ACCOUNTING 203 Chapter 6 Practice Test 1. The Menlove Co. had the following income statement for the most recent year: Sales (17,000 units)……………………………$357,000 Less: Variable expenses………………………. 225,000 Contribution margin …………………………. 102,000 Less: Fixed expenses………………………… 68,000 Net Income…………………………………… $34,000 Given this data, the unit contribution margin was: A) $2. B) $15. C) $6. D) $4. 2. The contribution margin ratio is 30% for the Honeyvine Company and the break-even point in sales is $150,000. If the company’s target net operating income is $60,000, sales would have to be: A) $200,000. B) $350,000. C) $250,000. D) $210,000. 3. Sweet Treat Company’s fixed expenses total $150,000, on its variable expense ratio is 60% and its variable expenses are $4.50 unit. Based on this information, the break-even point in units is: A) 50,000. B) 37,500. C) 33,333. D) 100,000. 4. The Cloverdale Company’s variable expenses are 35% of sales. Colverdale Company is contemplating and advertising campaign that will cost $25,000. If sales increase by $75,000, the company’s net operating income will increase by: A) $26,250. B) $23,750. C) $1,250. D) $65,000. 1 5. The following monthly data are available for the Kent Company: Product A Sales ………………………. $100,000 Variable expenses…………. 55,000 Contribution margin………. $45,000 Fixed expenses……………. Net operating income…….. Product B $80,000 64,000 $16,000 Product C $40,000 12,000 $28,000 Total $220,000 131,000 89,000 76,540 $12,460 The break-even sales for the month for the company are: A) B) C) D) $170,089. $189,200. $139,164. $127,567. 6. Peterson Company makes two types of backpacks. Data for the company’s activity during a typical month are presented below: School Model Sales Units………………… 40,000 Selling price per unit……… $6 Variable expense per unit…. $2 Hiker Model 40,000 $18 $10 The company’s total fixed expenses are $80,000. There are no beginning or ending inventories. Required: a. What is the per unit contribution margin for each of the two models? b. What is the break-even point in terms of sales dollars if the sales mix remains constant? c. If the sales mix is changed to 60,000 units of the school model and 20,000 units of the hiker model, what will be the break-even point in terms of sales dollars? 2 ANSWERS 1. C 6 a. b. 2. B 3. A 4. B 5. B School Model Selling price per unit ……………… $6 Variable cost per unit……………… 2 Contribution margin per unit……… $4 Hiker Model $18 10 $8 School Units………………………………. 40,000 Hiker 40,000 Sales………………………………. $240,000 Variable cost……………………… 80,000 Contribution margin……………… $160,000 Total 80,000 $720,000 400,000 $320,000 $960,000 480,000 $480,000 Contribution margin ratio = Total contribution margin / Total sales = $480,00/ $960,000 = 50% Break-even in dollars = Fixed expenses / Contribution margin ratio = $80,000 / 0.50 = $160,000 c. Units School 60,000 Hiker 20,000 Total 80,000 Sales…………………….. Variable cost…………… Contribution margin……. $360,000 120,000 $240,000 $360,000 200,000 $160,000 $720,000 320,000 $400,000 Contribution margin ratio = Total contribution margin / Total sales = $400,000 / $720,000 = 55.6% Break-even in dollars = Fixed expenses / Contribution margin ratio = $80,000 / 0.5556 = $144,000 3