033
%ixed expenses............................... .)+.33
&et operating income..................... 1 1)+)33
#f the company sells .+033 units+ its total contribution margin should be closest to:
A; 1/.+033
B; 1/8+733
C; 108+.33
A; 11-+-0)
Solution:
Current contribution margin ? Current sales in units I Contribution margin per unit
1/.+033 ? .+)33 I 11- contribution margin per unit
#f .+033 units are sold+ the total contribution margin will be .+033 K 11-+ or 1/8+733.
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-1!
-.. Aecaprio #nc. produces and sells a single product. The company has pro!ided its
contribution format income statement for June.
Sales :7+733 units;..........................
1/)7+33
3
*ariable expenses.......................... )83+.33
Contribution margin....................... )-2+033
%ixed expenses............................... )11+233
&et operating income..................... 1 )/+833
#f the company sells 8+)33 units+ its net operating income should be closest to:
A; 1)2+322
B; 1.8+833
C; 1-0+233
A; 1)/+833
Solution:
Current sales dollars ? Current sales in units I Sales price per unit
1/)7+333 ? 7+733 I 103 sales price per unit
Current !ariable expenses ? Current sales in units I *ariable expense per unit
1)83+.33 ? 7+733 I 1-- !ariable expense per unit
Sales :8+)33 units K 103 ;..........................
1//)+33
3
*ariable expenses :8+)33 units K 1--;....... -3-+033
Contribution margin................................... ).7+.33
%ixed expenses........................................... )11+233
&et operating income................................. 1 -0+233
-/. The Bronco Birdfeed Company reported the following information:

Sales :.33 cases;............................
1133+33
3
Contribution margin...................... .3+333
%ixed expenses............................... -/+333
&et operating income..................... 1/+333
@ow much will the sale of one additional case add to BroncoLs net operating incomeC
A; 1)/3.33
B; 1133.33
C; 11/3.33
A; 11)./3
Solution:
Current contribution margin ? Current sales in cases I Contribution margin per case
1.3+333 ? .33 I 1133 contribution margin per case
#f one additional case is sold+ net operating income will increase by 1133.
-0. The margin of safety in the %laherty Company is 1).+333. #f the companyLs sales are
11)3+333 and its !ariable expenses are 173+333+ its fixed expenses must be:
A; 17+333
B; 1-)+333
C; 1).+333
A; 110+333
A#C$A %&: eporting 'O: -6 /6 2 'e!el: @ard
Solution:
Current sales 4 Brea"e!en sales I (argin of safety
11)3+333 4 Brea"e!en sales I 1).+333
Brea"e!en sales I 180+333
Sales 4 *ariable expenses I Contribution margin
11)3+333 4 173+333 I 1.3+333
Contribution margin ratio I Contribution margin ? Sales
Contribution margin ratio I 1 .3+333 ? 11)3+333
Contribution margin ratio I 3.-----
Brea"e!en sales I %ixed costs ? Contribution margin ratio
180+333 I %ixed costs ? 3.-----
%ixed costs I 1-)+333
-2. Aodero Company produces a single product which sells for 1133 per unit. %ixed
expenses total 11)+333 per month+ and !ariable expenses are 103 per unit. The
companyLs sales a!erage /33 units per month. Bhich of the following statements is
correctC
A; The companyLs brea"4e!en point is 11)+333 per month.
B; The fixed expenses remain constant at 1). per unit for any acti!ity le!el within
the rele!ant range.
C; The companyLs contribution margin ratio is .3H.
A; esponses A+ B+ and C are all correct.
A#C$A %&: eporting 'O: -6 / 'e!el: (edium
Solution:
Answer A is not correct because:
Sales I *ariable expenses G %ixed expenses G $rofit
1133< I 103< G 11)+333 G 13
1.3< I 11)+333
< I 11)+333 ? 1.3 per unit I -33 units
-33 units K 1133 selling price per unit I 1-3+333 brea"e!en sales in dollars
Answer B is not correct because fixed costs change as acti!ity le!el
changes Answer C is correct because:
Contribution margin per unit I Selling price per unit 4 *ariable expenses per unit
I 1133 4 103 I 1.3
Contribution margin ratio I Contribution margin per unit ? Selling price per unit
Contribution margin ratio I 1.3 ? 1133
Contribution margin ratio I .3H
-7. @olt CompanyLs !ariable expenses are 23H of sales. At a 1-33+333 sales le!el+ the
degree of operating le!erage is 13. #f sales increase by 103+333+ the degree of
operating le!erage will be:
A; 1)
B; 13
C; 0
A; .
A#C$A %&: eporting 'O: -6 7 'e!el: @ard
Solution:
Sales..........................................................
1-33+33
3
*ariable expenses :1-33+333 K 23H;....... )13+333
Contribution margin................................. 83+333
%ixed expenses.......................................... C
&et operating income............................... 1 C
Current degree of operating le!erage I Current contribution margin ? Current net
operating income
13 I 183+333 ? Current net operating income
Current net operating income I 183+333 ? 13 I 18+333
Contribution margin I %ixed expenses 4 &et operating income
183+333 I %ixed expenses 4 18+333
%ixed expenses I 183+333 4 18+333 I 171+333
Sales :1-33+333 G 103+333;......................
1-03+33
3
*ariable expenses :1-03+333 K 23H;....... )/)+333
Contribution margin................................. 137+333
%ixed expenses.......................................... 71+333
&et operating income............................... 1 )2+333
Aegree of operating le!erage I Contribution margin ? &et operating income
I 1137+333F1)2+333 I ..3
-8. Mayne CorporationLs contribution margin ratio is 1)H and its fixed monthly expenses
are 17.+333. #f the companyLs sales for a month are 12-7+333+ what is the best estimate
of the companyLs net operating incomeC Assume that the fixed monthly expenses do
not change.
A; 1/0/+..3
B; 10/.+333
C; 177+/03
A; 1.+/03
Solution:
Sales..........................................................
12-7+33
3
*ariable expenses :12-7+333 K 77H;....... 0.8+..3
Contribution margin :12-7+333 K 1)H;... 77+/03
%ixed expenses.......................................... 7.+333
&et operating income............................... 1 .+/03
.3. Jil" #nc.Ls contribution margin ratio is /7H and its fixed monthly expenses are
1-0+333. Assuming that the fixed monthly expenses do not change+ what is the best
estimate of the companyLs net operating income in a month when sales are 113-+333C
A; 1)-+2.3
B; 1/8+2.3
C; 102+333
A; 12+)03
Solution:
Sales...........................................................
113-+33
3
*ariable expenses :113-+333 K .)H;........ .-+)03
Contribution margin :113-+333 K /7H;.... /8+2.3
%ixed expenses........................................... -0+333
&et operating income................................. 1 )-+2.3
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-"1
.1. Creswell CorporationLs fixed monthly expenses are 1)8+333 and its contribution
margin ratio is /0H. Assuming that the fixed monthly expenses do not change+ what is
the best estimate of the companyLs net operating income in a month when sales are
18/+333C
A; 11)+733
B; 1).+)33
C; 1/-+)33
A; 100+333
Solution:
Sales........................................................... 18/+333
*ariable expenses :18/+333 K ..H;.......... .1+733
Contribution margin :18/+333 K /0H;....... /-+)33
%ixed expenses........................................... )8+333
&et operating income................................. 1).+)33
.). Bilson Company prepared the following preliminary budget assuming no ad!ertising
expenditures:
Selling price....................... 113 per unit
Dnit sales........................... 133+333
%ixed expenses................... 1-33+333
Based on a mar"et study+ the company estimated that it could increase the unit selling
price by 1/H and increase the unit sales !olume by 13H if 1133+333 were spent on
ad!ertising. Assuming that these changes are incorporated in its budget+ what should
be the budgeted net operating incomeC
A; 112/+333
B; 1183+333
C; 1)3/+333
A; 1-0/+333
A#C$A %&: eporting 'O: . 'e!el: (edium Source: C$A6 adapted
Solution:
Sales :113+333 units K 111./3;..................... 11+)0/+333
*ariable expenses :113+333 units K 10N;..... 003+333
Contribution margin..................................... 03/+333
%ixed expenses :1-33+333 G 1133+333;........ .33+333
&et operating income.................................... 1 )3/+333
N Current !ariable expenses ? Current sales in units I *ariable expense per unit
1033+333 ? 133+333 I 10 !ariable expense per unit
.-. Aata concerning Oardas CorporationLs single product appear below:
$er Dnit $ercent of Sales
Selling price....................... 11.3 133H
*ariable expenses.............. )7 )3H
Contribution margin.......... 111) 73H
The company is currently selling 7+333 units per month. %ixed expenses are 1218+333
per month. The mar"eting manager belie!es that a 1)3+333 increase in the monthly
ad!ertising budget would result in a 173 unit increase in monthly sales. Bhat should
be the o!erall effect on the companyLs monthly net operating income of this changeC
A; decrease of 1103
B; increase of 1)3+103
C; decrease of 1)3+333
A; increase of 1103
A#C$A %&: eporting 'O: . 'e!el: ,asy
Solution:
7+333 units 7+173 units
Sales :7+333 units, 7+173 units K 11.3;.......... 11+1)3+333 11+1./+)33
*ariable expenses
:11+1)3+333+ 11+1./+)33 K )3H;................ )).+333 ))8+3.3
Contribution margin....................................... 780+333 810+103
%ixed expenses................................................ 218+333 2-8+333
&et operating income..................................... 1 122+333 1 122+103
#ncrease in net operating income: 1122+103 - 1122+333 I 1103
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-"
... Ou5io Corporation produces and sells a single product. Aata concerning that product
appear below:
Selling price....................... 11-3 133H
*ariable expenses.............. 27 03H
Contribution margin.......... 1 /) .3H
The company is currently selling 0+333 units per month. %ixed expenses are 1)0-+333
per month. The mar"eting manager belie!es that a 1/+333 increase in the monthly
ad!ertising budget would result in a 1.3 unit increase in monthly sales. Bhat should
be the o!erall effect on the companyLs monthly net operating income of this changeC
A; increase of 1)+)73
B; increase of 12+)73
C; decrease of 1/+333
A; decrease of 1)+)73
Solution:
0+333 units 0+1.3 units
Sales :0+333 units, 0+1.3 units K 11-3;......... 1273+333 1287+)33
*ariable expenses
:1273+333+ 1287+)33 K 03H;..................... .07+333 .27+8)3
Contribution margin...................................... -1)+333 -18+)73
%ixed expenses.............................................. )0-+333 )07+333
&et operating income.................................... 1 .8+333 1 /1+)73
#ncrease in net operating income: 1/1+)73 - 1.8+333 I 1)+)73
./. Aata concerning Aora5io CorporationLs single product appear below:

Selling price................................... 1103 133H
*ariable expenses.......................... .7 -3H
Contribution margin...................... 111) 23H
%ixed expenses are 172+333 per month. The company is currently selling 1+333 units
per month. (anagement is considering using a new component that would increase
the unit !ariable cost by 1)7. Since the new component would increase the features of
the companyLs product, the mar"eting manager predicts that monthly sales would
increase by .33 units. Bhat should be the o!erall effect on the companyLs monthly net
operating income of this changeC
A; increase of 1/+033
B; increase of 1--+033
C; decrease of 1/+033
A; decrease of 1--+033
Solution:
1+333 units 1+.33 units
Sales :1+333 units, 1+.33 units K 1103;.............. 1103+333 1)).+333
*ariable expenses
:1+333 units K 1.7+ 1+.33 units K 120;............ .7+333 130+.33
Contribution margin........................................... 11)+333 112+033
%ixed expenses.................................................... 72+333 72+333
&et operating income.......................................... 1 )/+333 1 -3+033
#ncrease in net operating income: 1-3+033 - 1)/+333 I 1/+033
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-"!
.0. Cho!anec Corporation produces and sells a single product. Aata concerning that
product appear below:
Selling price....................... 1123 133H
*ariable expenses.............. 07 .3H
%ixed expenses are 1/)1+333 per month. The company is currently selling 2+333 units
per month. (anagement is considering using a new component that would increase the
unit !ariable cost by 10. Since the new component would increase the features of
the companyLs product, the mar"eting manager predicts that monthly sales would
increase by /33 units. Bhat should be the o!erall effect on the companyLs monthly net
A; decrease of 1.7+333
B; decrease of 10+333
C; increase of 1.7+333
A; increase of 10+333
Solution:
2+333 units 2+/33 units
Sales :2+333 units, 2+/33 units K 1123;............ 11+183+333 11+)2/+333
*ariable expenses
:2+333 units K 107+ 2+/33 units K 12.;......... .20+333 ///+333
Contribution margin......................................... 21.+333 2)3+333
%ixed expenses................................................. /)1+333 /)1+333
&et operating income....................................... 1 18-+333 1 188+333
#ncrease in net operating income: 1188+333 - 118-+333 I 10+333
.2. Aata concerning $ellegren CorporationLs single product appear below:

Selling price....................... 1)33 133H
*ariable expenses.............. .3 )3H
Contribution margin.......... 1103 73H
%ixed expenses are 1/-1+333 per month. The company is currently selling .+333 units
per month. The mar"eting manager would li"e to cut the selling price by 11. and
increase the ad!ertising budget by 1-/+333 per month. The mar"eting manager
predicts that these two changes would increase monthly sales by /33 units. Bhat
should be the o!erall effect on the companyLs monthly net operating income of this
changeC
A; decrease of 117+333
B; increase of 1-7+333
C; decrease of 1-7+333
A; increase of 1/7+333
Solution:
.+333 units .+/33 units
Sales :.+333 units K 1)33+ .+/33 units K 1170;. 1733+333 17-2+333
*ariable expenses
:.+333 units K 1.3+ .+/33 units K 1.3;........... 103+333 173+333
Contribution margin.......................................... 0.3+333 0/2+333
%ixed expenses................................................... /-1+333 /00+333
&et operating income........................................ 1138+333 1 81+333
Aecrease in net operating income: 1138+333 - 181+333 I 117+333
.7. Cobble Corporation produces and sells a single product. Aata concerning that product
appear below:
Selling price....................... 1103 133H
*ariable expenses.............. .7 -3H
%ixed expenses are 1.88+333 per month. The company is currently selling /+333 units
per month. The mar"eting manager would li"e to cut the selling price by 11- and
increase the ad!ertising budget by 1--+333 per month. The mar"eting manager
predicts that these two changes would increase monthly sales by 833 units. Bhat
changeC
B; decrease of 17+833
C; increase of 188+-33
A; decrease of 1/0+133
Solution:
/+333 units /+833 units
Sales :/+333 units K 1103+ /+833 units K 11.2;. . 1733+333 1702+-33
*ariable expenses
:/+333 units K 1.7+ /+833 units K 1.7;............ ).3+333 )7-+)33
Contribution margin........................................... /03+333 /7.+133
%ixed expenses.................................................... .88+333 /-)+333
&et operating income.......................................... 1 01+333 1 /)+133
Aecrease in net operating income: 101+333 - 1/)+133 I 17+833
.8. Aata concerning Ba5in CorporationLs single product appear below:

Selling price....................... 1133 133H
Contribution margin.......... 1 73 73H
%ixed expenses are 1-7.+333 per month. The company is currently selling 0+333 units
per month. The mar"eting manager would li"e to introduce sales commissions as an
incenti!e for the sales staff. The mar"eting manager has proposed a commission of 18
per unit. #n exchange, the sales staff would accept a decrease in their salaries of
1.0+333 per month. :This is the companyLs sa!ings for the entire sales staff.; The
mar"eting manager predicts that introducing this sales incenti!e would increase
monthly sales by /33 units. Bhat should be the o!erall effect on the companyLs
monthly net operating income of this changeC
A; increase of 1)2+/33
B; decrease of 10.+/33
C; increase of 1.1+/33
A; increase of 1/32+/33
Solution:
Sales :0+333 units K 1133+ 0+/33 units K 1133;. . 1033+333 10/3+333
*ariable expenses
:0+333 units K 1)3+ 0+/33 units K 1)8;............ 1)3+333 177+/33
Contribution margin............................................ .73+333 .01+/33
%ixed expenses.................................................... -7.+333 --7+333
&et operating income.......................................... 1 80+333 11)-+/33
#ncrease in net operating income: 11)-+/33 - 180+333 I 1)2+/33
/3. Sannella Corporation produces and sells a single product. Aata concerning that
Selling price....................... 1))3 133H
*ariable expenses.............. 00 -3H
Contribution margin.......... 11/. 23H
per month. The mar"eting manager would li"e to introduce sales commissions as an
incenti!e for the sales staff. The mar"eting manager has proposed a commission of
111 per unit. #n exchange, the sales staff would accept a decrease in their salaries of
12.+333 per month. :This is the companyLs sa!ings for the entire sales staff.; The
mar"eting manager predicts that introducing this sales incenti!e would increase
monthly sales by )33 units. Bhat should be the o!erall effect on the companyLs
monthly net operating income of this changeC
A; increase of 11+).0+033
B; increase of 11.+033
C; decrease of 11--+.33
A; increase of 121+733
Solution:
7+333 units 7+)33 units
Sales :7+333 units K 1))3+ 7+)33 units K 1))3;.... 11+203+333 11+73.+333
*ariable expenses
:7+333 units K 100+ 7+)33 units K 122;............. /)7+333 0-1+.33
Contribution margin............................................. 1+)-)+333 1+12)+033
%ixed expenses..................................................... 881+333 812+333
&et operating income........................................... 1 ).1+333 1 )//+033
#ncrease in net operating income: 1)//+033 - 1).1+333 I 11.+033
/1. Cherry Street (ar"et reported the following information for the sales of their only
product+ cherries sold by the pint:
Sales...................................
*ariable expenses..............
Total $er Dnit
1-1+/3
3 1../3
8+./
3 1.-/
Contribution margin.......... ))+3/3 1-.1/
1-+33
%ixed expenses...................
&et operating income.........
3
1 8+3/
3
Cherry Street would li"e to increase their selling price by /3 cents per unit+ and feel
that this will decrease sales !olume by 13H. Should Cherry Street increase the price+
and what will the effect be on net operating incomeC
A; Pes6 1-+/33 increase
B; Pes6 18./ increase
C; &o6 no change
A; &o6 18./ decrease
Solution:
Current sales :dollars; I Current per unit price K Current sales :units;
1-1+/33 I 1../3 K Current sales :units;
2+333 I Current sales :units;
2+333 units 0+-33 units
Sales :2+333 units K 1../3+ 0+-33 units K 1/.33;. . . 1-1+/33 1-1+/33
*ariable expenses
:2+333 units K 11.-/+ 0+-33 units K 11.-/;......... 8+./3 7+/3/
Contribution margin............................................... ))+3/3 ))+88/
%ixed expenses....................................................... 1-+333 1-+333
&et operating income............................................. 1 8+3/3 1 8+88/
#ncrease in net operating income: 18+88/ - 18+3/3 I 18./
/). A company ma"es a single product that it sells for 110 per unit. %ixed costs are
120+733 per month and the product has a contribution margin ratio of .3H. #f the
companyLs actual sales are 1)).+333+ its margin of safety is:
A; 1-)+333
B; 180+333
C; 11)7+333
A; 118)+333
A#C$A %&: eporting 'O: /6 2 'e!el: (edium Source: C#(A6 adapted
Solution:
Brea"-e!en in total sales dollars I %ixed expensesFC( ratio
I 120+733F3..33 I 118)+333
(argin of safety in dollars I Sales - Brea"4e!en sales
I 1)).+333 - 118)+333 I 1-)+333
/-. The following data are a!ailable for the $helps Company for a recent month:
$roduct
A $roduct B $roduct C Total
1-23+33
Sales................................... 11/3+333 11-3+333 183+333 0
*ariable expenses.............. 81+333 13.+333 )2+333 )))+333
Contribution margin........... 1 /8+333 1 )0+333 10-+333 1.7+333
%ixed expenses................... //+333
&et operating income......... 1 8-+333
The brea"4e!en sales for the month for the company are:
A; 181+002
B; 1)3-+333
C; 11.7+333
A; 11-2+/33
Solution:
$roduct
1-23+33
Sales................................... 11/3+333 11-3+333 183+333 3
*ariable expenses.............. 81+333 13.+333 )2+333 )))+333
Contribution margin........... 1 /8+333 1 )0+333 10-+333 1.7+333
%ixed expenses................... //+333
O!erall C( ratio I Total contribution marginFTotal sales
I 11.7+333F1-23+333 I 3..3
Brea"4e!en point in total sales dollars I %ixed expensesFO!erall C( ratio
I 1//+333F3..3 I 11-2+/33
/.. @artl Corporation is a single product firm with the following selling price and cost
structure for next year:
Selling price per unit.................................. 11.73
Contribution margin ratio.......................... .3H
1)17+23
Total fixed expenses for the year............... 3
@ow many units will @artl ha!e to sell next year in order to brea"4e!enC
A; 1)1+/33
B; )3)+/33
C; -3-+2/3
A; /.0+2/3
Solution:
*ariable cost per unit I 11.73 K :1 4 .3H;
*ariable cost per unit I 11.37
11.73< I 11.37< G 1)17+233 G 13
13.2)< I 1)17+233
< I 1)17+233 ? 13.2) per unit I -3-+2/3 units
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-
//. Borich Corporation produces and sells a single product. Aata concerning that product
appear below:
Selling price per unit...................... 11/3.33
*ariable expense per unit.............. 12-./3
1-37+)8
%ixed expense per month............... /
The brea"4e!en in monthly unit sales is closest to:
A; )+3//
B; .+3-3
C; .+18.
A; -+.)0
Solution:
11/3.33< I 12-./3< G 1-37+)8/ G 13
120./3< I 1-37+)8/
< I 1-37+)8/ ? 120./3 per unit I .+3-3 units
/0. Aata concerning Buchenau CorporationLs single product appear below:
*ariable expense per unit.............. 1-../3
1.00+0)
%ixed expense per month............... 3
The brea"4e!en in monthly unit sales is closest to:
A; -+111
B; 0+78)
C; .+3.3
A; 1-+/)/
Solution:
11/3.33< I 1-../3< G 1.00+0)3 G 13
111/./3< I 1.00+0)3
< I 1.00+0)3 ? 111/./3 per unit I .+3.3 units
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-!
/2. @e!esy #nc. produces and sells a single product. The selling price of the product is
1)33.33 per unit and its !ariable cost is 173.33 per unit. The fixed expense is 1-33+333
per month. The brea"4e!en in monthly unit sales is closest to:
A; )+/33
B; 1+/33
C; -+2/3
A; )+/7-
Solution:
1)33.33< I 173.33< G 1-33+333 G 13
11)3.33< I 1-33+333
< I 1-33+333 ? 11)3.33 per unit I )+/33 units
/7. Benstrom Corporation produces and sells a single product. Aata concerning that
Selling price per unit...................... 11-3.33
*ariable expense per unit.............. 1.1.03
1138+01
The brea"4e!en in monthly dollar sales is closest to:
A; 1-.)+//3
B; 1)3.+.//
C; 1138+010
A; 1101+)33
Solution:
11-3.33< I 1.1.03< G 1138+010 G 13
177..3< I 1138+010
< I 1138+010 ? 177..3 per unit I 1+).3 units
1+).3 units K 11-3.33 selling price I 1101+)33
/8. Aata concerning %ollic" CorporationLs single product appear below:

Selling price per unit...................... 1113.33
*ariable expense per unit.............. 1-3.73
1-)1+//
%ixed expense per month............... )
A; 11+1.7+.33
B; 10-7+7/1
C; 1-)1+//)
A; 1..0+033
Solution:
1113.33< I 1-3.73< G 1-)1+//) G 13
128.)3< I 1-)1+//)
< I 1-)1+//) ? 128.)3 per unit I .+303 units
.+303 units K 1113.33 selling price I 1..0+033
03. Bimpy #nc. produces and sells a single product. The selling price of the product is
11/3.33 per unit and its !ariable cost is 1/7./3 per unit. The fixed expense is 1-00+81/
per month.
A; 1031+/33
B; 1-00+81/
C; 10-0+.37
A; 18.3+737
Solution:
11/3.33< I 1/7./3< G 1-00+81/ G 13
181./3< I 1-00+81/
< I 1-00+81/ ? 181./3 per unit I .+313 units
.+313 units K 11/3.33 selling price I 1031+/33
01. The Saginaw #ce Company had sales of 1.33+333+ with !ariable expenses of 110)+333
and fixed expenses of 187+333. Bhich of the following is closest to SaginawLs brea"4
e!en pointC
A; 1)03+333
B; 110/+333
C; 11.3+333
A; 1)-7+333
Solution:
Total $ercent of Sales
Sales.......................................................... 1.33+333 133.3H
*ariable expenses...................................... 10)+333 .3./H
Contribution margin and contribution
margin ratio........................................... 1 )-7+333 /8./H
I 187+333F3./8/ I 110.+23/.77
0). $roduct P sells for 11/ per unit+ and has related !ariable expenses of 18 per unit.
%ixed expenses total 1-33+333 per year. @ow many units of $roduct P must be sold
each year to yield an annual profit of 183+333:
A; /3+333 units
B; 0/+333 units
C; 1/+333 units
A; .-+--- units
Solution:
Sales I *ariable expenses G %ixed expenses G Target profit
11/< I 18< G 1-33+333 G 183+333
10< I 1-83+333
< I 1-83+333 ? 10 per unit I 0/+333 units
0-. Caneer Corporation produces and sells a single product. Aata concerning that product
appear below:
Selling price per unit...................... 1).3.33
*ariable expense per unit.............. 171.03
1882+8)
The unit sales to attain the companyLs monthly target profit of 1..+333 is closest to:
A; 2+780
B; 1)+208
C; 0+/27
A; .+-.1
Solution:
1).3.33< I 171.03< G 1882+8)3 G 1..+333
11/7..3< I 11+3.1+8)3
< I 11+3.1+8)3 ? 11/7..3 per unit I 0+/27 units :rounded;
0.. Aata concerning Bedwell ,nterprises CorporationLs single product appear below:
*ariable expense per unit.............. 10/.03
1-72+3.
The unit sales to attain the companyLs monthly target profit of 112+333 is closest to:
A; 0+1/8
B; .+)73
C; )+/)/
A; .+-)1
Solution:
1103.33< I 10/.03< G 1-72+3.3 G 112+333
18...3< I 1.3.+3.3
< I 1.3.+3.3 ? 18...3 per unit I .+)73 units :rounded;
0/. @ettric" #nternational CorporationLs only product sells for 11)3.33 per unit and its
!ariable expense is 1/).73. The companyLs monthly fixed expense is 1-80+.73 per
month. The unit sales to attain the companyLs monthly target profit of 11-+333 is
closest to:
A; 2+2//
B; 0+38-
C; /+2/-
A; -+.1)
Solution:
11)3.33< I 1/).73< G 1-80+.73 G 11-+333
102.)3< I 1.38+.73
< I 1.38+.73 ? 102.)3 per unit I 0+38- units :rounded;
00. 'ogsdon Corporation produces and sells a single product whose contribution margin
ratio is 0-H. The companyLs monthly fixed expense is 12)3+2)3 and the companyLs
monthly target profit is 1)7+333. The dollar sales to attain that target profit is closest
to:
A; 1.21+08.
B; 1./.+3/.
C; 11+177+...
A; 11+1..+333
Solution:
Total sales dollars to attain target profit
I :%ixed expenses G Target profit;FC( ratio
I :12)3+2)3 G 1)7+333;F3.0- I 11+177+... :rounded;
02. The contribution margin ratio of (ountain CorporationLs only product is /)H. The
companyLs monthly fixed expense is 1)80+.33 and the companyLs monthly target profit
is 12+333. The dollar sales to attain that target profit is closest to:
A; 1/23+333
B; 11/2+207
C; 1/7-+.0)
A; 11/.+1)7
Solution:
I :1)80+.33 G 12+333;F3./) I 1/7-+.0) :rounded;
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-#1
07. (aQid Corporation sells a product for 1).3 per unit. The productLs current sales are
.1+-33 units and its brea"4e!en sales are -0+2/2 units.
Bhat is the margin of safety in dollarsC
A; 17+7)1+073
B; 10+037+333
C; 18+81)+333
A; 11+383+-)3
Solution:
(argin of safety in dollars:
Brea"4e!en sales I 1).3 per unit K -0+2/2 I 17+7)1+073
Current sales I 1).3 per unit K .1+-33 I 18+81)+333
(argin of safety in dollars I Sales 4 Brea"4e!en sales
I 18+81)+333 4 17+7)1+073 I 11+383+-)3
08. (cmurtry Corporation sells a product for 1123 per unit. The productLs current
sales are 13+333 units and its brea"4e!en sales are 7+133 units. The margin of
safety as a percentage of sales is closest to:
A; )-H
B; 71H
C; 18H
A; 22H
Solution:
Brea"4e!en sales I 1123 per unit K 7+133 I 11+-22+333
Current sales I 1123 per unit K 13+333 I 11+233+333
I 11+233+333 4 11+-22+333 I 1-)-+333
(argin of safety as a percentage of sales I (argin of safety in dollars ? Current sales
I 1-)-+333 ? 11+233+333 I 18H
23. Cubie Corporation has pro!ided the following data concerning its only product:
Current sales...................... 13+033 units
Brea"4e!en sales................ 8+/.3 units
Bhat is the margin of safety in dollarsC
A; 11+303+333
B; 1130+333
C; 18/.+333
A; 1230+002
Solution:
Brea"4e!en sales I 1133 per unit K 8+/.3 I 18/.+333
Current sales I 1133 per unit K 13+033 I 11+303+333
I 11+303+333 4 18/.+333 I 1130+333
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-#
21. ,nsley Corporation has pro!ided the following data concerning its only product:
Selling price....................... 1)33 per unit
Current sales...................... -3+-33 units
Brea"4e!en sales................ )1+710 units
The margin of safety as a percentage of sales is closest to:
A; 01H
B; )7H
C; 2)H
A; -8H
Solution:
Brea"4e!en sales I 1)33 per unit K -3+-33 I 10+303+333
Current sales I 1)33 per unit K )1+710 I 1.+-0-+)33
I 10+303+333 4 1.+-0-+)33 I 11+080+733
I 11+080+733 ? 1.+-0-+)33 I -8H :rounded;
2). The following is &oble CompanyLs contribution format income statement last month:
Sales :1)+333 units;...........
1033+33
3
*ariable expenses.............. -2/+333
Contribution margin.......... ))/+333
%ixed expenses................... 1/3+333
&et operating income......... 1 2/+333
Bhat is the companyLs margin of safety percentage to the nearest whole percentC
A; .)H
B; -7H
C; --H
A; )/H
Solution:
Sales I Sales price K Dnits sold
1033+333 I 1)+333 K Sales price
1/3 I Sales price
*ariable expenses I $er4unit cost K Dnits sold
1-2/+333 I 1)+333 K $er4unit cost
1-1.)/ I $er4unit cost
Brea"4e!en sales:
1/3.33< I 1-1.)/< G 11/3+333 G 13
117.2/< I 11/3+333
< I 7+333 units
Brea"4e!en sales I 1/3 per unit K 7+333 I 1.33+333
Current sales I 1/3 per unit K 1)+333 I 1033+333
I 1033+333 4 1.33+333 I 1)33+333
I 1)33+333 ? 1033+333 I --H :rounded;
2-. Ostler CompanyLs net operating income last year was 113+333 and its contribution
margin was 1/3+333. Dsing the operating le!erage concept+ if the companyLs sales
increase next year by 7 percent+ net operating income can be expected to increase by:
A; )3H
B; 10H
C; 103H
A; .3H
Solution:
Aegree of operating le!erage I 1/3+333 ? 113+333 I /
$ercent increase in net operating income
I $ercent increase in sales K Aegree of operating le!erage
I 7H K / I .3H
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-#!
2.. The %ebruary contribution format income statement of (cabier Corporation appears
below:
a. Aegree of operating le!erage I Contribution marginF&et operating income
I 1)/1+133F1.1+-33 I 0.37
b. $ercent increase in net operating income
I 18H K 0.37 I 11/./)H
Sales...................................
1)11+)3
3
Contribution margin.......... 11/+)33
%ixed expenses................... 7.+133
&et operating income......... 1 -1+133
The degree of operating le!erage is closest to:
A; 3.)2
B; 0.28
C; -.23
A; 3.1/
Solution:
Aegree of operating le!erage I Contribution marginF&et operating income
I 111/+)33F1-1+133 I -.23
2/. Serfass CorporationLs contribution format income statement for July appears below:
Sales...................................
1)03+33
3
Contribution margin.......... 7.+333
%ixed expenses................... 21+733
&et operating income......... 1 1)+)33
The degree of operating le!erage is closest to:
A; 3.3/
B; 3.1/
C; )1.-1
A; 0.78
Solution:
I 17.+333F11)+)33 I 0.78
20. ushenberg CorporationLs operating le!erage is 13.7. #f the companyLs sales increase
by 1.H+ its net operating income should increase by about:
A; 1/1.)H
B; 1..3H
C; 22.1H
A; 13.7H
Solution:
I 1.H K 13.7 I 1/1.)H
22. Bendel #nc. has an operating le!erage of 2.-. #f the companyLs sales increase by -H+ its
net operating income should increase by about:
A; ).-.-H
B; 2.-H
C; )1.8H
A; -.3H
Solution:
I -H K 2.- I )1.8H
27. ,.A. (anufacturing+ #nc. produces and sells ice s"ates. The current net operating
income is 1.3+333+ with a degree of operating le!erage of -. #f sales increase by 13H+
how much total net operating income should be expectedC
A; 11).333
B; 1/)+333
C; 1..+333
A; &one of the abo!e.
Solution:
I 13H K - I -3H
Current net operating income K $ercent increase I #ncrease in net operating income
1.3+333 K -3H I 11)+333 #ncrease in net operating income
Current net operating income G #ncrease in net operating income I ,xpected net
operating income I 1.3+333 G 11)+333 I 1/)+333
28. (cdale #nc. produces and sells two products. Aata concerning those products for the
most recent month appear below:
$roduct
#.8* $roduct R/3D
Sales................................... 11/+333 11.+333
*ariable expenses.............. 1-+-33 1)+283
The fixed expenses of the entire company were 117+.03. The brea"4e!en point for the
entire company is closest to:
A; 1)-+-02
B; 113+/.3
C; 1).+//3
A; 117+.03
Solution:
(ulti BF, Solution:
$roduct #.8* $roduct R/3D Total
Sales................................... 11/+333 11.+333 1)8+333
*ariable expenses.............. -+-33 )+283 0+383
Contribution margin........... 111+233 111+)13 ))+813
%ixed expenses................... 17+.03
&et operating income......... 1 .+./3
I 1))+813F1)8+333 I 3.28
Brea"-e!en point in total sales dollars I %ixed expensesFO!erall C( ratio
I 117+.03F3.28 I 1)-+-02 :rounded;
73. oddam Corporation produces and sells two products. Aata concerning those products
for the most recent month appear below:
$roduct O38,
$roduct
M12B
Sales................................... 1)7+333 1-7+333
*ariable expenses.............. 111+)33 17+033
The fixed expenses of the entire company were 1.1+823. #f the sales mix were to shift
toward $roduct O38, with total sales remaining constant, the o!erall brea"4e!en point
for the entire company:
A; would increase.
B; could increase or decrease.
C; would not change.
A; would decrease.
71. &ewham Corporation produces and sells two products. #n the most recent month+
$roduct 13' had sales of 1)7+333 and !ariable expenses of 10+..3. $roduct S80&
had sales of 1))+333 and !ariable expenses of 12+/03. And the fixed expenses of the
entire company were 1-)+213. The brea"-e!en point for the entire company is closest
to:
A; 1-)+213
B; 1./+.-1
C; 1.0+213
A; 112+)83
Solution:
(ulti BF, Solution:
$roduct
13'
$roduct
S80& Total
Sales................................... 1)7+333 1))+333 1/3+333
*ariable expenses.............. 0+..3 2+/03 1.+333
Contribution margin........... 1)1+/03 11.+..3 -0+333
%ixed expenses................... -)+213
&et operating income......... 1 -+)83
I 1-0+333F1/3+333 I 3.2)
I 1-)+213F3.2) I 1./+.-1 :rounded;
7). %lesch Corporation produces and sells two products. #n the most recent month+
$roduct C83B had sales of 1).+333 and !ariable expenses of 10+.73. $roduct P./,
had sales of 1)8+333 and !ariable expenses of 111+313. And the fixed expenses of the
entire company were 1-)+)73. #f the sales mix were to shift toward $roduct C83B
with total sales remaining constant, the o!erall brea"4e!en point for the entire
company:
A; would decrease.
B; would increase.
C; could increase or decrease.
A; would not change.
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-!1
7-. RacharyLs Bi"e Shop sells two products. Sales and contribution margin ratios for the
two products follow:
$roduct
A $roduct B
Sales in dollars............................... 113+333 1.3+333
Contribution margin ratio.............. )/H 2/H
Mi!en these data, the contribution margin ratio for the company as a whole would be:
A; )/H
B; /3H
C; 0/H
A; #t is impossible to determine from the gi!en data.
Solution:
(ulti BF, Solution:
$roduct A $roduct B Total
Sales.......................................................... 113+333 1.3+333 1/3+333
Contribution margin :Sales K C( ratio;. . 1)+/33 1-3+333 1-)+/33
I 1-)+/33F1/3+333 I 3.0/
Dse the following to answer 9uestions 7.470:
A cement manufacturer has supplied the following data:
Tons of cement produced and sold........................ 073+333
1)+277+33
Sales
re!enue.........................................................
*ariable manufacturing
expense...........................
0
11+1/0+33
0
%ixed manufacturing expense................................ 1203+333
*ariable selling and administrati!e expense......... 1)2)+333
%ixed selling and administrati!e expense.............. 1)8.+333
&et operating income............................................. 1-30+333
7.. Bhat is the companyLs unit contribution marginC

A; 13../
B; 1).13
C; 1).33
A; 1..13
Solution:
Contribution margin I Sales 4 *ariable expenses
Contribution margin I 1)+277+333 4 :11+1/0+333 G 1)2)+333;
Contribution margin I 11+-03+333
Dnit contribution margin I Contribution margin ? Tons of cement
Dnit contribution margin I 11+-03+333 ? 073+333
Dnit contribution margin I 1).33
7/. The companyLs contribution margin ratio is closest to:
A; -8.3H
B; /1.)H
C; 11.3H
A; .7.7H
Solution:
Contribution margin I 1)+277+333 4 :11+1/0+333 G 1)2)+333;
Contribution margin I 11+-03+333
Contribution margin ratio I 11+-03+333 ? 1)+277+333
Contribution margin ratio I .7.7H
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-!
70. #f the company increases its unit sales !olume by .H without increasing its fixed
expenses+ then total net operating income should be closest to:
A; 11)+).3
B; 1-17+).3
C; 1-03+.33
A; 1-11+82-
Solution:
&ew contribution margin :11+-03+333 K 1.3.;........... 11+.1.+.33
%ixed expenses :1203+333 G 1)8.+333;...................... 1+3/.+333
&et operating income................................................. 1 -03+.33
Dse the following to answer 9uestions 72478:
ighway Corporation has supplied the following data:
Sales per period............................. 1+333 units
Selling price................................... 1/3 per unit
*ariable manufacturing cost.......... 1)3 per unit
Selling expenses............................ 113+333 plus /H of sales
Administration expenses................ 1/+333 plus 1/H of sales
72. The total contribution margin per period is:
A; 1))+/33
B; 1)2+/33
C; 1-3+333
A; 1)3+333
Solution:
Sales :1+333 units K 1/3;............... 1/3+333
*ariable expensesN........................ -3+333
Contribution margin....................... 1)3+333
N *ariable manufacturing cost :1+333 units K 1)3;........... 1)3+333
Selling expenses :1/3+333 K
/H;....................................
)+/33
Administration expenses :1/3+333 K 1/H;..................... 2+/33
Total !ariable
expenses...................................................
1-3+333
77. The brea"4e!en point per period is :round to nearest unit;:
A; 2/3 units
B; /./ units
C; /33 units
A; 002 units
Solution:
1/3< I 1-0<N G 11/+333 G 13
1)3< I 11/+333
< I 11/+333 ? 1)3 per unit I 2/3 units
N*ariable expense per unit I 1)3 G :/H K 1/3; G :1/H K 1/3; I 1-3
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-!!
78. #f the selling price is changed to 1// per unit, the brea"-e!en point will be :round to
nearest unit;:
A; 002 units
B; /./ units
C; 0)/ units
A; /33 units
A#C$A %&: eporting 'O: .6 / 'e!el: (edium
Solution:
1//< I 1-1<N G 11/+333 G 13
1).< I 11/+333
< I 11/+333 ? 1). per unit I 0)/ units
N*ariable expense per unit I 1)3 G :/H K 1//; G :1/H K 1//; I 1-1
Dse the following to answer 9uestions 8348):
Bis"ra Corporation is a single product firm that expects the following operating results next
year:
Sales..............................
...
*ariable
expenses.............
#n Total $er Dnit
1)77+33
0 13.73
112)+73
0 13..7
%ixed expenses................. 12)+333 13.)3
83. ,!ery unit that Bis"ra sells next year after the brea"-e!en point will increase net
operating income by:
A; 13.1)
B; 13.)3
C; 13.-)
A; 13.03
A#C$A %&: eporting 'O: 16 / 'e!el: ,asy
Solution:
Sales per unit - *ariable expenses per unit I Contribution margin per unit
I 13.73 4 13..7 I 13.-)

81. Bhat would Bis"raLs total sales dollars ha!e to be next year to generate 1173+333 of
net operating incomeC
A; 1./3+333
B; 10-3+333
C; 1/77+333
A; 1272+/33
Solution:
C( ratio
I :Sales 4 *ariable expenses; ? Sales
I :1)77+333 4 112)+733; ? 1)77+333 I .3H
I :12)+333 G 1173+333;F3..3 I 10-3+333
8). Bhat is Bis"raLs margin of safety percentageC
A; 1/H
B; ).H
C; -2./H
A; .3H
Solution:
Brea"4e!en sales:
13.73< I 13..7<N G 12)+333 G 13
13.-)< I 12)+333
< I 12)+333 ? 13.-) per unit I ))/+333 units
Brea"4e!en sales I 13.73 per unit K -03+333 I 1)77+333
Current sales I 13.73 per unit K ))/+333 I 1173+333
(argin of safety in dollars I Sales E Brea"4e!en sales
I 1)77+333 E 1173+333 I 1137+333
I 1137+333 ? 1)77+333 I -2./H
Dse the following to answer 9uestions 8-48/:

A manufacturer of premium wire strippers has supplied the following data:
Dnits produced and sold........................................ /73+333
1.+120+33
Sales re!enue.........................................................
*ariable manufacturing expense...........................
3
1)+721+33
3
%ixed manufacturing expense................................ 1227+333
*ariable selling and administrati!e expense......... 1-.7+333
%ixed selling and administrati!e expense.............. 113.+333
&et operating income............................................. 12/+333
8-. The companyLs margin of safety in units is closest to:
A; )-.+)))
B; /0.+).)
C; ./+.//
A; ./2+/33
Solution:
Brea"4e!en sales in units:
12.)3<N I 1/.//<NN G 177)+333 G 13
11.0/< I 177)+333
< I 177)+333 ? 11.0/ per unit I /-.+/./ units
(argin of safety in units:
(argin of safety in units I Sales in units E Brea"4e!en sales in units
I /73+333 E /-.+/./ I ./+.// units
N 1.+120+333 ? /73+333 units I 12.)3 per unit
NN (anufacturing expense :1)+721+333 ? /73+333 units;................. 1..8/
Selling and administrati!e expense :1-.7+333 ? /73+333 units;.. 3.03
Total !ariable expenses per
unit...................................................
1/.//
8.. The companyLs unit contribution margin is closest to:
A; 1).)/
B; 1/.//
C; 11.0/
A; 10.03
Solution:
Sales................................... 1.+120+333
*ariable expenses.............. -+)18+333
Contribution margin........... 1 8/2+333
18/2+333 ? /73+333 units I 11.0/
8/. The companyLs degree of operating le!erage is closest to:
A; //.07
B; -.0/
C; 2.2-
A; 1).20
Solution:
Sales................................... 1.+120+333
*ariable expenses.............. -+)18+333
Contribution margin........... 1 8/2+333
I 18/2+333F12/+333 I 1).20

Oeomuangtai Corporation produces and sells a single product. The company has pro!ided its
contribution format income statement for October.
Sales :.+033 units;.............
1)00+73
3
*ariable expenses.............. 128+.33
Contribution margin.......... 72+.33
%ixed expenses................... 0)+)33
&et operating income......... 1 )/+)33
80. #f the company sells .+/33 units+ its total contribution margin should be closest to:
A; 17/+/33
B; 1).+0/)
C; 172+.33
A; 171+033
Solution:
Sales price per unit I 1)00+733 ? .+033 units I 1/7
*ariable expense per unit I 1128+.33 ? .+033 units I 1-8
1)01+33
Sales :.+/33 units;............. 3
*ariable expenses.............. 12/+/33
Contribution margin.......... 1 7/+/33
82. #f the company sells .+)33 units+ its net operating income should be closest to:
A; 112+033
B; 1)-+338
C; 1)/+)33
A; 1)+333
Solution:
Sales price per unit I 1)00+733 ? .+033 units I 1/7
*ariable expense per unit I 1128+.33 ? .+033 units I 1-8
1).-+03
Sales :.+)33 units;............. 3
*ariable expenses.............. 10-+733
Contribution margin.......... 28+733
%ixed expenses................... 0)+)33
&et operating income......... 1 12+033
Sou5a #nc+ which produces and sells a single product+ has pro!ided its contribution format
income statement for October.
Sales :.+333 units;.............
177+33
3
*ariable expenses.............. .3+333
Contribution margin.......... .7+333
%ixed expenses................... .1+233
&et operating income......... 1 0+-33
87. #f the company sells -+033 units+ its total contribution margin should be closest to:
A; 1-8+)33
B; 1/+023
C; 1.-+)33
A; 1.7+333
Solution:
Sales price per unit I 177+333 ? .+333 units I 1))
*ariable expense per unit I 1.3+333 ? .+333 units I 113
Sales :-+033 units;............. 128+)33
*ariable expenses.............. -0+333
Contribution margin.......... 1.-+)33
88. #f the company sells -+/33 units+ its net operating income should be closest to:
A; 1/+/1-
B; 10+-33
C; 1-33
A; 41.+233
Solution:
Sales price per unit I 177+333 ? .+333 units I 1))
*ariable expense per unit I 1.3+333 ? .+333 units I 113
Sales :-+/33 units;............. 122+333
*ariable expenses.............. -/+333
Contribution margin.......... .)+333
%ixed expenses................... .1+233
&et operating income......... 1 -33
Bight Corporation has pro!ided its contribution format income statement for June. The
company produces and sells a single product.
Sales :8+033 units;.............
1--0+33
3
*ariable expenses.............. 1..+333
Contribution margin.......... 18)+333
%ixed expenses................... 1-2+333
&et operating income......... 1 //+333
133. #f the company sells 8+133 units+ its total contribution margin should be closest to:
A; 112.+/33
B; 118)+333
C; 1/)+1-/
A; 117)+333
Solution:
Sales price per unit I 1--0+333 ? 8+033 units I 1-/
*ariable expense per unit I 11..+333 ? 8+033 units I 11/
1-17+/3
Sales :8+133 units;............. 3
*ariable expenses.............. 1-0+/33
117)+33
Contribution margin.......... 3
131. #f the company sells 8+233 units+ its net operating income should be closest to:
A; 1/2+333
B; 1//+333
C; 1//+/2-
A; 1/7+/33
Solution:
Sales price per unit I 1--0+333 ? 8+033 units I 1-/
*ariable expense per unit I 11..+333 ? 8+033 units I 11/
1--8+/3
Sales :8+233 units;.............
3
1./+/3
3
Contribution margin.......... 18.+333
1-2+33
%ixed expenses...................
3
1
/2+333
Dse the following to answer 9uestions 13)413-:

The following information relates to %rancisca Company:
Aegree of operating le!erage......... )./
$rofit margin percentage............... ).H
(argin of safety percentage.......... .3H
Contribution margin ratio.............. 03H
13). #f %ranciscaLs sales increase by )3H+ by what percentage will its net operating income
increaseC
A; ..7H
B; 7H
C; 1)H
A; /3H
Solution:
I )3H K )./ I /3H
13-. %rancisca wants to gi!e its sales staff a 103+333 increase in salary but still wants to
ma"e the same net operating income. #f %rancisca gi!es this increase+ by how much
would sales at %rancisca ha!e to increase in order for the company to maintain its
current net operating income le!elC
A; 103+333
B; 1133+333
C; 11/3+333
A; 1)/3+333
A#C$A %&: eporting 'O: -6 . 'e!el: (edium
Solution:
#ncrease in sales dollars I Additional fixed expenses ? Contribution margin ratio
I 103+333 ? 3.03 I 1133+333
Dse the following to answer 9uestions 13.4137:
The following data relate to a company that produces and sells a tra!el guide that is updated
monthly:
%ixed costs:
Copy editing........................................... 10+333
Art wor".................................................. 1)+333
Typesetting............................................. 12)+333
*ariable costs:
$rinting and binding...............................
Boo"store discounts................................
SalespersonsT commissions....................
AuthorTs royalties...................................
1-.)3 per
copy
1..33 per
copy
13./3 per
copy
1).33 per
copy
,ach boo" sells for 1)3.33. The company sold 7+333 boo"s in June and 13+333 boo"s in July.
13.. The unit contribution margin per boo" is:
A; 113.-3
B; 11..-3
C; 113.73
A; 17.-3
Solution:
Dnit contribution margin I Dnit sales price 4 *ariable expense per unit
I 1)3.33 4 :1-.)3 G 1..33 G 13./3 G 1).33; I 113.-3
13/. The contribution margin ratio for the boo" is:
A; 21./H
B; /..3H
C; /1./H
A; /1.8H
Solution:
Dnit contribution margin I Dnit sales price 4 *ariable expense per unit
I 1)3.33 4 :1-.)3 G 1..33 G 13./3 G 1).33; I 113.-3
Contribution margin ratio I 113.-3 ? 1)3.33
Contribution margin ratio I /1./H
130. The brea"4e!en point in units is:
A; 7+).2 boo"s
B; 2+202 boo"s
C; 2+.32 boo"s
A; 0+/3. boo"s
Solution:
*ariable expense per unit I 1-.)3 G 1..33 G 13./3 G 1).33 I 18.23
1)3.33< I 18.23< G 173+333 G 13
113.-3< I 173+333
< I 173+333 ? 113.-3 per unit I 2+202 units :rounded;
132. The degree of operating le!erage for July is:
A; the same as that for June
B; higher than that for June
C; lower than that for June
A; not determinable
Solution:
%or June:
1103+33
Sales :7+333 units;.............
3
22+03
3
Contribution margin.......... 7)+.33
73+33
%ixed expenses...................
3
1
)+.33
I 17)+.33F1)+.33 I -..--
%or July:
1)33+33
Sales :13+333 units;...........
3
82+33
3
Contribution margin.......... 13-+333
73+33
%ixed expenses...................
3
1
)-+333
I 113-+333F1)-+333 I ...7
As sales increase past the brea"e!en point+ the degree of operating le!erage will
decrease.
137. The degree of operating le!erage for July is closest to:

A; ...7
B; -..7
C; ..))
A; 7.23
Solution:
1)33+33
Sales :13+333 units;...........
3
82+33
3
Contribution margin.......... 13-+333
73+33
%ixed expenses...................
3
1
)-+333
I 113-+333F1)-+333 I ...7
A manufacturer of cedar shingles has supplied the following data:
Bundles of cedar sha"es produced and sold.......... -03+333
1)+.1)+33
Sales re!enue.........................................................
*ariable manufacturing expense...........................
3
11+123+33
3
%ixed manufacturing expense................................ 121.+333
*ariable selling and administrati!e expense......... 1.1.+333
%ixed selling and administrati!e expense.............. 17)+333
&et operating income............................................. 1-)+333
138. The companyLs brea"4e!en in unit sales is closest to:
A; 117+730
B; )30+8/2
C; -.0+372
A; 1.+22/
Solution:
Sales price per unit I 1)+.1)+333 ? -03+333 units I 10.23
*ariable expense per unit I :11+123+333 G 1.1.+333; ? -03+333 units I 1...3
10.23< I 1...3< G 1280+333 G 13
1).-3< I 1280+333
< I 1280+333 ? 1).-3 per unit I -.0+372 units :rounded;
113. The companyLs contribution margin ratio is closest to:
A; 2).0H
B; 0/.2H
C; -..-H
A; )2..H
Solution:
Contribution margin I 1)+.1)+333 4 11+/7.+333 I 17)7+333
Contribution margin ratio I 17)7+333 ? 1)+.1)+333
Contribution margin ratio I -..-H
111. The companyLs degree of operating le!erage is closest to:

A; 11.)/
B; )/.77
C; 1.88
A; 2/.-7
Solution:
Sales................................... 1)+.1)+333
*ariable expenses.............. 1+/7.+333
Contribution margin.......... 7)7+333
%ixed expenses................... 280+333
&et operating income......... 1 -)+333
I 17)7+333F1-)+333 I )/.77
Dse the following to answer 9uestions 11)411-:
Carr #nc. produces small motors that sell for 11/ each. Cost data on the motors are pro!ided
below:
Sales in units per year................................ 2+333
*ariable production cost............................ 1/.33 per unit
*ariable selling expense............................ 1).33 per unit
*ariable administrati!e expense................ 11./3 per unit
%ixed expenses per year:
Building rent........................................... 113+333
,9uipment depreciation.......................... .+333
Selling expense....................................... 7+333
Administrati!e expense.......................... 1/+333
Total fixed expenses.................................. 1-2+333
11). The contribution margin ratio is :round to nearest tenth of a percent;:
A; /0.2H
B; .-.-H
C; 00.2H
A; /-.-H
Solution:
Dnit contribution margin I 11/.33 4 :1/.33 G 1).33 G 11./3; I 10./3
Contribution margin ratio I 10./3 ? 11/.33
Contribution margin ratio I .-.-H
11-. #f the selling price is increased by 13 percent+ what will be the new brea"4e!en point in
units :round to the nearest unit;C
A; -+78/ units
B; .+0)/ units
C; -+233 units
A; -+)12 units
Solution:
*ariable expense per unit I 1/.33 G 1).33 G 11./3 I 17./3
110./3< I 17./3< G 1-2+333 G 13
17.33< I 1-2+333
< I 1-2+333 ? 17.33 per unit I .+0)/ units
Dse the following to answer 9uestions 11.411/:

:C$A+ adapted; The (axwell Company manufactures and sells a single product. Budgeted
data follow:
%orecasted annual sales !olume................ 1)3+333 units
Selling price per unit.................................. 1)/.33
*ariable expenses per unit:
aw materials......................................... 111.33
Airect labor............................................. /.33
(anufacturing o!erhead......................... )./3
Selling expenses..................................... 1.-3
Total !ariable expenses per unit................ 118.73
Annual fixed expenses:
(anufacturing o!erhead......................... 118)+333
Selling and administrati!e...................... )20+333
Total fixed expenses.................................. 1.07+333
11.. (axwellLs brea"4e!en point in units is:
A; 20+002
B; 83+333
C; 1-3+333
A; 2)+333
A#C$A %&: eporting 'O: - 'e!el: ,asy Source: C$A6 adapted
Solution:
1)/.33< I 118.73< G 1.07+333 G 13
1/.)3< I 1.07+333
< I 1.07+333 ? 1/.)3 per unit I 83+333 units
11/. #f (axwell CompanyLs direct labor costs increase 7 percent+ what selling price per unit
of product must it charge to maintain the same contribution margin ratioC
A; 1)/./1
B; 1)2.33
C; 1)/..3
A; 1)0.0.
A#C$A %&: eporting 'O: -6 / 'e!el: @ard Source: C$A6 adapted
Solution:
Current contribution margin per unit I Selling price per unit E Total !ariable
expenses per unit I 1)/.33 E 118.73 I 1/.)3
Current contribution margin ratio I Contribution margin ? Selling price per unit
1/.)3 ? 1)/.33 I )3.7H
Airect labor per unit K 3.37 I #ncrease in !ariable expense
1/.33 K 3.37 I 13..3
&ew total !ariable expenses per unit I 118.73 G 13..3 I 1)3.)3
3.)37 I :Selling price E 1)3.)3; ? Selling price
3.)37 K Selling price I Selling price E 1)3.)3
1)3.)3 I Selling price E 3.)37 K Selling price
1)3.)3 I 3.28) K Selling price
Selling price I 1)/./1
The following data was pro!ided by Mreen Corporation:
$roduct
A $roduct B $roduct C
Sales in dollars............................... 173+333 11)3+333 1133+333
Contribution margin ratio.............. -3H ./H )2H
110. The contribution margin ratio for the company as a whole is:
A; -.H
B; 0/H
C; -/H
A; 00.2H
Solution:
$roduct
1-33+33
Sales................................... 173+333 11)3+333 1133+333 3
Contribution margin :Sales
K Contribution margin
ratio;............................... 1).+333 1/.+333 1)2+333 13/+333
I 113/+333F1-33+333 I -/H
112. #f total units sold remain unchanged+ but the sales mix shifts more hea!ily toward
$roduct B+ one would expect the o!erall contribution margin ratio to:
A; increase
B; decrease
C; remain unchanged
A; none of these
Dse the following to answer 9uestions 11741)3:
&ext year+ (udd %ace Cosmetics+ a single product company+ expects to sell 8+333 Qars of
miracle gla5e. (udd %ace is budgeting the following operating results for next year:
Sales...................................
1./3+33
3
*ariable expenses.............. 1-/+333
Contribution margin.......... -1/+333
%ixed expenses................... )/)+333
117. @ow many Qars of gla5e would (udd %ace ha!e to sell next year in order to brea"4
e!enC
A; )+233
B; /+3.3
C; 0+2/3
A; 2+)33
Solution:
Total
$ercent of
Sales
Sales......................................................................... 1./3+333 133.3H
*ariable expenses..................................................... 1-/+333 -3.3H
Contribution margin and contribution margin ratio. 1 -1/+333 23.3H
I 1)/)+333F3.233 I 1-03+333
Selling price per unit I 1./3+333 ? 8+333 Qars I 1/3 per Qar
Brea"-e!en in units I Brea"4e!en sales dollars ? Selling price per unit
I 1-03+333 ? 1/3 I 2+)33 Qars
118. Bhat would (udd %aceLs total sales dollars ha!e to be next year in order to increase
its proQected net operating income by )/HC
A; 1.0/+2/3
B; 1.2)+/33
C; 1.88+/33
A; 1/0)+/33
A#C$A %&: eporting 'O: .6 0 'e!el: (edium
Solution:
Contribution margin ratio I 1-1/+333 ? 1./3+333 I 23H
Aesired net operating income I :10-+333 K 1.)/; I 127+2/3
Sales dollars needed to earn 127+2/3 I :%ixed expenses G Target net operating
income; ? Contribution margin ratio I :1)/)+333 G 127+2/3; ? 3.23 I 1.2)+/33
1)3. #f sales next year at (udd %ace are 13H higher than expected+ its net operating
income should be:
A; 1.+.13 higher than expected.
B; 10+-33 higher than expected.
C; 1-1+/33 higher than expected.
A; 1..+133 higher than expected.
Solution:
I 1-1/+333 ? 10-+333 I /
Therefore, increase in net operating income will be / K 13H+ or /3H+ higher.
Current net operating income K /3H I 10-+333 K /3H I 1-1+/33 increase
Dse the following to answer 9uestions 1)141)):
(rs. after has supplied the following data for her small business:
Selling price.......................113 per unit
*ariable expenses.............. 10 per unit
ent.................................... 1.33 per
wee" Salaries...............................
1033 per wee"
Other fixed expenses......... 1)33 per wee"
1)1. #f /33 units are sold in a wee"+ the net operating income :loss; would be:
A; 11+733
B; 1:)+333;
C; 1)+333
A; 1733
Solution:
Sales................................... 1/+333
*ariable expenses.............. -+333
Contribution margin.......... )+333
%ixed expenses................... 1+)33
&et operating income......... 1 733
Solution:
1)). #f sales commissions 1:1.33 per unit; are discontinued in fa!or of a 1-33 increase in
salaries, the brea"4e!en point in units would:
A; increase
B; decrease
C; remain the same
A; none of these
A#C$A %&: eporting 'O: .6 / 'e!el: (edium
Dse the following to answer 9uestions 1)-41)0:
&ext year+ ad Shirt Company expects to sell -)+333 shirts. ad is budgeting the following
operating results for next year:
Sales..........................................
.....
1733+33
0
*ariable expenses.......................... )77+333
Contribution margin...................... /1)+333
%ixed expenses............................... 18)+333
1-)3+33
&et operating income..................... 0
1)-. Bhat is adLs margin of safety for next yearC
A; 1.73+333
B; 1/33+333
C; 1/1)+333
A; 1037+333

Total
$ercent of
Sales
Sales................................................................ 1733+333 133.3H
*ariable expenses............................................ )77+333 -0H
Contribution margin and contribution margin
ratio.............................................................. 1 /1)+333 0.H
I 118)+333F3.0. I 1-33+333
I 1733+333 E 1-33+333 I 1/33+333
1).. Bhat is adLs degree of operating le!erage for next yearC
A; 1./3
B; 1./0
C; 1.03
A; )./3
Solution:
I 1/1)+333F1-)3+333 I 1.03
1)/. @ow many shirts would ad ha!e to sell next year in order to generate 1.73+333 of net
operating incomeC
A; -7+.33
B; .7+333
C; 03+333
A; .)+333
Solution:
Sales price I 1733+333 ? -)+333 units I 1)/
*ariable expense per unit I 1)77+333 ? -)+333 units I 18
1)/< I 18< G 118)+333 G 1.73+333
110< I 102)+333
< I 102)+333 ? 110 per unit I .)+333 units
1)0. ad is considering increasing its ad!ertising by 1.7+333 next year. By how much
would sales ha!e to increase in order for ad to still generate a 1-)3+333 net operating
incomeC
A; 1.7+333
B; 12/+333
C; 120+733
A; 11)3+333
A#C$A %&: eporting 'O: . 'e!el: @ard
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-$1
Sales..........................................
.....
Current $roposed
1733+33
0
*ariable expenses.......................... )77+333
Contribution margin...................... /1)+333 1/03+333 N
%ixed expenses............................... 18)+333 ).3+333
&et operating income.....................
NBor" bac"wards to obtain the number.
1-)3+33
0
1-)3+333
Sales price I 1733+333 ? -)+333 units I 1)/
*ariable expense per unit I 1)77+333 ? -)+333 units I 18
Contribution margin per unit I 1)/ E 18 I 110
1/03+333 ? 110 I -/+333 units
-/+333 E -)+333 I -+333 unit increase
-+333 K 1)/ I 12/+333 increase in sales
Dse the following to answer 9uestions 1)241-3:
@oupe Corporation produces and sells a single product. Aata concerning that product appear
below:
Selling price....................... 11.3 133H
*ariable expenses.............. .) -3H
%ixed expenses are 1.83+333 per month. The company is currently selling 0+333 units per
month. Consider each of the following 9uestions independently.
1)2. This 9uestion is to be considered independently of all other 9uestions relating to
@oupe Corporation. efer to the original data when answering this 9uestion.
The mar"eting manager belie!es that a 11.+333 increase in the monthly ad!ertising
budget would result in a 1/3 unit increase in monthly sales. Bhat should be the
o!erall effect on the companyLs monthly net operating income of this changeC
A; increase of 1233
B; increase of 11.+233
C; decrease of 11.+333
A; decrease of 1233
Solution:
0+333 units 0+1/3 units
Sales :0+333 units K 11.3+ 0+1/3 units K 11.3;....... 17.3+333 1701+333
*ariable expenses :0+333 units K 1.)+ 0+1/3 units K
1.);...................................................................... )/)+333 )/7+-33
Contribution margin................................................ /77+333 03)+233
%ixed expenses......................................................... .83+333 /3.+333
&et operating income.............................................. 1 87+333 1 87+233
#ncrease in net operating income: 187+233 E 187+333 I 1233
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-$
1)8. This 9uestion is to be considered independently of all other 9uestions relating to

(anagement is considering using a new component that would increase the unit
!ariable cost by 1/. Since the new component would increase the features of the
companyLs product, the mar"eting manager predicts that monthly sales would increase
by -33 units. Bhat should be the o!erall effect on the companyLs monthly net
A; decrease of 1)+133
B; decrease of 1)2+833
C; increase of 1)+133
A; increase of 1)2+833
Solution:
Sales :0+333 units K 11.3+ 0+-33 units K 11.3;.... 17.3+333 177)+333
*ariable expenses :0+333 units K 1.)+ 0+-33 units
K 1.2;................................................................ )/)+333 )80+133
Contribution margin............................................. /77+333 /7/+833
%ixed expenses...................................................... .83+333 .83+333
&et operating income........................................... 1 87+333 1 8/+833
Aecrease in net operating income: 187+333 E 18/+833 I 1)+133

The mar"eting manager would li"e to cut the selling price by 12 and increase the
ad!ertising budget by 1)7+333 per month. The mar"eting manager predicts that these
two changes would increase monthly sales by /33 units. Bhat should be the o!erall
effect on the companyLs monthly net operating income of this changeC
A; decrease of 112+/33
B; increase of 112+/33
C; decrease of 1).+/33
A; increase of 1-7+/33
Solution:
Sales :0+333 units K 11.3+ 0+/33 units K 11--;. 17.3+333 170.+/33
*ariable expenses :0+333 units K 1.)+ 0+/33
units K 1.);.................................................... )/)+333 )2-+333
Contribution margin.......................................... /77+333 /81+/33
%ixed expenses................................................... .83+333 /17+333
&et operating income........................................ 1 87+333 1 2-+/33
Aecrease in net operating income: 187+333 E 12-+/33 I 1).+/33
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-$!

The mar"eting manager would li"e to introduce sales commissions as an incenti!e
for the sales staff. The mar"eting manager has proposed a commission of 111 per
unit. #n exchange, the sales staff would accept a decrease in their salaries of 1/7+333
per
month. :This is the companyLs sa!ings for the entire sales staff.; The mar"eting
manager predicts that introducing this sales incenti!e would increase monthly sales by
133 units. Bhat should be the o!erall effect on the companyLs monthly net operating
income of this changeC
A; increase of 1233
B; increase of 1/0+833
C; decrease of 111/+-33
Solution:
Sales :0+333 units K 11.3+ 0+133 units K 11.3;..... 17.3+333 17/.+333
*ariable expenses :0+333 units K 1.)+ 0+133 units
K 1/-;................................................................. )/)+333 -)-+-33
Contribution margin............................................... /77+333 /-3+233
%ixed expenses....................................................... .83+333 .-)+333
&et operating income............................................. 1 87+333 1 87+233
#ncrease in net operating income: 187+233 E 187+333 I 1233
Dse the following to answer 9uestions 1-141-.:
Aata concerning 'emelin CorporationLs single product appear below:
Selling price................................... 1)-3 133H
*ariable expenses.......................... 11/ /3H
Contribution margin...................... 111/ /3H
The company is currently selling 2+333 units per month. %ixed expenses are 1/71+333 per

1-1. This 9uestion is to be considered independently of all other 9uestions relating to
'emelin Corporation. efer to the original data when answering this 9uestion.
!ariable cost by 1-. Since the new component would increase the features of the
by )33 units. Bhat should be the o!erall effect on the companyLs monthly net
A; decrease of 1))+.33
B; decrease of 11+.33
C; increase of 1))+.33
A; increase of 11+.33
Solution:
2+333 units 2+)33 units
Sales :2+333 units K 1)-3+ 2+)33 units K 1)-3;. . 11+013+333 11+0/0+333
*ariable expenses :2+333 units K 111/+ 2+)33
units K 1117;.................................................... 73/+333 7.8+033
Contribution margin............................................ 73/+333 730+.33
%ixed expenses.................................................... /71+333 /71+333
&et operating income.......................................... 1 )).+333 1 ))/+.33
#ncrease in net operating income: 1))/+.33 E 1)).+333 I 11+.33
1-). This 9uestion is to be considered independently of all other 9uestions relating to
The mar"eting manager belie!es that a 111+333 increase in the monthly ad!ertising
budget would result in a 133 unit increase in monthly sales. Bhat should be the
B; increase of 111+/33
C; decrease of 1/33
A; increase of 1/33


Solution:
Sales :2+333 units K 1)-3+ 2+133 units K 1)-3;. 11+013+333 11+0--+333
*ariable expenses :2+333 units K 111/+ 2+133
units K 111/;.................................................. 73/+333 710+/33
Contribution margin.......................................... 73/+333 710+/33
%ixed expenses................................................... /71+333 /8)+333
&et operating income........................................ 1 )).+333 1 )).+/33
#ncrease in net operating income: 1)).+/33 E 1)).+333 I 1/33
1--. This 9uestion is to be considered independently of all other 9uestions relating to
for the sales staff. The mar"eting manager has proposed a commission of 1)3 per
unit. #n exchange, the sales staff would accept a decrease in their salaries of 111-+333
per
-33 units. Bhat should be the o!erall effect on the companyLs monthly net operating
A; decrease of 1)).+/33
B; increase of 1132+333
C; increase of 11+/33
A; increase of 1730+/33
Solution:
Sales :2+333 units K 1)-3+ 2+-33 units K 1)-3;. . 11+013+333 11+028+333
*ariable expenses :2+333 units K 111/+ 2+-33
units K 11-/;.................................................... 73/+333 87/+/33
Contribution margin............................................ 73/+333 08-+/33
%ixed expenses.................................................... /71+333 .07+333
&et operating income.......................................... 1 )).+333 1 ))/+/33
#ncrease in net operating income: 1))/+/33 E 1)).+333 I 11+/33
81. This 9uestion is to be considered independently of all other 9uestions relating to
1-.. This 9uestion is to be considered independently of all other 9uestions relating to
ad!ertising budget by 1-2+333 per month. The mar"eting manager predicts that these
two changes would increase monthly sales by 1+033 units. Bhat should be the o!erall
effect on the companyLs monthly net operating income of this changeC
A; increase of 1117+)33
B; increase of 1-3)+)33
C; decrease of 1117+)33
Solution:
Sales :2+333 units K 1)-3+ 7+033 units K 1)1);. 11+013+333 11+7)-+)33
*ariable expenses :2+333 units K 111/+ 7+033
units K 111/;.................................................. 73/+333 878+333
Contribution margin.......................................... 73/+333 7-.+)33
%ixed expenses................................................... /71+333 017+333
&et operating income........................................ 1 )).+333 1 )10+)33
Aecrease in net operating income: 1)).+333 E 1)10+)33 I 12+733
Dse the following to answer 9uestions 1-/41-7:
Thornbrough Corporation produces and sells a single product with the following
characteristics:
Selling price....................... 1))3 133H
*ariable expenses.............. .. )3H
Contribution margin.......... 1120 73H
The company is currently selling 2+333 units per month. %ixed expenses are 1831+333 per

Thornbrough Corporation. efer to the original data when answering this 9uestion.
!ariable cost by 111. Since the new component would increase the features of the
by /33 units. Bhat should be the o!erall effect on the companyLs monthly net
A; increase of 17)+/33
B; decrease of 1/+/33
C; decrease of 17)+/33
A; increase of 1/+/33
Solution:
Sales :2+333 units K 1))3+ 2+/33 units K 1))3;. 11+/.3+333 11+0/3+333
*ariable expenses :2+333 units K 1..+ 2+/33
units K 1//;.................................................... -37+333 .1)+/33
Contribution margin.......................................... 1+)-)+333 1+)-2+/33
%ixed expenses................................................... 831+333 831+333
&et operating income........................................ 1 --1+333 1 --0+/33
#ncrease in net operating income: 1--0+/33 E 1--1+333 I 1/+/33
The mar"eting manager belie!es that a 1)7+333 increase in the monthly ad!ertising
budget would result in a 183 unit increase in monthly sales. Bhat should be the
A; decrease of 1)7+333
B; increase of 1--+..3
C; increase of 1/+..3
A; decrease of 1/+..3

Solution:
Sales :2+333 units K 1))3+ 2+183 units K 1))3;. 11+/.3+333 11+/71+733
*ariable expenses :2+333 units K 1..+ 2+183
units K 1..;.................................................... -37+333 -10+-03
Contribution margin.......................................... 1+)-)+333 1+)0/+..3
%ixed expenses................................................... 831+333 8)8+333
&et operating income........................................ 1 --1+333 1 --0+..3
#ncrease in net operating income: 1--0+..3 E 1--1+333 I 1/+..3
ad!ertising budget by 1/-+333 per month. The mar"eting manager predicts that these
two changes would increase monthly sales by 1+333 units. Bhat should be the
A; decrease of 113/+333
B; increase of 11.8+333
C; increase of 113/+333
A; decrease of 1)1+333
Solution:
Sales :2+333 units K 1))3+ 7+333 units K 1)3);.... 11+/.3+333 11+010+333
*ariable expenses :2+333 units K 1..+ 7+333 units
K 1..;................................................................ -37+333 -/)+333
Contribution margin............................................. 1+)-)+333 1+)0.+333
%ixed expenses...................................................... 831+333 8/.+333
&et operating income........................................... 1 --1+333 1 -13+333
Aecrease in net operating income: 1--1+333 E 1-13+333 I 1)1+333


for the sales staff. The mar"eting manager has proposed a commission of 111 per
unit. #n exchange, the sales staff would accept a decrease in their salaries of 10/+333
per
-33 units. Bhat should be the o!erall effect on the companyLs monthly net operating
A; increase of 11+)08+/33
B; increase of 1-2+/33
C; increase of 101+233
A; decrease of 18)+/33
Solution:
Sales :2+333 units K 1))3+ 2+-33 units K 1))3;..... 11+/.3+333 11+030+333
*ariable expenses :2+333 units K 1..+ 2+-33 units
K 1//;................................................................. -37+333 .31+/33
Contribution margin............................................... 1+)-)+333 1+)3.+/33
%ixed expenses....................................................... 831+333 7-0+333
&et operating income............................................. 1 --1+333 1 -07+/33
#ncrease in net operating income: 1-07+/33 E 1--1+333 I 1-2+/33
Dse the following to answer 9uestions 1-841.3:
Tricia Corporation is a single product firm that sells its product for 1)./3 per unit. *ariable
expense per unit at Tricia is 11.33. Tricia expects fixed expenses to total 117+333 for next
year.

1-8. @ow many units would Tricia ha!e to sell next year in order to brea"-e!enC
A; 2+)33
B; 1)+333
C; -3+333
A; ./+333
Solution:
1)./3< I 11.30< G 117+333 G 13
11./3< I 117+333
< I 117+333 ? 11./3 per unit I 1)+333 units
1.3. Bhat would TriciaLs total sales dollars ha!e to be next year in order to generate
1./+333 of net operating incomeC
A; 1-3+333
B; 1.)+333
C; 12/+333
A; 113/+333
Solution:
Contribution margin I Sales price - *ariable expense per unit
Contribution margin I 1)./3 - 11.33 I 11./3
C( ratio I 11./3 ? 1)./3 I 3.03
I :117+333 G 1./+333;F3.03 I 113/+333


Dse the following to answer 9uestions 1.141.):
Ranetti Corporation produces and sells a single product. Aata concerning that product appear
below:
*ariable expense per unit.............. 1-..13
11-)+30
1.1. The brea"4e!en in monthly unit sales is closest to:
A; -+72-
B; 1+2.3
C; 1+)31
A; )+)21
Solution:
1113.33< I 1-..10< G 11-)+300 G 13
12/.83< I 11-)+300
< I 11-)+300 ? 12/.83 per unit I 1+2.3 units
1.). The brea"4e!en in monthly dollar sales is closest to:
A; 1181+.33
B; 1).8+713
C; 1.)0+3-3
A; 11-)+113

Solution:
$er Dnit
$ercent of
Sales

Sales......................................................................... 1113.33 133.3H
*ariable expenses..................................................... -..13 -1.3H
Contribution margin and contribution margin ratio. 1 2/.83 08.3H
I 11-)+300F3.08 I 1181+.33
Dse the following to answer 9uestions 1.-41..:
Aata concerning Sinisi CorporationLs single product appear below:
Selling price per unit...................... 1)33.33
*ariable expense per unit.............. 1/7.33
1.32+/.
1.-. The brea"4e!en in monthly unit sales is closest to:
A; )+3-7
B; 2+3)2
C; )+723
A; -+827
Solution:
1)33< I 1/7< G 1.32+/.3 G 13
11.)< I 1.32+/.3
< I 1.32+/.3 ? 11.) per unit I )+723 units
1... The brea"4e!en in monthly dollar sales is closest to:
A; 1.32+033
B; 11+.3/+.33
C; 1/2.+333
A; 128/+033
Solution:
$er Dnit
$ercent of
Sales
Sales......................................................................... 1)33 133.3H
*ariable expenses..................................................... /7 )8.3H
Contribution margin and contribution margin ratio. 11.) 21.3H
I 1.32+/.3F3.21 I 1/2.+333
Dse the following to answer 9uestions 1./41.0:
@eathman #nc. produces and sells a single product. The selling price of the product is 1)-3.33
per unit and its !ariable cost is 178.23 per unit. The fixed expense is 1-37+003 per month.
1./. The brea"4e!en in monthly unit sales is closest to:
A; )+-)7
B; 1+-.)
C; -+..1
A; )+)33
Solution:
1)-3.33< I 178.20< G 1-37+003 G 13
11.3.-3< I 1-37+003
< I 1-37+003 ? 11.3.-3 per unit I )+)33 units
1.0. The brea"4e!en in monthly dollar sales is closest to:

A; 1281+.-0
B; 1/-/+-0/
C; 1/30+333
A; 1-37+003
Solution:
$er Dnit
$ercent
of Sales
Sales......................................................................... 1)-3.33 133.3H
*ariable expenses..................................................... 78.23 -8.3H
Contribution margin and contribution margin ratio. 11.3.-3 01.3H
Brea"4e!en in total sales dollars I %ixed expensesFC( ratio
I 1-37+003F3.01 I 1/30+333
Dse the following to answer 9uestions 1.241.7:
(a5iar5 Corporation produces and sells a single product. Aata concerning that product appear
below:
Selling price per unit...................... 1))3.33
*ariable expense per unit.............. 12).03
1/.7+-)
1.2. Assume the companyLs monthly target profit is 11.+333. The unit sales to attain that
target profit is closest to:
A; 2+2.0
B; )+//0
C; .+230
A; -+71/
Solution:
1))3.33< I 12).03< G 1/.7+-)7 G 11.+333
11.2..3< I 1/0)+-)7
< I 1/0)+-)7 ? 11.2..3 per unit I -+71/ units :rounded;
1.7. Assume the companyLs monthly target profit is 110+333. The dollar sales to attain that
A; 1/0.+-)7
B; 11+213+37/
C; 11+3-7+787
A; 17.)+)71
Solution:
Contribution margin per unit I Sales price 4 *ariable expense per unit
Contribution margin per unit I 1))3.33 4 12).03 I 11.2..3
C( ratio I 11.2..3 ? 1))3.33 I 3.02
I :1/.7+-)7 G 110+333;F3.02 I 17.)+)71 :rounded;
Dse the following to answer 9uestions 1.841/3:
Aata concerning Strite CorporationLs single product appear below:
*ariable expense per unit.............. 1.).33
1.)1+)3
1.8. Assume the companyLs monthly target profit is 112+333. The unit sales to attain that
A; /+73.
B; )+8)1
C; .+3/2
A; 13+.--
Solution:
11/3< I 1.)< G 1.)1+)33 G 112+333
1137< I 1.-7+)33
< I 1.-7+)33 ? 1137 per unit I .+3/2 units :rounded;
1/3. Assume the companyLs monthly target profit is 17+333. The dollar sales to attain that
A; 1/80+111
B; 11+/-)+7/2
C; 17/)+2)-
A; 1.)8+)33
Solution:
Contribution margin per unit I 11/3.33 4 1.).33 I 1137.33
C( ratio I 1137.33 ? 11/3.33 I 3.2)
I :1.)1+)33 G 17+333;F3.2) I 1/80+111 :rounded;
Dse the following to answer 9uestions 1/141/):
Spec"man ,nterprises+ #nc.+ produces and sells a single product whose selling price is 1)33.33
per unit and whose !ariable expense is 107.33 per unit. The companyLs monthly fixed expense
is 1/1.+733.
1/1. Assume the companyLs monthly target profit is 111+333. The unit sales to attain that
A; )+0)8
B; -+87-
C; .+271
A; 2+2-)
Solution:
1)33.33< I 107.33< G 1/1.+733 G 111+333
11-).33< I 1/)/+733
< I 1/)/+733 ? 11-) per unit I -+87- units :rounded;
1/). Assume the companyLs monthly target profit is 11)+333. The dollar sales to attain that
A; 11+/.8+.1)
B; 1287+17)
C; 1/)0+733
A; 18/7+1-1
Solution:
Contribution margin per unit I 1)33.33 4 107.33 I 11-).33
C( ratio I 11-).33 ? 1)33.33 I 3.00
I :1/1.+733 G 11)+333;F3.00 I 1287+17) :rounded;
Dse the following to answer 9uestions 1/-41/.:
Jerrel Corporation sells a product for 1)-3 per unit. The productLs current sales are ).+333
units and its brea"4e!en sales are 12+)73 units.
1/-. Bhat is the margin of safety in dollarsC
A; 1/+/)3+333
B; 11+/./+033
C; 1-+82.+.33
A; 1-+073+333
Solution:
Brea"4e!en sales I 1)-3 per unit K 12+)73 units I 1-+82.+.33
Current sales I 1)-3 per unit K ).+333 units I 1/+/)3+333
I 1/+/)3+333 E 1-+82.+.33 I 11+/./+033
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-1%1
1/.. The margin of safety as a percentage of sales is closest to:
A; 01H
B; )7H
C; 2)H
A; -8H
Solution:
Brea"4e!en sales I 1)-3 per unit K 12+)73 units I 1-+82.+.33
Current sales I 1)-3 per unit K ).+333 units I 1/+/)3+333
I 1/+/)3+333 E 1-+82.+.33 I 11+/./+033
I 11+/./+033 ? 1/+/)3+333 I )7H
Dse the following to answer 9uestions 1//41/0:
(arus"a Corporation has pro!ided the following data concerning its only product:
Current sales...................... )8+733 units
Brea"4e!en sales................ )/+3-) units
Dse the following to answer 9uestions 1/24113:
1//. Bhat is the margin of safety in dollarsC
A; 1.+/3/+203
B; 17/7+).3
C; 1-+/20+333
A; 1/+-0.+333
Solution:
Brea"4e!en sales I 1173 per unit K )/+3-) I 1.+/3/+203
Current sales I 1173 per unit K )8+733 I 1/+-0.+333
I 1/+-0.+333 E 1.+/3/+203 I 17/7+).3
1/0. The margin of safety as a percentage of sales is closest to:
A; 18H
B; 10H
C; 7.H
A; 71H
Solution:
Brea"4e!en sales I 1173 per unit K )/+3-) I 1.+/3/+203
Current sales I 1173 per unit K )8+733 I 1/+-0.+333
I 1/+-0.+333 E 1.+/3/+203 I 17/7+).3
I 17/7+).3 ? 1/+-0.+333 I 10H

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-1%

Bois Corporation has pro!ided its contribution format income statement for January.
Sales...................................
1.)0+.3
3
*ariable expenses.............. )03+333
Contribution margin.......... 100+.33
%ixed expenses................... 1)3+833
&et operating income......... 1 ./+/33
1/2. The degree of operating le!erage is closest to:
A; 3.11
B; 8.-2
C; 3.)2
A; -.00
Solution:
I 1100+.33F1./+/33 I -.00
1/7. #f the companyLs sales increase by 2H+ its net operating income should increase by
about:
A; )0H
B; 2H
C; 00H
A; 11H
Solution:
I 1100+.33F1./+/33 I -.00
I 2H K -.00 I )0H
The July contribution format income statement of Aoxtater Corporation appears below:
Sales...............................................
1/0.+.3
3
*ariable expenses.......................... -1)+733
Contribution margin...................... )/1+033
%ixed expenses............................... 18-+733
&et operating income..................... 1 /2+733
1/8. The degree of operating le!erage is closest to:
A; 3.)-
B; 3.13
C; ..-/
A; 8.20
Solution:
I 1)/1+033F1/2+733 I ..-/
103. #f the companyLs sales increase by 18H+ its net operating income should increase by
about:
A; 13H
B; 18H
C; 7-H
A; 170H
Solution:
I 1)/1+033F1/2+733 I ..-/
I 18H K ..-/ I 7-H
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-1%!
Taylor+ #nc. produces only two products+ Acdom and Belnom. These account for 03H and
.3H of the total sales dollars of Taylor+ respecti!ely. The unit !ariable expense as a
percentage of the selling price is 03H for Acdom and 7/H for Belnom. Total fixed expenses
are 11/3+333. There are no other costs. Bhat is TaylorLs brea"4e!en point in sales dollarsC
Answer: A; 1/33+333
Solution:
,ach productTs contribution margin rate is :1 E !ariable expense percentage;
Acdom I 1 E 3.0 I 3..
Belnom I 1 E 3.7/ I 3.1/
To calculate the weighted a!erage contribution margin+ multiply each productTs
contribution margin ratio by its percentage of total sales dollars:
:03H K 3..H; G :.3H K 3.1/H; I
3.).H G 3.30H I 3.-3H
To calculate the brea"4e!en point in sales dollars:
%ixed expenses ? Beighted a!erage contribution margin ratio
I 11/3+333 ? 3.-3 I 1/33+333
10). Assuming that the total fixed expenses of Taylor increase by -3H and the sales mix
remains constant+ what amount of sales dollars would be necessary to generate a
net operating income of 18+333C
Answer: 1073+333
Solution:
,ach productTs contribution margin rate is :1 E !ariable expense percentage;
Acdom I 1 E 3.0 I 3..
Belnom I 1 E 3.7/ I 3.1/
To calculate the weighted a!erage contribution margin+ multiply each productTs
contribution margin ratio by its percentage of total sales dollars:
:03H K 3..H; G :.3H K 3.1/H; I 3.). G 3.30 I 3.-3
&ew fixed expenses I :11/3+333 K 1.-3; I 118/+333
Sales dollars needed I :%ixed expenses G Target net operating income; ? Beighted
a!erage contribution margin ratio
I :118/+333 G 18+333; ? 3.-3 I 1073+333
Dse the following to answer 9uestions 10-410.:
Aietric" Corporation produces and sells two products. Aata concerning those products for the
$roduct B-)'
$roduct
O7.B
Sales................................... 1.0+333 1)2+333
*ariable expenses.............. 11-+733 11.+023
%ixed expenses for the entire company were 1.)+//3.

10-. Taylor+ #nc. produces only two products+ Acdom and Belnom. These account for 03H and
.3H of the total sales dollars of Taylor+ respecti!ely. The unit !ariable expense as a
percentage of the selling price is 03H for Acdom and 7/H for Belnom. Total fixed expenses are
11/3+333. There are no other costs. The brea"4e!en point for the entire company is closest to:
Answer: C; 108+2/.
Solution:
$roduct
B-)'
$roduct
O7.B Total

Sales................................... 1.0+333 1)2+333 12-+333
*ariable expenses.............. 1-+733 1.+023 )7+.23
Contribution margin........... 1-)+)33 11)+--3 ..+/-3
%ixed expenses................... .)+//3
I 1..+/-3F12-+333 I 3.01
I 1.)+//3F3.01 I 108+2/. :rounded;
10.. #f the sales mix were to shift toward $roduct B-)' with total sales remaining constant+
the o!erall brea"-e!en point for the entire company:
Answer: B; would decrease.
10/. #ngrum Corporation produces and sells two products. #n the most recent month+ $roduct
-7T had sales of 1)3+333 and !ariable expenses of 12+.33. $roduct S37S had sales of
1-8+333 and !ariable expenses of 10+123. And the fixed expenses of the entire company were
1.1+103. The brea"4e!en point for the entire company is closest to:
Answer: C; 1/-+.//
Solution:
$roduct
-7T
$roduct
S37S Total
Sales................................... 1)3+333 1-8+333 1/8+333
*ariable expenses.............. 2+.33 0+123 1-+/23
Contribution margin........... 11)+033 1-)+7-3 ./+.-3
%ixed expenses................... .1+103
&et operating income......... 1 .+)23
I 1./+.-3F1/8+333 I 3.22
I 1.1+103F3.22 I 1/-+.// :rounded;
100. #f the sales mix were to shift toward $roduct -7T with total sales remaining constant+
the o!erall brea"-e!en point for the entire company:
Answer: B; would increased
Essay Questions
102. The following is Ar"adia CorporationLs contribution format income statement for last
month:
Sales..........................................
.....
11+)33+33
0
Contribution margin...................... .33+333
%ixed expenses............................... -33+333
&et operating income..................... 1 133+333
The company has no beginning or ending in!entories and produced and sold )3+333
units during the month.
e9uired:
a. Bhat is the companyLs contribution margin ratioC
b. Bhat is the companyLs brea"4e!en in unitsC
c. #f sales increase by 133 units, by how much should net operating income increaseC
d. @ow many units would the company ha!e to sell to attain target profits of
11)/+333C
e. Bhat is the companyLs margin of safety in dollarsC
f. Bhat is the companyLs degree of operating le!erageC
Ans:
a. Contribution margin ratio:
C( ratio I Contribution margin ? Sales I 1.33+333 ? 11+)33+333 I 3.---
b. Brea"4e!en units:
Selling price :11+)33+333 ? )3+333 units; I 103 per unit
*ariable expenses :1733+333 ? )3+333 units; I 1.3 per unit
103< I 1.3< G 1-33+333 G 13
1)3< I 1-33+333
< I 1-33+333 ? 1)3 per unit I 1/+333 units
c. #ncrease in net operating income from additional sales of 133 units:
Selling price............................................... 103 per unit
*ariable expenses...................................... 1.3 per unit
Dnit contribution margin........................... 1)3 per unit
Additional sales......................................... K 133 units
#ncrease in net operating income............... 1)+333
d. Sales to attain target profit:
103< I 1.3< G 1-33+333 G 11)/+333
1)3< I 1.)/+333
< I 1.)/+333 ? 1)3 per unit I )1+)/3 units
e. (argin of safety in dollars:
Brea"4e!en sales I 103 per unit K 1/+333 units I 1833+333
I 11+)33+333 E 1833+333 I 1-33+333
f. Aegree of operating le!erage I Contribution margin ? &et operating income
I 1.33+333 ? 1133+333 I ..3
AACSB: Analytic A#C$A BB: Critical Thin"ing A#C$A %&: eporting
'O: 16 -6 /6 06 26 7 'e!el: ,asy
107. The Marry CorporationLs most recent contribution format income statement is shown
below:
Sales :1/+333 units;.......................
Total $er unit
1))/+33
3 11/
*ariable expenses.......................... 1-/+333 8
Contribution margin...................... 83+333 1 0
%ixed expenses............................... -/+333
&et operating income..................... 1 //+333
e9uired:
$repare a new contribution format income statement under each of the following
conditions :consider each case independently;:
a. The sales !olume increases by 13H and the price decreases by 13./3 per unit.
b. The selling price decreases 11.33 per unit+ fixed expenses increase by 11/+333+ and
the sales !olume decreases by /H.
c. The selling price increases by )/H+ !ariable expense increases by 13.2/ per unit+
and the sales !olume decreases by 1/H.
d. The selling price increases by 11./3 per unit+ !ariable cost increases by 11.33 per
unit+ fixed expenses decrease by 11/+333+ and sales !olume decreases by 1)H.
Ans:
a. Total $er unit
*olume............................ 10+/33 units
Sales................................ 1)-8+)/3 11../3
*ariable expenses............ 1.7+/33 8.33
Contribution margin........ 83+2/3 1 /./3
%ixed expenses................ -/+333
&et operating income...... 1 //+2/3
b
. Total $er unit
*olume............................ 1.+)/3 units
Sales................................ 1188+/33 11..33
*ariable expenses............ 1)7+)/3 8.33
Contribution margin........ 21+)/3 1 /.33
%ixed expenses................ /3+333
&et operating income...... 1 )1+)/3
c. Total $er unit
*olume..........................
..
1)+2/3 units
Sales.............................
...
1)-8+30- 117.2/
*ariable expenses............ 1).+-1- 8.2/
Contribution margin........ 11.+2/3 18.33
%ixed
expenses................
-/+333
&et operating income...... 128+2/3
d
. Total $er unit
*olume..........................
..
1-+)33 units
Sales.............................
...
1)12+733 110./3
*ariable expenses........... 1-)+333 13.33
Contribution margin........ 7/+733 1 0./3
%ixed
expenses................
)3+333
&et operating income...... 1 0/+733
AACSB: Analytic A#C$A BB: Critical Thin"ing A#C$A %&: (easurement
'O: 16 . 'e!el: ,asy
108. (cCon"ey Corporation produces and sells a single product. The companyLs
contribution format income statement for July appears below:
Sales :/+/33
units;.............
1-/2+/3
0
*ariable expenses.............. )-0+/33
%ixed expenses................... 13)+)33
e9uired:
edo the companyLs contribution format income statement assuming that the company
sells /+733 units.
Ans:
Sales :/+733
units;.............
1-22+33
0
*ariable expenses.............. ).8+.33
%ixed expenses................... 13)+)33
&et operating income......... 1 )/+.33
'O: 1 'e!el: ,asy
123. Miannini #nc.+ which produces and sells a single product+ has pro!ided the following
contribution format income statement for (arch:
Sales :/+833 units;.............
1.22+83
3
*ariable expenses.............. )30+/33
Contribution margin.......... )21+.33
%ixed expenses................... 183+733
e9uired:
edo the companyLs contribution format income statement assuming that the company
sells /+/33 units.
Ans:
Sales :/+/33 units;.............
1../+/3
3
*ariable expenses.............. 18)+/33
Contribution margin.......... )/-+333
%ixed expenses................... 183+733
&et operating income......... 1 0)+)33
'O: 1 'e!el: ,asy
121. (echem Corporation produces and sells a single product. #n April+ the company sold
)+133 units. #ts total sales were 1)3/+733+ its total !ariable expenses were 1132+133+
and its total fixed expenses were 17)+.33.
e9uired:
a. Construct the companyLs contribution format income statement for April in good
form.
b. edo the companyLs contribution format income statement assuming that the
company sells )+)33 units.
Ans:
a.
Sales :)+133 units;...........
1)3/+73
3
*ariable expenses............ 132+133
Contribution margin........ 87+233
%ixed expenses................ 7)+.33
&et operating income...... 1 10+-33
b
. Sales :)+)33 units;...........
1)1/+03
3
*ariable expenses........... 11)+)33
Contribution margin........ 13-+.33
%ixed expenses................ 7)+.33
&et operating income...... 1 )1+333
'O: 1 'e!el: ,asy
12). #n July+ (eers Corporation sold -+233 units of its only product. #ts total sales were
1132+-33+ its total !ariable expenses were 100+033+ and its total fixed expenses were
1-.+733.
e9uired:
a. Construct the companyLs contribution format income statement for July in good
form.
b. edo the companyLs contribution format income statement assuming that the
company sells -+.33 units.
Ans:
a.
Sales :-+233 units;...........
1132+-3
3
*ariable expenses............ 00+033
Contribution margin........ .3+233
%ixed expenses................ -.+733
&et operating income...... 1 /+833
b
. Sales :-+.33 units;...........
187+03
3
*ariable expenses............ 01+)33
Contribution margin........ -2+.33
%ixed expenses................ -.+733
&et operating income...... 1 )+033
'O: 1 'e!el: ,asy
12-. Spencer CompanyLs most recent monthly contribution format income statement is
gi!en below:
Sales................................... 103+333
*ariable expenses.............. ./+333
Contribution margin.......... 1/+333
%ixed expenses................... 17+333
&et operating loss.............. :1-+333;
The company sells its only product for 113 per unit. There were no beginning or
ending in!entories.
e9uired:
a. Bhat are total sales in dollars at the brea"4e!en pointC
b. Bhat are total !ariable expenses at the brea"4e!en pointC
c. Bhat is the companyLs contribution margin ratioC
d. #f unit sales were increased by 13H and fixed expenses were reduced by 1)+333+
what would be the companyLs expected net operating incomeC :$repare a new
income statement.;
Ans:
a. The contribution margin ratio is 11/+333 ? 103+333 I )/H. Therefore+ the brea"4
e!en in sales dollars is 117+333 ? )/H I 12)+333.
b. The !ariable cost ratio is 1./+333 ? 103+333 I 2/H. Therefore+ the !ariable
expenses at the brea"4e!en point are 12)+333 K 2/H I 1/.+333.
c. )/H See part :a; abo!e.
d
. Sales :103+333 K 1.1;..............................
100+33
3
*ariable expenses :1./+333 K 1.1;......... .8+/33
Contribution margin................................ 10+/33
%ixed expenses :117+333 E 1)+333;........ 10+333
&et operating income.............................. 1/33
'O: -6 .6 / 'e!el: (edium
12.. Sarratt CorporationLs contribution margin ratio is 0)H and its fixed monthly expenses
are 181+333. Assume that the companyLs sales for (ay are expected to be 118-+333.
e9uired:
,stimate the companyLs net operating income for (ay. Assume that the fixed monthly
expenses do not change. Show your wor"U
Ans:
Sales....................................................................................
118-+33
3
Contribution margin ratio.................................................... 0)H
1118+00
Contribution margin :sales K contribution margin ratio;.... 3
%ixed expenses.................................................................... 81+333
1 )7+00
&et operating income.......................................................... 3
'O: - 'e!el: ,asy
12/. The management of (er"lin Corporation expects sales in (ay to be 113/+333. The
companyLs contribution margin ratio is 23H and its fixed monthly expenses are
1.7+333.
e9uired:
,stimate the companyLs net operating income for (ay. Assume that the fixed monthly
expenses do not change. Show your wor"U
Ans:
Sales......................................................................................
113/+33
3
Contribution margin ratio..................................................... 23H
Contribution margin :sales K contribution margin ratio;...... 12-+/33
%ixed expenses...................................................................... .7+333
&et operating income............................................................ 1)/+/33
'O: - 'e!el: ,asy
120. @uitron #nc. expects its sales in September to be 11.-+333. The companyLs
contribution margin ratio is 0/H and its fixed monthly expenses are 10)+333.
e9uired:
,stimate the companyLs net operating income for September. Assume that the fixed
monthly expenses do not change. Show your wor"U
Ans:
Sales.........................................................................................
11.-+33
3
Contribution margin ratio........................................................ 0/H
Contribution margin :sales K contribution margin ratio;......... 18)+8/3
%ixed expenses......................................................................... 0)+333
&et operating income............................................................... 1-3+8/3
'O: - 'e!el: ,asy
122. Belli4$itt+ #nc+ produces a single product. The results of the companyLs operations for a
typical month are summari5ed in contribution format as follows:
Sales...................................
1/.3+33
3
*ariable expenses.............. -03+333
Contribution margin........... 173+333
%ixed expenses................... 1)3+333
The company produced and sold 1)3+333 "ilograms of product during the month.
There were no beginning or ending in!entories.
e9uired:
a. Mi!en the present situation+ compute
1. The brea"4e!en sales in "ilograms.
). The brea"4e!en sales in dollars.
-. The sales in "ilograms that would be re9uired to produce net operating
income of 183+333.
.. The margin of safety in dollars.
b. An important part of processing is performed by a machine that is currently being
leased for 1)3+333 per month. Belli4$itt has been offered an arrangement whereby
it would pay 13.13 royalty per "ilogram processed by the machine rather than the
monthly lease.
1. Should the company choose the lease or the royalty planC
). Dnder the royalty plan compute brea"4e!en point in "ilograms.
-. Dnder the royalty plan compute brea"4e!en point in dollars.
.. Dnder the royalty plan determine the sales in "ilograms that would be
re9uired to produce net operating income of 183+333.
Ans:
a. $er
"g.
Sales................................ 1../3
133.3
H
*ariable expense............. -.33 00.2H
Contribution margin........ 11./3 --.-H
1. Sales I *ariable expenses G %ixed expenses G Target profit
1../3< I 1-.33< G 11)3+333 G 13
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-1"1
11./3< I 11)3+333
< I 11)3+333 ? 11./3 per unit I 73+333 units
). 73+333 units K 1../3 per unit I 1-03+333

-. Sales I *ariable expenses G %ixed expenses G Target profit
1../3< I 1-.33< G 11)3+333 G 183+333
11./3< I 1)13+333
< I 1)13+333 ? 11./3 per unit I 1.3+333 units
.. (argin of safety I Sales E Sales at brea"e!en I 1/.3+333 E 1-03+333
I 1173+333
b.
1
. A s #s $ rop o s e d
$er Dnit Amount $er Dnit Amount
Sales................................
1/.3+33
3 1../3
1/.3+33
3 1../3
*ariable expense............. -03+333 -.33 -2)+333 -.13
Contribution margin........ 173+333 1./3 107+333 1..3
%ixed expense.................. 1)3+333 1.33 133+333 3.7-
&et operating income...... 1 03+333 13./3 1 07+333 13./2
Since net operating income increases by 17+333 the royalty is a good plan+
pro!ided sales remains at the same le!el.
). Sales I *ariable expenses G %ixed expenses G Target profit
1../3< I 1-.13< G 1133+333 G 13
11..3< I 1133+333
< I 1133+333 ? 11..3 per unit I 21+.)8 units
-. 21+.)8 units K 1../3 unit I 1-)1+.)8
.. Sales I *ariable expenses G %ixed expenses G Target profit
1../3< I 1-.13< G 1133+333 G 183+333
11..3< I 1183+333
< I 1183+333 ? 11..3 per unit I 1-/+21. units
'O: .6 /6 0 'e!el: (edium
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-1"
127. Shelhorse Corporation produces and sells a single product. Aata concerning that
Selling price....................... 11.3 133H
*ariable expenses.............. /0 .3H
Contribution margin.......... 1 7. 03H
%ixed expenses are 1)2/+333 per month. The company is currently selling .+333 units
per month.
e9uired:
The mar"eting manager belie!es that a 11-+333 increase in the monthly ad!ertising
o!erall effect on the companyLs monthly net operating income of this changeC Show
your wor"U
Ans:
#ncrease in total contribution margin :17. per unit K 1/3 units;... 11)+033
'ess incremental fixed expenses................................................... 1-+333
Change in net operating income.................................................... :1 .33;
'O: . 'e!el: ,asy
128. Aata concerning Ca!alu55i CorporationLs single product appear below:
Selling price....................... 1113 133H
*ariable expenses.............. .. .3H
%ixed expenses are 1..3+333 per month. The company is currently selling 7+333 units
per month.
e9uired:
The mar"eting manager belie!es that a 17+333 increase in the monthly ad!ertising
o!erall effect on the companyLs monthly net operating income of this changeC Show
your wor"U
Ans:
#ncrease in total contribution margin :100 per unit K 1/3 units;.........
18+83
3
'ess incremental fixed expenses......................................................... 7+333
11+83
Change in net operating income.......................................................... 3
'O: . 'e!el: ,asy
173. &aumann Corporation produces and sells a single product. Aata concerning that
Selling price....................... 1133 133H
*ariable expenses.............. -3 -3H
%ixed expenses are 1)-.+333 per month. The company is currently selling .+333 units
per month.
e9uired:
!ariable cost by 12. Since the new component would impro!e the companyTs product+
the mar"eting manager predicts that monthly sales would increase by /33 units. Bhat
should be the o!erall effect on the companyTs monthly net operating income of this
change if fixed expenses are unaffectedC Show your wor"U
Ans:
&ew !ariable cost per unit :1-3 G 12;........................................... 1-2
&ew contribution margin per unit :1133 E 1-2;............................ 10-
&ew unit monthly sales :.+333 units G /33 units;......................... .+/33
1)7-+/3
&ew total contribution margin: .+/33 units K 10- per unit........... 0
Current total contribution margin: .+333 units K 123 per unit....... )73+333
Change in total contribution margin and in net operating income 1 -+/33
Since fixed expenses are not affected by this change, the change in net operating
income will be e9ual to the change in total contribution margin.
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-1"!
'O: . 'e!el: ,asy
171. Aata concerning (ilian CorporationLs single product appear below:

Selling price....................... 11-3 133H
*ariable expenses.............. -8 -3H
per month.
e9uired:
!ariable cost by 11/. Since the new component would impro!e the companyLs product+
the mar"eting manager predicts that monthly sales would increase by )33 units. Bhat
change if fixed expenses are unaffectedC Show your wor"U
Ans:
&ew !ariable cost per unit :1-8 G 11/;.............................................. 1/.
&ew contribution margin per unit :11-3 E 1/.;................................ 120
&ew unit monthly sales :1+333 units G )33 units;............................. 1+)33
181+)3
&ew total contribution margin: 1+)33 units K 120 per unit................ 0
Current total contribution margin: 1+333 units K 181 per unit........... 81+333
Change in total contribution margin and in net operating income..... 1 )33
Since fixed expenses are not affected by this change, the change in net operating
income will be e9ual to the change in total contribution margin.
'O: . 'e!el: ,asy
17). Bethard Corporation produces and sells a single product. Aata concerning that product
appear below:
Selling price....................... 11)3 133H
*ariable expenses.............. ). )3H
%ixed expenses are 1-/.+333 per month. The company is currently selling /+333 units
per month.
e9uired:
ad!ertising budget by 1)-+333 per month. The mar"eting manager predicts that these
two changes would increase monthly sales by 033 units. Bhat should be the o!erall
effect on the companyLs monthly net operating income of this changeC Show your
wor"U
Ans:
&ew selling price :11)3 E 17;................................................... 111)
&ew contribution margin :111) E 1).;.................................... 177
&ew unit monthly sales :/+333 units G 033 units;.................... /+033
&ew total contribution margin: /+033 units K 177 per unit....... 1.8)+733
$resent total contribution margin: /+333 units K 180 per unit. . .73+333
Change in total contribution margin......................................... 1)+733
'ess increase in ad!ertising budget........................................... )-+333
Change in net operating income................................................ :113+)33;
'O: . 'e!el: ,asy
17-. Aata concerning &euner CorporationLs single product appear below:

Selling price....................... 1))3 133H
*ariable expenses.............. 77 .3H
Contribution margin.......... 11-) 03H
%ixed expenses are 1.)/+333 per month. The company is currently selling .+333 units
per month.
e9uired:
ad!ertising budget by 1)-+233 per month. The mar"eting manager predicts that these
two changes would increase monthly sales by .33 units. Bhat should be the o!erall
effect on the companyLs monthly net operating income of this changeC Show your
wor"U
Ans:
&ew selling price :1))3 E 111;....................................................... 1)38
&ew contribution margin :1)38 E 177;.......................................... 11)1
&ew unit monthly sales :.+333 units G .33 units;.......................... .+.33
&ew total contribution margin: .+.33 units K 11)1 per unit........... 1/-)+.33
$resent total contribution margin: .+333 units K 11-) per unit...... /)7+333
Change in total contribution margin............................................... .+.33
'ess increase in ad!ertising budget................................................. )-+233
Change in net operating income......................................................
:118+-33;
'O: . 'e!el: ,asy
17.. @amiel Corporation produces and sells a single product. Aata concerning that product
appear below:
Selling price....................... 1).3 133H
*ariable expenses.............. 107 23H
Contribution margin.......... 12) -3H
%ixed expenses are 1-31+333 per month. The company is currently selling /+333 units
per month.
e9uired:
The mar"eting manager would li"e to introduce sales commissions as an incenti!e for the
sales staff. The mar"eting manager has proposed a commission of 110 per unit. #n
exchange, the sales staff would accept an o!erall decrease in their salaries of 107+333 per
month. The mar"eting manager predicts that introducing this sales incenti!e would
increase monthly sales by )33 units. Bhat should be the o!erall effect on the
companyLs monthly net operating income of this changeC Show your wor"U
Ans:
&ew contribution margin :12) E 110;......................................... 1/0
&ew unit monthly sales :/+333 units G )33 units;....................... /+)33
&ew total contribution margin: /+)33 units K 1/0 per unit.......... 1)81+)33
$resent total contribution margin: /+333 units K 12) per unit..... -03+333
Change in total contribution margin............................................ :07+733;
$lus sa!ings in salespersonsT salaries.......................................... 07+333
Change in net operating income................................................... :1 733;
'O: . 'e!el: ,asy
17/. Aata concerning Bisloc"i CorporationLs single product appear below:

Selling price....................... 11-3 133H
Contribution margin.......... 113. 73H
%ixed expenses are 1.00+333 per month. The company is currently selling 0+333 units
per month.
e9uired:
The mar"eting manager would li"e to introduce sales commissions as an incenti!e for the
sales staff. The mar"eting manager has proposed a commission of 111 per unit. #n
exchange, the sales staff would accept an o!erall decrease in their salaries of 1//+333 per
month. The mar"eting manager predicts that introducing this sales incenti!e would
increase monthly sales by 133 units. Bhat should be the o!erall effect on the
companyLs monthly net operating income of this changeC Show your wor"U
Ans:
&ew contribution margin :113. E 111;....................................... 18-
&ew unit monthly sales :0+333 units G 133 units;....................... 0+133
&ew total contribution margin: 0+133 units K 18- per unit.......... 1/02+-33
$resent total contribution margin: 0+333 units K 113. per unit. . . 0).+333
Change in total contribution margin............................................ :/0+233;
$lus sa!ings in salespersonsT salaries.......................................... //+333
Change in net operating income................................................... :1 1+233;
'O: . 'e!el: ,asy
170. (erlin ,nterprises manufactures a cellular telephone. The companyLs partial
contribution format income statement for the most recent year is below.
Sales................................
...
Total $er Dnit atio
1-33+33
0 103
*ariable expenses.............. //H
Contribution margin..........
%ixed expenses................... 137+333
e9uired:
a. Complete the contribution income statement abo!e.
b. Aetermine the brea"e!en sales and units using either the e9uation or the
contribution approach.
c. Aetermine the sales necessary to earn a profit of 1/.+333.
d. Aetermine the margin of safety percentage for the year abo!e.
Ans:
a. *ariable expenses I 3.// K 1-33+333 I 110/+333
*ariable expenses per unit I 3.// K 103 I 1--
Sales................................
...
Total $er Dnit atio
1-33+33
0 103 133H
*ariable expenses.............. 10/+333 -- //H
Contribution margin.......... 1-/+333 1)2 ./H
%ixed expenses................... 137+333
&et operating income......... 1 )2+333
b. Brea"-e!en in unit sales I 1137+333F1)2 per unit I .+333 units
Brea"-e!en in dollar sales I 1137+333F3../ I 1).3+333
c. Aollar sales to attain target profit I :1137+333 G 1/.+333;F3../ I 1-03+333
d. (argin of safety I 1-33+333 E 1).3+333 I 103+333
(argin of safety percentage I 103+333F1-33+333 I )3H
'O: /6 06 2 'e!el: ,asy
172. %risch Corporation produces and sells a single product. Aata concerning that product
appear below:
Selling price per unit.......... 1123.33
*ariable expense per unit. . 17-.-3
11-7+2)
%ixed expense per month... 3
e9uired:
Aetermine the monthly brea"4e!en in either unit or total dollar sales. Show your wor"U
Ans:
$er
Dnit
$ercent
of Sales
Selling price per unit............................................................... 1123.33 133H
*ariable expense per unit........................................................ 7-.-3 .8H
Contribution margin per unit and contribution margin ratio... 1 70.23 /1H
Brea"-e!en in unit sales I %ixed expensesFDnit contribution margin
I 11-7+2)3F170.23 I 1+033
I 11-7+2)3F3./1 I 1)2)+333
'O: / 'e!el: ,asy
177. @amerni"+ #nc., produces and sells a single product whose selling price is 1).3.33 per
unit and whose !ariable expense is 12).33 per unit. The companyLs fixed expense is
1-2)+803 per month.
e9uired:
Aetermine the monthly brea"-e!en in either unit or total dollar sales. Show your wor"U
Ans:
$er
Dnit
$ercent
of Sales
Selling price per unit............................................................... 1).3.33 133H
*ariable expense per unit........................................................ 2).33 -3H
Contribution margin per unit and contribution margin ratio... 1107.33 23H
Brea"-e!en in unit sales I %ixed expensesFDnit contribution margin
I 1-2)+803F1107 I )+))3
I 1-2)+803F3.23 I 1/-)+733
'O: / 'e!el: ,asy
178. Pama"awa Corporation produces and sells a single product. Aata concerning that
Selling price per unit...................... 1)33.33
*ariable expense per unit.............. 10..33
1023+.7
e9uired:
Aetermine the monthly brea"4e!en in unit sales. Show your wor"U
Ans:
Selling price per unit......................
1)33.3
3
11-0.3
Contribution margin per unit......... 3
Brea"4e!en in unit sales I %ixed expensesFDnit contribution margin
I 1023+.73F11-0 I .+8-3
'O: / 'e!el: ,asy
183. 'i5+ #nc.+ produces and sells a single product. The product sells for 11-3.33 per unit
and its !ariable expense is 1.7.13 per unit. The companyLs monthly fixed expense is
1))-+/72.
e9uired:
Aetermine the monthly brea"4e!en in unit sales. Show your wor"U
Ans:
11-3.3
3
*ariable expense per unit.............. .7.13
Contribution margin per unit......... 1 71.83
Brea"4e!en in unit sales I %ixed expensesFDnit contribution margin
I 1))-+/72F171.83 I )+2-3
'O: / 'e!el: ,asy
181. Cleghorn Corporation produces and sells a single product. Aata concerning that
11/-+)1
e9uired:
Aetermine the monthly brea"4e!en in total dollar sales. Show your wor"U
Ans:
$er
Dnit
$ercent of
Sales
Selling price per unit................................................................ 1103.33 133H
*ariable expense per unit........................................................ 23..3 ..H
Contribution margin per unit and contribution margin ratio. . . 1 78.03 /0H
I 11/-+)10F3./0 I 1)2-+033
'O: / 'e!el: ,asy
18). (alense" #nternational, #nc., produces and sells a single product. The product sells for
1).3.33 per unit and its !ariable expense is 1//.)3 per unit. The companyLs monthly
fixed expense is 1).8+.73.
e9uired:
Aetermine the monthly brea"-e!en in total dollar sales. Show your wor"U
Ans:
$er
Dnit
$ercent of
Sales
Selling price per unit................................................................ 1).3.33 133H
*ariable expense per unit........................................................ //.)3 )-H
Contribution margin per unit and contribution margin ratio. . . 117..73 22H
I 1).8+.73F3.22 I 1-).+333
'O: / 'e!el: ,asy
18-. Brihon Corporation produces and sells a single product. Aata concerning that product
appear below:
Selling price per unit...................... 1)-3.33
*ariable expense per unit.............. 113-./3
1/17+0/
e9uired:
a. Assume the companyLs monthly target profit is 11)+0/3. Aetermine the unit sales
to attain that target profit. Show your wor"U
b. Assume the companyLs monthly target profit is 10-+)/3. Aetermine the dollar sales
Ans:
Selling price per unit........................................... 1)-3.33 133H
*ariable expense per unit................................... 13-./3 ./H
Contribution margin per unit and C( ratio........ 11)0./3 //H
a. Dnit sales to attain target profit
I :%ixed expenses G Target profit;FDnit contribution margin
I :1/17+0/3 G 11)+0/3;F11)0./3 I .+)33
b. Total sales dollars to attain target profit
I :1/17+0/3 G 10-+)/3;F3.// I 11+3/7+333
'O: 0 'e!el: ,asy
18.. achal Corporation produces and sells a single product whose selling price is 11/3.33
per unit and whose !ariable expense is 1/2.33 per unit. The companyLs monthly fixed
expense is 1-71+-33.
e9uired:
a. Assume the companyLs monthly target profit is 18+-33. Aetermine the unit sales to
attain that target profit. Show your wor"U
b. Assume the companyLs monthly target profit is 117+033. Aetermine the dollar sales
Ans:
Selling price per unit........................................... 11/3.33 133H
*ariable expense per unit................................... /2.33 -7H
Contribution margin per unit and C( ratio........ 1 8-.33 0)H
a. Dnit sales to attain target profit
I :1-71+-33 G 18+-33;F18-.33 I .+)33
b. Total sales dollars to attain target profit
I :1-71+-33 G 117+033;F3.0) I 10./+333
'O: 0 'e!el: ,asy
18/. @aw!er Corporation produces and sells a single product. Aata concerning that product
appear below:
1/8.+33
e9uired:
Assume the companyLs monthly target profit is 118+733. Aetermine the unit sales to
Ans:
1173.3
3
Contribution margin per unit......... 1 88.33
Dnit sales to attain target profit
I :1/8.+333 G 118+733;F188.33 I 0+)33
'O: 0 'e!el: ,asy
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-1#1
180. The selling price of Old CorporationLs only product is 1173.33 per unit and its !ariable
expense is 1-2.73 per unit. The companyLs monthly fixed expense is 1.7-+.73.
e9uired:
Assume the companyLs monthly target profit is 1/0+773. Aetermine the unit sales to
Ans:
*ariable expense per unit..............
Contribution margin per unit.........
1173.3
3
-2.7
3
11.).)
3
Dnit sales to attain target profit
I :1.7-+.73 G 1/0+773;F11.).)3 I -+733
'O: 0 'e!el: ,asy
182. Bussy Corporation produces and sells a single product whose contribution margin
ratio is /.H. The companyLs monthly fixed expense is 1/01+033 and the companyLs
monthly target profit is 1-.+/03.
e9uired:
Aetermine the dollar sales to attain the companyLs target profit. Show your wor"U
Ans:
I :1/01+033 G 1-.+/03;F3./. I 11+13.+333
'O: 0 'e!el: ,asy
187. The contribution margin ratio of Ouc" CorporationLs only product is 2/H. The
companyLs monthly fixed expense is 1/7/+333 and the companyLs monthly target profit
is 111+)/3.
e9uired:
Aetermine the dollar sales to attain the companyLs target profit. Show your wor"U
Ans:
I :1/7/+333 G 111+)/3;F3.2/ I 128/+333
'O: 0 'e!el: ,asy
188. One5e!ich Corporation ma"es a product that sells for 1)-3 per unit. The productLs
current sales are -0+833 units and its brea"4e!en sales are -)+13- units.
e9uired:
Compute the margin of safety in both dollars and as a percentage of sales.
Ans:
Sales :at the current !olume of -0+833 units; :a;............
17+.72+33
3
Brea"4e!en sales :at -)+13- units;................................... 2+-7-+083
11+13-+-1
(argin of safety :in dollars; :b;...................................... 3
(argin of safety as a percentage of sales+ :b; ? :a;......... 1-H
'O: 2 'e!el: ,asy
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-1#
)33. Aic"us CorporationLs only product sells for 1133 per unit. #ts current sales are -/+033
units and its brea"4e!en sales are )8+18) units.
e9uired:
Ans:
Sales :at the current !olume of -/+033 units; :a;............
1-+/03+33
3
Brea"4e!en sales :at )8+18) units;................................... )+818+)33
(argin of safety :in dollars; :b;...................................... 1 0.3+733
(argin of safety as a percentage of sales, :b; ? :a;......... 17H
'O: 2 'e!el: ,asy
)31. @aslem #nc. has pro!ided the following data concerning its only product:
Selling price.......................1133 per unit
Current sales...................... -2+-33 units
Brea"4e!en sales................ )0+.7- units
e9uired:
Ans:
Sales :at the current !olume of -2+-33 units; :a;............
1-+2-3+33
0
Brea"4e!en sales :at )0+.7- units;...................................)+0.7+-33
11+371+23
(argin of safety :in dollars; :b;...................................... 0
(argin of safety as a percentage of sales, :b; ? :a;......... )8H
'O: 2 'e!el: ,asy
)3). (c9uage Corporation has pro!ided its contribution format income statement for July.
Sales...............................................
1//7+33
3
*ariable expenses.......................... -30+833
Contribution margin...................... )/1+133
%ixed expenses............................... )38+733
&et operating income..................... 1 .1+-33
e9uired:
a. Compute the degree of operating le!erage to two decimal places.
b. Dsing the degree of operating le!erage+ estimate the percentage change in net
operating income that should result from a 18H increase in sales.
Ans:
I 1)/1+133F1.1+-33 I 0.37
I 18H K 0.37 I 11/./)H
'O: 7 'e!el: ,asy
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-1#!
)3-. 'ub"e CorporationLs contribution format income statement for the most recent month
follows:
Sales...................................
1/30+33
3
*ariable expenses.............. )-0+/33
Contribution margin.......... )08+/33
%ixed expenses................... ).1+233
&et operating income......... 1 )2+733
e9uired:
operating income that should result from a -H increase in sales.
Ans:
I 1)08+/33F1)2+733 I 8.08
I -H K 8.08 I )8.32H
'O: 7 'e!el: ,asy
)3.. #n the most recent month+ Sardella CorporationLs total contribution margin was
1.0+)33 and its net operating income 11-+)33.
e9uired:
operating income that should result from a 13H increase in sales.
Ans:
I 1.0+)33F11-+)33 I -./3
I 13H K -./3 I -/.33H
'O: 7 'e!el: ,asy
)3/. Brancati #nc. produces and sells two products. Aata concerning those products for the
$roduct B32C $roduct B)8R
Sales................................... 1)/+333 1)2+333
*ariable expenses.............. 12+333 17+033
%ixed expenses for the entire company were 1-)+703.
e9uired:
a. Aetermine the o!erall brea"-e!en point for the company. Show your wor"U
b. #f the sales mix shifts toward $roduct B32C with no change in total sales, what
will happen to the brea"-e!en point for the companyC ,xplain.
Ans:
a. $roduct B32C $roduct B)8R Total
1/)+33
Sales................................ 1)/+333 1)2+333 0
*ariable expenses............ 2+333 7+033 1/+033
Contribution margin........ 117+333 117+.33 -0+.33
%ixed expenses................ -)+703
&et operating income...... 1 -+/.3
I 1-0+.33F1/)+333 I 3.23
I 1-)+703F3.23 I 1.0+8.-
b
. $roduct B32C $roduct B)8R
Sales
:a;...........................
1)/+333 1)2+333
Contribution margin :b;. . 117+333 117+.33
C( ratio :b;?:a;.............. 3.2)3 3.071
Since $roduct B32CTs C( ratio is greater than $roduct B)8RTs, a shift in the sales
mix toward $roduct B32C will result in a decrease in the companyTs o!erall brea"4
e!en point.
'O: 8 'e!el: ,asy
)30. *eren #nc. produces and sells two products. Auring the most recent month+ $roduct
%2-ALs sales were 1)2+333 and its !ariable expenses were 18+./3. $roduct '2/$Ls
sales were 11.+333 and its !ariable expenses were 1/+-13. The companyLs fixed
expenses were 1)1+303.
e9uired:
a. Aetermine the o!erall brea"4e!en point for the company. Show your wor"U
b. #f the sales mix shifts toward $roduct %2-A with no change in total sales+ what
will happen to the brea"4e!en point for the companyC ,xplain.
Ans:
a. $roduct %2-A $roduct '2/$ Total
1.1+33
Sales................................ 1)2+333 11.+333 3
*ariable expenses............ 8+./3 /+-13 1.+203
Contribution margin........ 112+//3 1 7+083 )0+).3
%ixed expenses................ )1+303
&et operating income...... 1 /+173
I 1)0+).3F1.1+333 I 3.0.
Brea"4e!en point in total sales dollars I %ixed expensesFO!erall C( ratio
I 1)1+303F3.0. I 1-)+830
b
. $roduct %2-A $roduct '2/$
Sales
:a;...........................
1)2+333 11.+333
Contribution margin :b;. . 112+//3 17+083
C( ratio :b;?:a;.............. 3.0/3 3.0)1
Since $roduct %2-ATs C( ratio is greater than $roduct '2/$Ts, a shift in the sales mix
toward $roduct %2-A will result in a decrease in the companyTs o!erall brea"4e!en
point.
'O: 8 'e!el: ,asy

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True/False Questions: Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 6-7

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True/False Questions

)). The brea"4e!en point would be increased by:

-/. The Bronco Birdfeed Company reported the following information:

./. Aata concerning Aora5io CorporationLs single product appear below:

.2. Aata concerning $ellegren CorporationLs single product appear below:

.8. Aata concerning Ba5in CorporationLs single product appear below:

/8. Aata concerning %ollic" CorporationLs single product appear below:

7.. Bhat is the companyLs unit contribution marginC

I 13.73 4 13..7 I 13.-)

Dse the following to answer 9uestions 8-48/:

Dse the following to answer 9uestions 80482:

Dse the following to answer 9uestions 13)413-:

137. The degree of operating le!erage for July is closest to:

111. The companyLs degree of operating le!erage is closest to:

Dse the following to answer 9uestions 11.411/:

1)8. This 9uestion is to be considered independently of all other 9uestions relating to

1.0. The brea"4e!en in monthly dollar sales is closest to:

). 73+333 units K 1../3 per unit I 1-03+333

171. Aata concerning (ilian CorporationLs single product appear below:

17-. Aata concerning &euner CorporationLs single product appear below:

17/. Aata concerning Bisloc"i CorporationLs single product appear below:

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