Last Year John Company Reported Sales Of $640 000

Question:

Answer: d) 22.00 per unit

Sales = (120,000 + 78,000)/(1 - .10) = $220,000.

Selling Price = 220,000/10,000 = $22 per unit.

Question: If company A has a higher degree of operating leverage than company B, then which of the following statements is true?

a) Company A has higher variable expenses.

b) Company A’s profits are more sensitive to percentage changes in sales.

c) Company A is more profitable.

d) Company A is less risky.

Answer: b) Company A’s profits are more sensitive to percentage changes in sales.

Question: Last year, Black Company reported sales of $640,000, a contribution margin of $160,000, and an operating loss of $40,000. Based on this information, what was the break-even point?

a) $640,000.

b) $480,000.

c) $800,000.

d) $960,000.

Answer: c) $800,000.

(160,000 + 40,000)/(160,000/640,000) = $800,000

Question: True or false:

The formula for the break-even point is the same as the formula to attain a given target operating profit for the special case where the target operating profit is zero

Answer: True

Question: True or false:

For a given level of sales, a low contribution margin ratio will produce less operating income than a high contribution margin ratio

Answer: True