A

Your response
Correct response
Exercise 5-1 Fixed and Variable Cost Behavior [LO1]

Espresso Express operates a number of espresso coffee stands in busy suburban malls. The
fixed weekly expense of a coffee stand is $1,200 and the variable cost per cup of coffee
served is $0.22.
Requirement 1:
Fill in the following table with your estimates of total costs and cost per cup of coffee at
the indicated levels of activity for a coffee stand. (Round average cost per cup of coffee
to 3 decimal places. Omit the "$" sign in your response.)
Fixed cost
Variable cost
Total cost
Average cost per
cup of coffee served
$
$
$
Cups of Coffee Served in a Week

2,000
2,100
2,200
0.60
(0%)
$ 0.571 (0%)
$ 0.545 (0%)
0.22
(0%)
0.22
(0%)
0.22
(0%)
0.82
(0%)
$ 0.791 (0%)
$ 0.765 (0%)
0.792
(0%)
0.792
(0%)
0.792
(0%)
Exercise 5-1 Fixed and Variable Cost Behavior [LO1]

Espresso Express operates a number of espresso coffee stands
fixed weekly expense of a coffee stand is $1,200 and the va
served is $0.22.
Requirement 1:
Fill in the following table with your estimates of total costs
the indicated levels of activity for a coffee stand. (Round av
to 3 decimal places. Omit the "$" sign in your response.)
Fixed cost
Variable cost
Total cost
Average cost per cup of coffee served
Cups of C
2,000
$ 1,200
440
$ 1,640
$ 0.82
Total grade: 0.01/12 + 0.01/12 + 0.01/12 + 0.01/12 + 0.01/12 + 0.01/12 + 0.01/12 + 0.01/12 + 0.01/12 + 0.01/12 + 0.01/12 + 0.01/12 = 0% + 0
0%
Feedback:
Average cost per cup of coffee served = Total cost cups of coffee served in a week
Requirement 2:
Does the average cost per cup of coffee served increase, decrease, or remain the same as
the number of cups of coffee served in a week increases?
Your Answer:
Choice
Selected Correct
Increases
Decreases
Remains the
same
Feedback:
The average cost of a cup of coffee declines as the number of cups of

coffee served increases because the fixed cost is spread over more cups of
coffee.
units.
units.
Requirement 2:
Estimate the company's break-even point in unit sales using your cost-volume-profit graph
analysis.
Break-even point in
sales
16.67
(0%) units
Requirement 2:
Estimate the company's break-even point in unit sales using your
analysis.
Break-even point in sales
4,000
units
Total grade: 0.01/1 = 0%

Feedback:
The break-even point is the point where the total sales revenue and the total expense lines
intersect. This occurs at sales of 4,000 units. This can be verified as follows:
Question 3: Score 2.6/4
Your response
Exercise 5-3 High-Low Method [LO3]
The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total electrical
costs of the hotel and the number of occupancy-days over the last year. An occupancy-day
represents a room rented out for one day. The hotel's business is highly seasonal, with
peaks occurring during the ski season and in the summer.
Month
January
February
March
April
Occupancy- Electrical
Days
Costs
1,736
$ 4,127
1,904
$ 4,207
2,356
$ 5,083
960
$ 2,857
Correct response
Exercise 5-3 High-Low Method [LO3]

The Cheyenne Hotel in Big Sky, Montana, has accumulated
costs of the hotel and the number of occupancy-days over the
represents a room rented out for one day. The hotel's busin
peaks occurring during the ski season and in the summer.
Month
January
February
March
April
Days
Costs
1,736
$ 4,127
1,904
$ 4,207
2,356
$ 5,083
960
$ 2,857
Requirement 1:
Using the high-low method, estimate the variable cost of electricity per occupancy-day and
the fixed cost of electricity per month. (Round the fixed cost to the nearest whole dollar
and the variable cost to the nearest whole cent. Omit the "$" sign in your response.)
Variable cost
Fixed cost
1.56
1394
per occupancy
day
(0%) per month
Requirement 1:
Using the high-low method, estimate the variable cost of elect
the fixed cost of electricity per month. (Round the fixed cost
and the variable cost to the nearest whole cent. Omit the "
Variable cost
Fixed cost
(50%)
$ 1.56 per occupancy day

$ 1,395 per month
Total grade: 1.01/2 + 0.01/2 = 50% + 0%

Feedback:
Days
Costs
High activity level
2,406
$ 5,148
(August)
Low activity level
124
1,588
(October)
Change
2,282
$ 3,560
Variable
cost
= Change in cost Change in activity

= $3,560 2,282 occupancy-days
= $1.56 per occupancy-day
Total cost (August)

Variable cost element
($1.56 per occupancy-day 2,406 occupancydays)
Fixed cost element
$ 5,148
3,753
$ 1,395
Requirement 2:
Which of the following statement(s) is true? (Select all that apply.)
Choice
Selected
Points
Electrical cost may reflect seasonal factors other than just the variation in occupancy days
Yes
+1
Fixed cost will not be affected by the number of days in a month
No
Less systematic factors such as frugality of individual guests may also affect electrical costs
Yes
+1
number of days in the month, but are fixed with respect to how many rooms are occupied
during the month.
Other, less systematic, factors may also affect electrical costs such as the frugality of
individual guests. Some guests will turn off lights when they leave a room. Others will
not.
Your response
Correct response
Exercise 5-4 Contribution Format Income Statement [LO4]

The Alpine House, Inc., is a large retailer of winter sports equipment. An income statement
for the company's Ski Department for a recent quarter is presented below:
Exercise 5-4 Contribution Format Income Statement [LO4

The Alpine House, Inc., is a large retailer of winter sports equ
for the company's Ski Department for a recent quarter is prese
The Alpine House, Inc.

Income StatementSki Department
For the Quarter Ended March 31
Sales
Cost of goods sold
Gross margin
Selling and administrative expenses:
Selling expenses
Administrative expenses
Net operating income

$ 150,000
90,000
60,000
$ 30,000
10,000
Sales
Cost of goods sold
Gross margin
Selling and administrative expenses:
Selling expenses
Administrative expenses
40,000
$ 20,000
$ 150,0
90,0
60,0
$ 30,000
10,000
40,0
$ 20,0
Skis sell, on the average, for $750 per pair. Variable selling expenses are $50 per pair
of skis sold. The remaining selling expenses are fixed. The administrative expenses are
20% variable and 80% fixed. The company does not manufacture its own skis; it purchases
them from a supplier for $450 per pair.
Skis sell, on the average, for $750 per pair. Variable selli
of skis sold. The remaining selling expenses are fixed. The
20% variable and 80% fixed. The company does not manufac
them from a supplier for $450 per pair.
Requirement 1:
Prepare a contribution format income statement for the quarter. (Omit the "$" sign in
your response.)
Requirement 1:
Prepare a contribution format income statement for the qua
your response.)

Sales
(6%)
150000
(6%)

Sales
Total grade: 1.01/18 + 1.01/18 + 1.01/18 + 1.01/18 + 1.01/18 + 1.01/18 + 1.01/18 + 1.01/18 + 1.01/18 + 1.01/18 + 1.01/18 + 0.01/18 + 0.01/
6% + 6% + 6% + 6% + 6% + 6% + 6% + 0% + 0% + 6% + 6% + 0% + 6% + 0%
Feedback:
Cost of goods sold (200 pairs* $450 per pair)
Variable selling expenses (200 pairs $50 per pair)
Variable administrative expenses (20% $10,000)
Fixed selling expenses [$30,000 (200 pairs $50
per pair)]
Fixed administrative expenses (80% $10,000)
$ 90,000
10,000
2,000
20,000
8,000
*$150,000 $750 per pair = 200 pairs

Your response
Requirement 2:
For every pair of skis sold during the quarter, what was the contribution toward covering
fixed expenses and toward earning profits? (Omit the "$" sign in your response.)
Contribution margin per pair
50
(0%)
Correct response
Requirement 2:
For every pair of skis sold during the quarter, what was the
fixed expenses and toward earning profits? (Omit the "$" sig
Contribution margin per pair
E5_4_id4
E5_4_id4
E5_4_id6
E5_4_id6
E5_4_id8
E5_4_id8
E5_4_id13
E5_4_id13
E5_4_id15
E5_4_id15

Feedback:
Since 200 pairs of skis were sold and the contribution margin totaled $48,000 for the
quarter, the contribution of each pair of skis toward covering fixed costs and toward
earning of profits was $240 ($48,000 200 pairs = $240 per pair). Another way to
compute the $240 is:
$ 240
Your response
Correct response
Exercise 5-5 Cost Behavior; Contribution Format Income Statement [LO1, LO4]
Harris Company manufactures and sells a single product.
Requirement 1:
A partially completed schedule of the company's total and per unit costs over the relevant
range of 30,000 to 50,000 units produced and sold annually is given. Complete the
schedule of the company's total and unit costs below (Round the "total costs" to the
nearest dollar amount and the "cost per unit" to 2 decimal places. Omit the "$" sign
in your response) :
30,000
Total
costs:
Variable
costs
Fixed
costs
Total
costs
Cost per
unit:
Variable
cost
Fixed
cost
Total cost
per unit
3.6
6
9.6
Units Produced and Sold

40,000
180,000 $
190000
(0%)
300,000
310000
(0%)
480,000 $
500000
(0%)
(0%) $
3.8
(0%)
(0%)
6.2
(0%)
10.0
(0%)
(0%) $
50,000
200000
(0%)
320000
(0%)
520000
(0%)
(0%)
6.4
(0%)
6.8
(0%)
Exercise 5-5 Cost Behavior; Contribution Format Income

Harris Company manufactures and sells a single product.
Requirement 1:
A partially completed schedule of the company's total and pe
range of 30,000 to 50,000 units produced and sold annu
schedule of the company's total and unit costs below (Rou
nearest dollar amount and the "cost per unit" to 2 decima
in your response) :
Units Produced and Sol

30,000
40,000
Total costs:
Variable costs
Fixed costs
Total costs
Cost per unit:
Variable cost
Fixed cost
Total cost per unit
$ 180,000
300,000
$ 480,000
$ 240,000
$ 30
300,000
30
$ 540,000
$ 60
6
10
16
6
7.5
13.5
Total grade: 0.01/15 + 0.01/15 + 0.01/15 + 0.01/15 + 0.01/15 + 0.01/15 + 0.01/15 + 0.01/15 + 0.01/15 + 0.01/15 + 0.01/15 + 0.01/15 + 0.01/
+ 0% + 0% + 0% + 0% + 0%
Feedback:
The company's variable cost per unit is:
amounts as positive values. Omit the "$" sign in your response.)

Income Statement
For the Year Ended
Sales (10%)
720000 (10%)
$
Variable
expenses (10%)
Contribution
margin (10%)
Fixed expense (10%)
Net operating
income (10%)
513000
(0%)
207000
(0%)
279000
(0%)
-70000
(0%)
of $16 per unit. Prepare a contribution format income statem

amounts as positive values. Omit the "$" sign in your resp
Income Statement
For the Year Ended
Sales
Variable expenses
Contribution margin
Fixed expense
$ 720000
270,000
450,000
300,000
$ 150,000
Total grade: 1.01/10 + 1.01/10 + 1.01/10 + 0.01/10 + 1.01/10 + 0.01/10 + 1.01/10 + 0.01/10 + 1.01/10 + 0.01/10 = 10% + 10% + 10% + 0% + 10
Feedback:
Sales (45,000 units $16 per unit) = $720,000
Variable expenses (45,000 units $6 per unit) = $270,000
Your response
Exercise 5-6 High-Low Method [LO2, LO3]
The following data relating to units shipped and total shipping expense have been
assembled by Archer Company, a wholesaler of large, custom-built air-conditioning units
for commercial buildings:
Month
January
February
March
April
May
June
July
Units
Shipped
3
6
4
5
7
8
2
Total
Shipping
Expense
$ 1,800
$ 2,300
$ 1,700
$ 2,000
$ 2,300
$ 2,700
$ 1,200
Correct response
Exercise 5-6 High-Low Method [LO2, LO3]

The following data relating to units shipped and total s
assembled by Archer Company, a wholesaler of large, custom
for commercial buildings:
Month
January
February
March
April
May
June
July
Units
Shipped
3
6
4
5
7
8
2
Total
Shipping
Expense
$ 1,800
$ 2,300
$ 1,700
$ 2,000
$ 2,300
$ 2,700
$ 1,200
High activity level

(June)
Low activity level
(July)
Change
$ 2,700
1,200
$ 1,500
Variable cost element:
Fixed cost element:

Shipping expense at the high activity level
Less variable cost element ($250 per unit 8
units)
Total fixed cost
$ 2,700
2,000
$ 700
The cost formula is $700 per month plus $250 per unit shipped or
Y = $700 + $250X,
where X is the number of units shipped.
Requirement 2:
What factors, other than the number of units shipped, are likely to affect the company's
total shipping expense? (Select all that apply.)
Choice
Selected
Points
Weight of the units shipped
No
Distance travelled
Yes
+1
Size of the units shipped
Yes
+1
Fixed cost
Yes
-1
Variable cost
No
Total correct answers: 3

Partial Grading Explained
Feedback:
The cost of shipping units is likely to depend on the weight and volume of the units and the
distance traveled, as well as on the number of units shipped. In addition, higher cost
shipping might be necessary to meet a deadline.
operating cost is 11.4 cents per kilometer. If a truck is driven only 70,000 kilometers
during a year, the average operating cost increases to 13.4 cents per kilometer.(The
Singapore dollar is the currency used in Singapore.)
Requirement 1:
Using the high-low method, estimate the variable and fixed cost elements of the annual
cost of the truck operation. (Round the variable cost per kilometer to 3 decimal places.
Omit the "$" sign in your response.)
Variable cost per
kilometer
Fixed cost per year
(0%)
(0%)
Variable cost per kilometer

Fixed cost per year
Total grade: 0.01/2 + 0.01/2 = 0% + 0%

Feedback:
Total
Kilometers
Annual
Driven
Cost*
High level of
105,000 $ 11,970
activity
Low level of activity
70,000
9,380
Change
35,000 $ 2,590
* 105,000 kilometers $0.114 per kilometer =
$11,970
70,000 kilometers $0.134 per kilometer =
$9,380
Variable cost per kilometer:
Fixed cost per year:

Total cost at 105,000 kilometers
Less variable portion:
105,000 kilometers $0.074 per
kilometer
Fixed cost per year
operating cost is 11.4 cents per kilometer. If a truck is dr

during a year, the average operating cost increases to 13
Singapore dollar is the currency used in Singapore.)
Requirement 1:
Using the high-low method, estimate the variable and fixed
cost of the truck operation. (Round the variable cost per kil
Omit the "$" sign in your response.)
$ 11,970
7,770
$ 4,200
$ 0.074
$ 4,200
Total grade: 0.01/2 + 0.01/2 = 0% + 0%

Your response
Requirement 3:
If a truck were driven 80,000 kilometers during a year, what total cost would you expect to
be incurred? (Omit the "$" sign in your response.)
Total annual cost
400000
(0%)
Correct response
Requirement 3:
If a truck were driven 80,000 kilometers during a year, what t
be incurred? (Omit the "$" sign in your response.)
Total annual cost
$ 10,120

Feedback:
Fixed cost
Variable cost:
$ 4,200
80,000 kilometers $0.074 per

kilometer
Total annual cost
5,920
$ 10,120
Question 8: Score 0/4
Your response
Exercise 5-8 High-Low Method; Predicting Cost [LO1, LO3]
The Lakeshore Hotel's guest-days of occupancy and custodial supplies expense over the
last seven months were:
Month
March
April
May
June
July
August
September
GuestDays of
Occupancy
4,000
6,500
8,000
10,500
12,000
9,000
7,500
Custodial
Supplies
Expense
$ 7,500
$ 8,250
$ 10,500
$ 12,000
$ 13,500
$ 10,750
$ 9,750
Correct response
Exercise 5-8 High-Low Method; Predicting Cost [LO1, LO

The Lakeshore Hotel's guest-days of occupancy and custodi
last seven months were:
Month
March
April
May
June
July
August
September
GuestDays of
Occupancy
4,000
6,500
8,000
10,500
12,000
9,000
7,500
Custodial
Supplies
Expense
$ 7,500
$ 8,250
$ 10,500
$ 12,000
$ 13,500
$ 10,750
$ 9,750
Y = $
(0%) + $
(0%) X
= $ 4,500 + $ 0.75 X
Total grade: 0.01/2 + 0.01/2 = 0% + 0%

Feedback:
Custodial
Guest- Supplies
Days
Expense
High activity level (July)
12,000 $ 13,500
Low activity level
4,000
7,500
(March)
Change
8,000 $ 6,000
Variable cost element:
Fixed cost element:

Custodial supplies expense at high
activity level
Less variable cost element:
$ 13,500
12,000 guest-days $0.75 per guestday

Total fixed cost
9,000
$ 4,500
The cost formula is $4,500 per month plus $0.75 per guest-day or
Y = $4,500 + $0.75X
Your response
Requirement 2:
Using the cost formula you derived above, what amount of custodial supplies expense
would you expect to be incurred at an occupancy level of 11,000 guest-days? (Omit the
"$" sign in your response.)
Variable cost
Fixed cost
Total cost
$
$
50
100
150
(0%)
(0%)
(0%)
Correct response
Requirement 2:
Using the cost formula you derived above, what amount o
would you expect to be incurred at an occupancy level of 11
Variable cost
Fixed cost
Total cost
$ 8,250
4,500
$ 12,750
Your response
Correct response
Exercise 5-10 High-Low Method; Predicting Cost [LO1, LO3]

St. Mark's Hospital contains 450 beds. The average occupancy rate is 80% per month. In
other words, on average, 80% of the hospital's beds are occupied by patients. At this level
of occupancy, the hospital's operating costs are $32 per occupied bed per day, assuming a
30-day month. This $32 figure contains both variable and fixed cost elements.
During June, the hospital's occupancy rate was only 60%. A total of $326,700 in
operating cost was incurred during the month.
Requirement 1:
(a) Estimate the variable cost per occupied bed on a daily basis using the high-low method.
(Omit the "$" sign in your response.)
Variable cost per bedday
50
(0%)
Requirement 1:
(a) Estimate the variable cost per occupied bed on a daily basi
Variable cost per bed-day

Feedback:
Difference in cost:
Monthly operating costs at 80% occupancy:
450 beds 80% = 360 beds;
360 beds 30 days $32 per bed-day
Monthly operating costs at 60% occupancy
(given)
Difference in cost
Difference in activity:
80% occupancy (450 beds 80% 30
days)
60% occupancy (450 beds 60% 30
days)
Difference in activity
Exercise 5-10 High-Low Method; Predicting Cost [LO1, L

St. Mark's Hospital contains 450 beds. The average occupan
other words, on average, 80% of the hospital's beds are occup
of occupancy, the hospital's operating costs are $32 per occup
30-day month. This $32 figure contains both variable and fixe
During June, the hospital's occupancy rate was only 60
operating cost was incurred during the month.
$ 345,600
326,700
$ 18,900
10,800
8,100
2,700

Feedback:
Monthly operating costs at 80% occupancy (above)
Less variable costs:
$ 345,600
360 beds 30 days $7 per bed-day

Fixed operating costs per month
75,600
$ 270,000
Your response
Requirement 2:
Assume an occupancy rate of 70% per month. What amount of total operating cost would
you expect the hospital to incur? (Omit the "$" sign in your response.)
Fixed costs
Variable costs
Total expected costs
$
$
500
50
550
(0%)
(0%)
(0%)
Correct response
Requirement 2:
Assume an occupancy rate of 70% per month. What amount
you expect the hospital to incur? (Omit the "$" sign in your
Fixed costs
Variable costs
Total expected costs
$ 270,000
66,150
$ 336,150
Total grade: 0.01/3 + 0.01/3 + 0.01/3 = 0% + 0% + 0%

Feedback:
450 beds 70% = 315 beds occupied:
Variable costs: 315 beds 30 days $7 per bed-day = 66,150
Your response
Exercise 6-1 Preparing a Contribution Format Income Statement [LO1]
Whirly Corporation's most recent income statement is shown below:
Total
Sales (10,000
units)
$ 350,000
Correct response
Exercise 6-1 Preparing a Contribution Format Income Sta

Whirly Corporation's most recent income statement is shown b
Per Unit
$ 35.00
Total
Sales (10,000
units)
Per Unit
$ 350,000 $ 35.00
conditions (consider each case independently):

Requirement 1:
The sales volume increases by 100 units. (Omit the "$" sign in your response.)
conditions (consider each case independently):

Requirement 1:
The sales volume increases by 100 units. (Omit the "$" sign
Total
Sales
Variable
expenses
Contribution
margin
Fixed
expenses
Net operating
income
Total
350000
(0%)
200000
(0%)
150000
(0%)
135000
15000
Sales
Variable expenses
Contribution margin
Fixed expenses
$ 353,500
202,000
151,500
135000
$ 16,500
(20%)
(0%)
Total grade: 0.01/5 + 0.01/5 + 0.01/5 + 1.01/5 + 0.01/5 = 0% + 0% + 0% + 20% + 0%

Feedback:
Sales (10,100 $35.00) = $353,500
Variable expenses (10,100 $20.00) = $202,000
You can get the same net operating income using the following approach.
Original net operating
income
Change in contribution
margin
$ 15,000
(100 units $15.00 per

unit)
New net operating
income
1,500
$ 16,500
Your response
Requirement 2:
The sales volume decreases by 100 units. (Omit the "$" sign in your response.)
Correct response
Requirement 2:
The sales volume decreases by 100 units. (Omit the "$" sign
Total
Sales
Variable
350000
(0%)
200000
(0%)
Sales
Variable expenses
Total
$ 346,500
198,000
Total grade: 0.01/5 + 0.01/5 + 0.01/5 + 1.01/5 + 0.01/5 = 0% + 0% + 0% + 20% + 0%

Feedback:
Sales (9,900 $35.00) = $346,500
Sales (9,900 $20.00) = $198,000
You can get the same net operating income using the following approach.
Original net operating
income
Change in contribution
margin
(-100 units $15.00
per unit)
New net operating
income
$ 15,000
(1,500)
$ 13,500
Your response
Requirement 3:
The sales volume is 9,000 units. (Leave no cells blank - be certain to enter "0"
wherever required. Omit the "$" sign in your response.)
Total
Sales
Variable
expenses
Contribution
margin
Fixed
expenses
Net operating
income
350000
(0%)
200000
(0%)
150000
(0%)
135000
15000
(20%)
(0%)
Total grade: 0.01/5 + 0.01/5 + 0.01/5 + 1.01/5 + 0.01/5 = 0% + 0% + 0% + 20% + 0%

Feedback:
Sales (9,000 $35.00) = $315,000
Variable expenses (9,000 $20.00) = $180,000
Correct response
Requirement 3:
The sales volume is 9,000 units. (Leave no cells blank - be cer
wherever required. Omit the "$" sign in your response.)
Total
Sales
Variable expenses
Contribution margin
Fixed expenses
$ 315,000
180,000
135,000
135000
0
$
variable expenses were $120,000, and fixed expenses were $65,000.

Requirement 1:
What is the company's contribution margin (CM) ratio? (Omit the "%" sign in your
response.)
Contribution margin
ratio
(0%) %
Last month when Holiday Creations, Inc., sold 50,000 units, to

variable expenses were $120,000, and fixed expenses were $65
Requirement 1:
What is the company's contribution margin (CM) ratio? (O
response.)
Contribution margin ratio
40 %

Feedback:
The company's contribution margin (CM) ratio is:
Total sales
$ 200,000
Total variable expenses 120,000
= Total contribution
80,000
margin
Total sales
$ 200,000
= CM ratio
40%
Your response
Requirement 2:
Estimate the change in the company's net operating income if it were to increase its total
sales by $1,000.(Omit the "$" sign in your response.).
Estimated change in net operating
income
500
(0%)

Feedback:
The change in net operating income from an increase in total sales of $1,000 can be
estimated by using the CM ratio as follows:
Change in total sales
CM ratio
= Estimated change in net operating
income
$ 1,000
40 %
$ 400
Correct response
Requirement 2:
Estimate the change in the company's net operating income i
sales by $1,000.(Omit the "$" sign in your response.).
Estimated change in net operating income
400
Selling price
Variable expenses
Contribution
margin
Per unit
$ 90
63
Percent
of Sales
100%
70 %
$ 27
Selling price
Variable expenses
Contribution
margin
30%
Per unit
$ 90
63
Percent
of Sales
100%
70%
$ 27
30%
Fixed expenses are $30,000 per month and the company is selling 2,000 units per month.
Fixed expenses are $30,000 per month and the company is sel
Requirement 1:
(a) Calculate the change in net operating income if a $5,000 increase in the monthly
advertising budget would increase monthly sales by $9,000. (Negative amount should
be indicated by a minus sign. Omit the "$" sign in your response.)
Requirement 1:
(a) Calculate the change in net operating income if a $5,0
advertising budget would increase monthly sales by $9,00
be indicated by a minus sign. Omit the "$" sign in your
Change in net operating income
500
(0%)

Feedback:
The following table shows the effect of the proposed change in monthly advertising
budget:
Sales
Variable
expenses
Contribution
margin
Fixed
expenses
Net operating
income
Current
sales
$180,000
Sales with
Additional
Advertising
Budget
$189,000
126,000
132,300
6,300
54,000
56,700
2,700
30,000
35,000
5,000
$ 24,000
$ 21,700
Difference
$ 9,000
($ 2,300 )
(b) Should the advertising budget be increased as suggested in requirement 1(a) above?
Your Answer:
Choic
e
Selecte
d
Change in net operating income
$ -2,300
that would increase the variable cost by $2 per unit. The marketing manager believes the
higher-quality product would increase sales by 10% per month. Should the higher-quality
components be used?
Your Answer:
Choic
e
Selecte
d
Yes
No
Feedback:
The $2 increase in variable cost will cause the unit contribution margin to decrease from
$27 to $25 with the following impact on net operating income:
Expected total contribution margin
with the higher-quality components:
2,200 units $25 per unit
Present total contribution margin:
2,000 units $27 per unit
Change in total contribution margin
$ 55,000
54,000
$ 1,000
Assuming no change in fixed costs and all other factors remain the same, the higherquality components should be used.
Your response
Correct response
Exercise 6-6 Compute the Level of Sales Required to Attain a Target Profit [LO5]
Lin Corporation has a single product whose selling price is $120 and whose variable
expense is $80 per unit. The company's monthly fixed expense is $50,000.
Exercise 6-6 Compute the Level of Sales Required to Attai

Lin Corporation has a single product whose selling price
expense is $80 per unit. The company's monthly fixed expense
Requirement 1:
Using the equation method, solve for the unit sales that are required to earn a target profit
of $10,000.
Requirement 1:
Using the equation method, solve for the unit sales that are req
of $10,000.
Unit sales to earn target profit
(0%) units
Unit sales to earn target profit 1,500 units
Your response
Requirement 2:
Using the formula method, solve for the unit sales that are required to earn a target profit
of $15,000.
50
(0%) units
Correct response
Requirement 2:
Using the formula method, solve for the unit sales that are re
of $15,000.
1,625 units

Feedback:
The formula approach yields the required unit sales as follows:
Your response
Exercise 6-7 Compute the Break-Even Point [LO6]
Mauro Products distributes a single product, a woven basket whose selling price is $15 and
whose variable expense is $12 per unit. The company's monthly fixed expense is $4,200.
Requirement 1:
Solve for the company's break-even point in unit sales using the equation method.
Break-even point in unit
sales
500
(0%) baskets
Correct response
Exercise 6-7 Compute the Break-Even Point [LO6]

Mauro Products distributes a single product, a woven basket w
whose variable expense is $12 per unit. The company's month
Requirement 1:
Solve for the company's break-even point in unit sales using th
Break-even point in unit sales
1,400 baskets
even point in unit sales:

Fixed
Unit sales to break even = expenses
Unit CM
$4,200
=
$3
= 1,400 baskets
Your response
Requirement 2:
Solve for the company's break-even point in sales dollars using the equation method and
the CM ratio. (Omit the "$" sign in your response.)
Break-even point in
sales
500
(0%)
= 0.20
Profit = [CM ratio Sales] Fixed expenses

$0 = [0.20 Sales] $4,200
0.20 Sales = $4,200
Sales = $4,200 0.20
Sales = $21,000
The formula method also gives an answer that is identical to the equation method for the
break-even point in dollar sales:
Fixed
Dollar sales to break even = expenses
CM ratio
$4,200
=
0.20
Requirement 2:
Solve for the company's break-even point in sales dollars us
the CM ratio. (Omit the "$" sign in your response.)

Feedback:
The equation method can be used to compute the break-even point in sales dollars as
follows:
Unit contribution
CM ratio = margin
Unit selling price
$3
=
$15
Correct response
= $21,000
$ 21,000
Selling price
Variable expenses
Fixed expenses
Unit sales
$
30 per unit
$
20 per unit
$ 7,500 per month
units per
1,000
month
Selling price
Variable expenses
Fixed expenses
Unit sales
Requirement 1:
Compute the company's margin of safety. (Omit the "$" sign in your response.)
Margin of
safety
500
(0%)
$
30 per unit
$
20 per unit
$ 7,500 per month
units per
1,000
month
Requirement 1:
Compute the company's margin of safety. (Omit the "$" sign
Margin of safety
$ 7,500

Feedback:
To compute the margin of safety, we must first compute the break-even unit sales.
Profit = [Unit CM Q] Fixed expenses
$0 = [($30 $20) Q] $7,500
$0 = [($10) Q] $7,500
$10Q = $7,500
Q = $7,500 $10
Q = 750 units
Sales (at the budgeted volume of
1,000 units)
Less break-even sales (at 750 units)
Margin of safety (in dollars)
$ 30,000
22,500
$ 7,500
Your response
Requirement 2:
Compute the company's margin of safety as a percentage of its sales. (Omit the "%"
sign in your response.)
Margin of safety as a percentage of
sales
(0%) %

Feedback:
The margin of safety as a percentage of sales is as follows:
Correct response
Requirement 2:
Compute the company's margin of safety as a percentage o
Margin of safety as a percentage of sales
25 %
Your response
Correct response
Exercise 6-9 Compute and Use the Degree of Operating Leverage [LO8]
Engberg Company installs lawn sod in home yards. The company's most recent monthly
contribution format income statement follows:
Sales
Variable expenses
Contribution
margin
Fixed expenses
Net operating
income
Percent
Amount of Sales
$ 80,000
100 %
32,000
40 %
48,000
Sales
Variable expenses
Contribution
margin
Fixed expenses
Net operating
income
60 %
38,000
$ 10,000
Requirement 1:
Compute the company's degree of operating leverage. (Round your answer to 1 decimal
place.)
Degree of operating
leverage
1000
Exercise 6-9 Compute and Use the Degree of Operating Le

Engberg Company installs lawn sod in home yards. The com
contribution format income statement follows:
(0%)
Percent
Amount of Sales
$ 80,000
100 %
32,000
40 %
48,000
60 %
38,000
$ 10,000
Requirement 1:
Compute the company's degree of operating leverage. (Round
place.)
Degree of operating leverage
4.8

Feedback:
The company's degree of operating leverage would be computed as follows:
Contribution margin
Degree of operating
leverage
$ 48,000
$ 10,000
4.8
Your response
Correct response
Requirement 2:
Using the degree of operating leverage, estimate the impact on net operating income of a
5% increase in sales. (Omit the "%" sign in your response.)
Estimated percent change in net operating
income
(0%) %
Requirement 2:
Using the degree of operating leverage, estimate the impact
5% increase in sales. (Omit the "%" sign in your response.)
Estimated percent change in net operating
income
24 %
Your response
Correct response
Requirement 3:
Verify your estimate from requirement (2) above by constructing a new contribution
format income statement for the company assuming a 5% increase in sales. (Omit the "$"
and "%" sign in your response.)
Sales
Variable expenses
Contribution margin
Fixed expenses
Original net operating income
Percent change in net
operating income
$
$
Amount
80000
(0%)
32000
(0%)
48000
(0%)
38000 (14%)
10000
(0%)
5000
(0%)
100
Requirement 3:
Verify your estimate from requirement (2) above by cons
format income statement for the company assuming a 5% inc
and "%" sign in your response.)
Amount
Sales
Variable expenses
Contribution margin
Fixed expenses
Original net operating income
Percent change in net operating income
(0%) %
$ 84,000
33,600
50,400
38000
$ 12,400
$ 10,000
24 %
Total grade: 0.01/7 + 0.01/7 + 0.01/7 + 1.01/7 + 0.01/7 + 0.01/7 + 0.01/7 = 0% + 0% + 0% + 14% + 0% + 0% + 0%
Your response
Correct response
Exercise 6-10 Compute the Break-Even Point for a Multiproduct Company [LO9]
Lucido Products markets two computer games: Claimjumper and Makeover. A
contribution format income statement for a recent month for the two games appears on the
following page:
Sales
Variable expenses
Contribution
margin
Fixed expenses
Net operating
income
Claimjumper
$
30,000
20,000
$
10,000
Makeover
$ 70,000
50,000
Total
$ 100,000
70,000
$ 20,000
30,000
24,000
$
6,000
Exercise 6-10 Compute the Break-Even Point for a Multip

Lucido Products markets two computer games: Claim
contribution format income statement for a recent month for t
following page:
Sales
Variable expenses
Contribution
margin
Fixed expenses
Net operating
income
Claimjumper
$
30,000
20,000
$
10,000
Makeover
$ 70,000
50,000
To
$ 100
70
$ 20,000
30
24
$

Feedback:
The overall contribution margin ratio can be computed as follows:
Your response
Correct response
Requirement 2:
Compute the overall break-even point for the company in sales dollars. (Omit the "$"
Overall breakeven
500
(0%)
Requirement 2:
Compute the overall break-even point for the company in sale
Overall break-even
$ 80,000

Feedback:
The overall break-even point in sales dollars can be computed as follows:
Your response
Correct response
Requirement 3:
Verify the overall break-even point for the company by constructing a contribution format
income statement showing the appropriate levels of sales for the two products. (Round
your answers to the nearest dollar amount. Do not round your interim calculation.
Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" and
"%" sign in your response.)
Claimjumper
Original dollar
sales
50
(0%)
Makeover
$
500
(0%)
Total
$
5000
(0%)
Requirement 3:
Verify the overall break-even point for the company by const
income statement showing the appropriate levels of sales fo
your answers to the nearest dollar amount. Do not roun
Leave no cells blank - be certain to enter "0" wherever r
"%" sign in your response.)
Original dollar sales
Sales at break-even
Claimjumper
30,000
$
24,000
$
Makeover
$ 70,000
$ 56,000
Fixed
expenses
Net operating
income
500
(0%)
4100
(0%)
Total grade: 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/
+ 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%
Feedback:
Claimjumper variable expenses: ($24,000/$30,000) $20,000 = $16,000
Makeover variable expenses: ($56,000/$70,000) $50,000 = $40,000
Your response
Exercise 6-11 Using a Contribution Format Income Statement [LO1, LO4]
Miller Company's most recent contribution format income statement is shown below:
Sales (20,000 units)
Variable expenses
Contribution margin
Fixed expenses
Total
$ 300,000
180,000
120,000
70,000
$ 50,000
Per Unit
$ 15.00
9.00
$ 6.00
Correct response
Exercise 6-11 Using a Contribution Format Income Statem

Miller Company's most recent contribution format income stat
Sales (20,000 units)
Variable expenses
Contribution margin
Fixed expenses
Total
$ 300,000
180,000
120,000
70,000
$ 50,000
Per Unit
$ 15.00
9.00
$ 6.00
Required:
Prepare a new contribution format income statement under each of the following
conditions (consider each case independently): (Round your per unit values to 2 decimal
places. Omit the "$" sign in your response.)
Required:
Prepare a new contribution format income statement un
conditions (consider each case independently): (Round your
places. Omit the "$" sign in your response.)
(a) The number of units sold increases by 15%.
(a) The number of units sold increases by 15%.
Total
Sales
Variable expenses
Contribution margin
300000
180000
120000
(0%)
(0%)
(0%)
Per Unit
$ 15 (13%)
9 (13%)
$ 6 (13%)
Total
Sales
Variable expenses
Contribution margin
$ 345,000
207,000
138,000
Per Un
1
$
$
(b)
The selling price decreases by $1.50 per unit, and the number of units sold increases by
25%.
Total
Sales
Variable expenses
Contribution
margin
Fixed expenses
Net operating
income
300000
180000
(0%)
(0%)
120000
(0%)
70000
Per Unit
15
(0%)
9 (13%)
6
(0%)
(13%)
(0%)
50000
(b)
The selling price decreases by $1.50 per unit, and the num
25%.
Total
Sales
Variable expenses
Contribution margin
Fixed expenses
$ 337,500
225,000
112,500
Per Un
$ 13.
$
4.
70000
42,500
Total grade: 0.01/8 + 0.01/8 + 0.01/8 + 1.01/8 + 0.01/8 + 0.01/8 + 1.01/8 + 0.01/8 = 0% + 0% + 0% + 13% + 0% + 0% + 13% + 0%
Feedback:
Sales (20,000 units 1.25 = 25,000 units)
Your response
Correct response
(c) The selling price increases by $1.50 per unit, fixed expenses increase by $20,000, and
the number of units sold decreases by 5%.
Total
Sales
Variable expenses
Contribution
margin
Fixed expenses
Net operating
income
300000
180000
(0%)
(0%)
Per Unit
$ 15 (0%)
9 (13%)
120000
(0%)
70000
(0%)
50000
(0%)
(0%)
(c) The selling price increases by $1.50 per unit, fixed expense
the number of units sold decreases by 5%.
Total
Sales
Variable expenses
Contribution margin
Fixed expenses
$ 313,500
171,000
142,500
Per Un
$ 16.
$
7.
90,000
$ 52,500
Total grade: 0.01/8 + 0.01/8 + 0.01/8 + 1.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 = 0% + 0% + 0% + 13% + 0% + 0% + 0% + 0%
Feedback:
Your response
(d) The selling price increases by 12%, variable expenses increase by 60 cents per unit,
and the number of units sold decreases by 10%.
Correct response
(d) The selling price increases by 12%, variable expenses incr

and the number of units sold decreases by 10%.
Total grade: 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 1.01/8 + 0.01/8 = 0% + 0% + 0% + 0% + 0% + 0% + 13% + 0%
Feedback:
Your response
Exercise 6-12 Target Profit and Break-Even Analysis; Margin of Safety; CM Ratio
[LO1, LO3, LO5, LO6, LO7]
Menlo Company distributes a single product. The company's sales and expenses for last
month follow:
Sales
Variable expenses
Contribution margin
Fixed expenses
Total
$ 450,000
180,000
270,000
216,000
$ 54,000
Per
Unit
$ 30
12
$ 18
Requirement 1:
What is the monthly break-even point in units sold and in sales dollars? (Omit the "$"
Monthly breakeven point
Sales
50000
(0%) units
(0%)
Total grade: 0.01/2 + 0.01/2 = 0% + 0%

Feedback:
Profit = Unit CM Q Fixed expenses
$0Q = ($30 $12) Q $216,000
$0Q = ($18) Q $216,000
$18Q = $216,000
Correct response
Exercise 6-12 Target Profit and Break-Even Analysis; Ma

[LO1, LO3, LO5, LO6, LO7]
Menlo Company distributes a single product. The company's s
month follow:
Sales
Variable expenses
Contribution margin
Fixed expenses
Total
$ 450,000
180,000
270,000
216,000
$ 54,000
Per
Unit
$ 30
12
$ 18
Requirement 1:
What is the monthly break-even point in units sold and in s
12,000 units
Monthly break-even point
360,000
Sales
$
even point
point

Feedback:
The contribution margin is $216,000 because the contribution margin is equal to the fixed
expenses at the break-even point.
Your response
Requirement 3:
How many units would have to be sold each month to earn a target profit of $90,000? Use
the formula method.
Units
sold
(0%) units
500
Correct response
Requirement 3:
How many units would have to be sold each month to earn a
the formula method.
Units sold
17,000 units

Feedback:
Your response
Requirement 4:
Refer to the original data. Compute the company's margin of safety in both dollar and
percentage terms. (Omit the "$" and "%" signs in your response.)
Dollars
Margin of
safety
50
(0%)
Correct response
Requirement 4:
Refer to the original data. Compute the company's margin
percentage terms. (Omit the "$" and "%" signs in your res
Percentage
5
Total grade: 0.01/2 + 0.01/2 = 0% + 0%

Feedback:
Margin of safety in dollar terms:
(0%) %
Margin of safety
Dollars
$ 90,000
Percentage
20 %
Your response
Requirement 5:
What is the company's CM ratio? If sales increase by $50,000 per month and there is no
change in fixed expenses, by how much would you expect monthly net operating income
to increase? (Omit the "$" and "%" signs in your response.)
CM ratio
Increase in net operating income $
5
500
(0%) %
(0%)
Correct response
Requirement 5:
What is the company's CM ratio? If sales increase by $50,00
change in fixed expenses, by how much would you expect m
to increase? (Omit the "$" and "%" signs in your response
CM ratio
Increase in net operating income
60 %
30,000
$
Total grade: 0.01/2 + 0.01/2 = 0% + 0%

Feedback:
The CM ratio is 60%.
Expected total contribution margin:
($500,000 60%)
Present total contribution margin: ($450,000
60%)
Increase in contribution margin
$ 300,000
270,000
$ 30,000
Given that the company's fixed expenses will not change, monthly net operating income
will also increase by $30,000.
Alternative solution:
$50,000 incremental sales 60% CM ratio = $30,000
Your response
Exercise 6-13 Target Profit and Break-Even Analysis [LO3, LO4, LO5, LO6]
Lindon Company is the exclusive distributor for an automotive product that sells for $40
per unit and has a CM ratio of 30%. The company's fixed expenses are $180,000 per year.
Correct response
Exercise 6-13 Target Profit and Break-Even Analysis [LO

Lindon Company is the exclusive distributor for an automoti
per unit and has a CM ratio of 30%. The company's fixed exp
Variable expenses: $40 (100% 30%) = $28.

Your response
Requirement 2:
Use the equation method for the following:
Requirement 2:
Use the equation method for the following:
(a) What is the break-even point in units and sales dollars? (Omit the "$" sign in your
response.)
Break-even point in units
dollars
40
400
Correct response
(0%) units
(0%)
(a) What is the break-even point in units and sales dollars?

response.)
Break-even point in units
Break-even point in sales dollars
15,000
600,000
$
units
Total grade: 0.01/2 + 0.01/2 = 0% + 0%

Feedback:
Selling price
Variable expenses
Contribution margin
Profit
$0
$12Q
Q
Q
=
=
=
=
=
$ 40
28
$ 12
100 %
70 %
30 %
Unit CM Q Fixed expenses

$12 Q $180,000
$180,000
$180,000 $12
15,000 units
In sales dollars: 15,000 units $40 per unit = $600,000

Your response
(b) What sales level in units and in sales dollars is required to earn an annual profit of
$60,000? (Omit the "$" sign in your response.)
Sales level in units
Sales level in dollars
50
5000
(0%) units
(0%)
Total grade: 0.01/2 + 0.01/2 = 0% + 0%

Feedback:
$60,000 = [$12 Q] $180,000
$12Q = $60,000 + $180,000
$12Q = $240,000
Correct response
(b) What sales level in units and in sales dollars is required to
$60,000? (Omit the "$" sign in your response.)
Sales level in units
Sales level in dollars
20,000
$ 800,000
units
New break-even point in units

New break-even point in sales
dollars
(0%) units
50
New break-even point in units

New break-even point in sales dollars
(0%)
5000
11,250
450,000
$
units
Total grade: 0.01/2 + 0.01/2 = 0% + 0%

Feedback:
The company's new cost/revenue relation will be:
Selling price
Variable expenses ($28
$4)
Contribution margin
Profit
$0
$16Q
Q
Q
=
=
=
=
=
$ 40
100 %
24
60 %
$ 16
40 %
[Unit CM Q] Fixed expenses

[($40 $24) Q] $180,000
$180,000
$180,000 $16
11,250 units
In sales dollars: 11,250 units $40 per unit = $450,000
Your response
Correct response
Exercise 6-14 Missing Data; Basic CVP Concepts [LO1, LO9]

Fill in the missing amounts in each of the eight case situations below. Each case is
independent of the others. (Hint: One way to find the missing amounts would be to prepare
a contribution format income statement for each case, enter the known data, and then
compute the missing items.)
Exercise 6-14 Missing Data; Basic CVP Concepts [LO1, L

Fill in the missing amounts in each of the eight case situ
independent of the others. (Hint: One way to find the missing
a contribution format income statement for each case, ente
compute the missing items.)
Requirement 1:
Assume that only one product is being sold in each of the four following case situations:
Requirement 1:
Assume that only one product is being sold in each of the fo
Case #1
15,000
Units Sold
Sales
180,000 $
Case #2
12000
(0%)
100,000 $
Case #3
10,000
250000
(0%
$
)
Case #4
6,000
300,000
Units Sold
Sales
Variable Expenses
Case #1 Ca
15,000
$ 180,000 $ 10
120,000 6
Contributio
n Margin
per Unit
(0%) $
10 $
13 $
15
(13%)
Total grade: 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 1.01/8 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 13%
Feedback:
Case #1
Case #2
Number of units
15,000 *
4,000
sold
Sales
$ 180,000 * $ 12 $ 100,000 * $ 25
Variable Expenses
120,000 *
8
60,000
15
Contribution
60,000
$ 4
40,000
$ 10 *
margin
Fixed Expenses
50,000 *
32,000 *
Net operating
$ 10,000
$ 8,000 *
income
Case #3
Number of units sold
10,000 *
Sales
$ 200,000
$ 20
Variable Expenses
70,000 *
7
Contribution margin
130,000
$ 13 *
Fixed Expenses
118,000
Net operating
$ 12,000 *
income
Case #4
6,000*
$ 300,000* $ 50
210,000
35
90,000
$ 15
100,000*
$ (10,000)*
* Given
Your response
Corr
Requirement 2:
Assume that more than one product is being
situations: (Omit the "$" and "%" signs in you
Requirement 2:
Assume that more than one product is being sold in each of the four following case
situations: (Omit the "$" and "%" signs in your response.)
Sales
Variable
Expenses
Case #1
500,000
200000
(0%)
Case #2
400,000
260,000
Case #3
(0%)
Case #4
600,000
(0%)
420,000
300000
320000
Sales
Variable Expenses
Contribution Margin
Case
500,
400,
100,
Contribution
Margin
Ratio
20 %
40
(0%) %
60 %
80
(0%) %
Total grade: 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 + 0.01/8 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%
Feedback:
Case #1
Case #2
Sales
$ 500,000 * 100 %
$ 400,000 * 100%
Variable Expenses
400,000
80
260,000 *
65
Contribution
100,000
20 %*
140,000
35%
margin
Fixed Expenses
93,000
100,000 *
Net operating
$ 7,000 *
$ 40,000
income
Sales
Variable Expenses
Contribution
margin
Fixed Expenses
Net operating
income
Case #3
$ 250,000
100 %
100,000
40
150,000
130,000 *
$ 20,000 *
60 %*
Case #4
$ 600,000* 100 %
420,000*
70
180,000
30 %
185,000
$ (5,000)*
* Given
Your response
Exercise 6-15 Operating Leverage [LO4, LO8]
Magic Realm, Inc., has developed a new fantasy board game. The company sold 15,000
games last year at a selling price of $20 per game. Fixed costs associated with the game
total $182,000 per year, and variable costs are $6 per game. Production of the game is
entrusted to a printing contractor. Variable costs consist mostly of payments to this
Correct response
Exercise 6-15 Operating Leverage [LO4, LO8]

Magic Realm, Inc., has developed a new fantasy board gam
games last year at a selling price of $20 per game. Fixed co
total $182,000 per year, and variable costs are $6 per game
entrusted to a printing contractor. Variable costs consist
Net operating income(loss)
$ 28000 (20%)
Net operating income(loss)
Your response
Correct response
(b) Compute the degree of operating leverage. (Round your answer to 1 decimal place.)
Degree of operating
leverage
50
$ 28000
(0%)
(b) Compute the degree of operating leverage. (Round your a

7.5

Feedback:
The degree of operating leverage is:
Your response
Correct response
Requirement 2:
Management is confident that the company can sell 18,000 games next year (an increase of
3,000 games, or 20%, over last year).
Requirement 2:
Management is confident that the company can sell 18,000 ga
3,000 games, or 20%, over last year).
(a) Compute the expected percentage increase in net operating income for next year.
(Omit the "%" sign in your response.)
(a) Compute the expected percentage increase in net oper

(Omit the "%" sign in your response.)
Expected percentage increase in net operating

income
(0%) %
Expected percentage increase in net operating

income

Feedback:
Sales of 18,000 games represent a 20% increase over last year's sales. Because the degree
of operating leverage is 7.5, net operating income should increase by 7.5 times as much, or
by 150% (7.5 20%).
Your response
(b) Compute the expected total dollar net operating income(loss) for next year. (Do not
Correct response
(b) Compute the expected total dollar net operating income(
Last year's net operating income(loss)

Expected increase in net operating income next year (150%
$28,000)
Total expected net operating income(loss)
$ 28,000
42,000
$ 70,000
Your response
Exercise 6-16 Target Profit and Break-Even Analysis [LO4, LO5, LO6]
Outback Outfitters sells recreational equipment. One of the company's products, a small
camp stove, sells for $50 per unit. Variable expenses are $32 per stove, and fixed expenses
associated with the stove total $108,000 per month.
Requirement 1:
Compute the break-even point in number of stoves and in total sales dollars. (Omit the
Number of
stoves
Total sales
50
50000
(0%)
(0%)
Total grade: 0.01/2 + 0.01/2 = 0% + 0%

Feedback:
$0 = [($50 $32) Q] $108,000
$0 = [($18) Q] $108,000
$18Q = $180,000
Q = $180,000 $18
6,000 stoves, or at $50 per stove, $300,000 in
Q=
sales
Requirement 2:
If the variable expenses per stove increase as a percentage of the selling price, will it result
in a higher or a lower break-even point? (Assume that the fixed expenses remain
Correct response
Exercise 6-16 Target Profit and Break-Even Analysis [LO4

Outback Outfitters sells recreational equipment. One of the
camp stove, sells for $50 per unit. Variable expenses are $32
associated with the stove total $108,000 per month.
Requirement 1:
Compute the break-even point in number of stoves and in t
Number of stoves
Total sales
6,000
$ 300,000
Feedback:
An increase in variable expenses as a percentage of the selling price would result in a

higher break-even point. If variable expenses increase as a percentage of sales, then the
contribution margin will decrease as a percentage of sales. With a lower CM ratio, more
stoves would have to be sold to generate enough contribution margin to cover the fixed
costs.
Your response
Correct response
Requirement 3:
At present, the company is selling 8,000 stoves per month. The sales manager is convinced
that a 10% reduction in the selling price would result in a 25% increase in monthly sales of
stoves. Prepare two contribution format income statements, one under present operating
conditions, and one as operations would appear after the proposed changes. Show both
total and per unit data on your statements. (Omit the "$" sign in your response.)
Sales
$
Variable
expenses
Contribution
margin
Fixed
expenses
Net
operating
$
income
Present: 8,000 stoves

Total
Per Unit
500000
(0%) $ 500 (0%) $
30000
470000
5000
465000
(0%)
30
(0%) $
470
(0%)
Proposed:
Total
50000
3000
(0%)
470000
(0%)
5000
(0%)
465000
(0%) stoves
Per Unit
(0%) $
50
(0%)
50
(0%)
(0%) $
30
470
Requirement 3:
At present, the company is selling 8,000 stoves per month
that a 10% reduction in the selling price would result in a 2
stoves. Prepare two contribution format income statemen
conditions, and one as operations would appear after th
total and per unit data on your statements. (Omit the "$" s
(0%)
(0%)
(0%)
Sales
Variable expenses
Contribution margin
Fixed expenses
Present: 8,000 stoves

Total
Per Unit
400,000 $
50
256,000
144,000
32
18
108,000
36,000
(0%)
Total grade: 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/17 + 0.01/
+ 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%
Feedback:
Proposed: 8,000 stoves 1.25 = 10,000 stoves
Sales: $50 0.9 = $45
As shown above, a 25% increase in volume is not enough to offset a 10% reduction in the
selling price; thus, net operating income decreases.
Your response
Requirement 4:
At present, the company is selling 8,000 stoves per month. The sales manager is convinced
Correct response
Requirement 4:
At present, the company is selling 8,000 stoves per month. Th
Profit = Unit CM Q Fixed expenses

$35,000 = ($45 $32) Q $108,000
$35,000 = ($13) Q $108,000
$13
= $143,000
Q
Q = $143,000 $13
Q = $11,000 stoves
Your response
Exercise 6-18 Multiproduct Break-Even Analysis [LO9]
Olongapo Sports Corporation is the distributor in the Philippines of two premium golf
ballsthe Flight Dynamic and the Sure Shot. Monthly sales, expressed in pesos (P), and
the contribution margin ratios for the two products follow:
Exercise 6-18 Multiproduct Brea

Olongapo Sports Corporation is
ballsthe Flight Dynamic and th
the contribution margin ratios for t
Product
Flight
Dynamic
P 150,000
80%
Sales
CM ratio
Sure Shot
P 250,000
36%
Total
P 400,000
?
Fixed expenses total P183,750 per month.
Sales
CM ratio
Requirement 1:
Prepare a contribution format income statement for the company as a whole. (Round your
percentage values to one decimal place, e.g., .1234 as 12.3. Omit the "P" and "%"
signs in your response.)
Sales
Variable
expenses
Contributio
n margin
Fixed
expenses
Flight Dynamic
Amount
%
500000
(0
50
(0
P
%)
%)
250000
(0
50
(0
%)
%)
250000
(0
50
(0
P
%)
%)
Sure Shot
Amount
500000
(0
%)
250000
(0
%)
250000
(0
%)
%
(0
P
%)
50
(0
%)
50
(0
%)
50
Prod
Flight
Dynamic
P 150,000
80%
Fixed expenses total P183,750 per
Total Company
Amount
1000000
(0
%)
500000
(0%
)
500000
(0%
)
5000
(0%)
%
(0
%)
50
(0
%)
50
(0
%)
50
Requirement 1:
Prepare a contribution format inco
percentage values to one decim
signs in your response.)
Sales
Variable expenses
Contribution margin
Fixed expenses
Your response
Correct response
Requirement 2:
Compute the break-even point for the company based on the current sales mix. (Round
your answer to the nearest peso amount. Omit the "P" sign in your response.)
Break-even point
50
(0%)
Requirement 2:
Compute the break-even point for the company based on th
your answer to the nearest peso amount. Omit the "P" sign
Break-even point
P 350,000

Feedback:
The break-even point for the company as a whole be:
Your response
Correct response
Requirement 3:
If sales increase by P100,000 a month, by how much would you expect net operating
income to increase? (Round your answer to the nearest peso amount. Omit the "P"
Expected increase in net operating
income
500
(0%)

Feedback:
The additional contribution margin from the additional sales is computed as follows:
P100,000 52.5% CM ratio = P52,500
Assuming no change in fixed expenses, all of this additional contribution margin of
P52,500 should drop to the bottom line as increased net operating income.
This answer assumes no change in selling prices, variable costs per unit, fixed expense,
or sales mix.
Requirement 3:
If sales increase by P100,000 a month, by how much wou
income to increase? (Round your answer to the nearest p
Expected increase in net operating income
P 52,500
What is the product's CM ratio? (Omit the "%" sign in your response.)
CM ratio
(0%) %
What is the product's CM ratio? (Omit the "%" sign in your

CM ratio
60 %

Feedback:
Sales price
Variable expenses
Contribution margin
$ 20
8
$ 12
100 %
40 %
60 %
Your response
Requirement 2:
Use the CM ratio to determine the break-even point in sales dollars. (Omit the "$" sign in
your response.)
Break-even point in
sales
50
(0%)
Correct response
Requirement 2:
Use the CM ratio to determine the break-even point in sales d
your response.)
$ 300,000

Feedback:
Your response
Requirement 3:
Due to an increase in demand, the company estimates that sales will increase by $75,000
during the next year. By how much should net operating income increase (or net loss
decrease) assuming that fixed costs do not change? (Omit the "$" sign in your response.)
Increase in net operating income $
5000
(0%)

Feedback:
$75,000 increased sales 0.60 CM ratio = $45,000 increased contribution margin. Because
Correct response
Requirement 3:
Due to an increase in demand, the company estimates that sa
during the next year. By how much should net operating i
decrease) assuming that fixed costs do not change? (Omit the
$ 45,000
Variable expenses
Contribution margin
Fixed expenses
160,000
240,000
180,000
$ 60,000
Variable expenses
Contribution margin
Fixed expenses
(a) Compute the degree of operating leverage at the current level of sales.
Degree of operating
leverage
50
(0%)
160,000
240,000
180,000
$ 60,000
(a) Compute the degree of operating leverage at the current lev


Feedback:
Your response
(b) The president expects sales to increase by 20% next year. By what percentage should
net operating income increase? (Omit the "%" sign in your response.)
Increase in net operating
income
(0%) %
Correct response
(b) The president expects sales to increase by 20% next year. B

net operating income increase? (Omit the "%" sign in yo
80 %

Feedback:
4 20% = 80% increase in net operating income. In dollars, this increase would be 80%
$60,000 = $48,000.
Your response
Correct response
Requirement 5:
Refer to the original data. Assume that the company sold 18,000 units last year. The sales
manager is convinced that a 10% reduction in the selling price, combined with a $30,000
increase in advertising, would cause annual sales in units to increase by one-third.
Requirement 5:
Refer to the original data. Assume that the company sold
manager is convinced that a 10% reduction in the selling
increase in advertising, would cause annual sales in units
(a) Prepare two contribution format income statements, one showing the results of last
year's operations and one showing the results of operations if these changes are made.
(a) Prepare two contribution format income statements,

year's operations and one showing the results of oper
Fixed expenses
Net operating
income
50000
(0%)
295000
(0%)
5000
(0%)
25000
(0%)
Total grade: 0.01/16 + 0.01/16 + 0.01/16 + 0.01/16 + 0.01/16 + 0.01/16 + 0.01/16 + 0.01/16 + 0.01/16 + 0.01/16 + 0.01/16 + 0.01/16 + 0.01/
+ 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%
Feedback:
18,000 units + 6,000 units = 24,000
units
$20 0.9 = $18
(b) Would you recommend that the company do as the sales manager suggests?
Your Answer:
Choic
e
Selecte
d
Correc
t
Yes
No
Feedback:
No, the changes should not be made.

Your response
Correct response
Requirement 6:
Refer to the original data. Assume again that the company sold 18,000 units last year. The
president does not want to change the selling price. Instead, he wants to increase the sales
commission by $1 per unit. He thinks that this move, combined with some increase in
advertising, would increase annual sales by 25%. By how much could advertising be
increased with profits remaining unchanged? (Do not prepare an income statement; use
the incremental analysis approach. Omit the "$" sign in your response.)
The amount by which advertising can be
increased
Feedback:
Expected total contribution margin:
50000
(0%)
Requirement 6:
Refer to the original data. Assume again that the company so
president does not want to change the selling price. Instead, h
commission by $1 per unit. He thinks that this move, com
advertising, would increase annual sales by 25%. By how
increased with profits remaining unchanged? (Do not prepar
the incremental analysis approach. Omit the "$" sign in yo
The amount by which advertising can be increased
$ 31,5

A

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Exercise 5-1 Fixed and Variable Cost Behavior [LO1]

Cups of Coffee Served in a Week

Exercise 5-1 Fixed and Variable Cost Behavior [LO1]

The average cost of a cup of coffee declines as the number of cups of

Total grade: 0.01/1 = 0%

Question 3: Score 2.6/4

Exercise 5-3 High-Low Method [LO3]

$ 1.56 per occupancy day

Total grade: 1.01/2 + 0.01/2 = 50% + 0%

= Change in cost Change in activity

Total cost (August)

Fixed cost will not be affected by the number of days in a month

Question 4: Score 2.48/4

Exercise 5-4 Contribution Format Income Statement [LO4]

Exercise 5-4 Contribution Format Income Statement [LO4

The Alpine House, Inc.

The Alpine House, Inc.

The Alpine House, Inc.

The Alpine House, Inc.

*$150,000 $750 per pair = 200 pairs

Total grade: 0.01/1 = 0%

Question 5: Score 1.2/4

Units Produced and Sold

Exercise 5-5 Cost Behavior; Contribution Format Income

Units Produced and Sol

amounts as positive values. Omit the "$" sign in your response.)

of $16 per unit. Prepare a contribution format income statem

Question 6: Score 0.66/4

Exercise 5-6 High-Low Method [LO2, LO3]

High activity level

Variable cost element:

Fixed cost element:

Weight of the units shipped

Size of the units shipped

Total correct answers: 3

Variable cost per kilometer

Total grade: 0.01/2 + 0.01/2 = 0% + 0%

Fixed cost per year:

operating cost is 11.4 cents per kilometer. If a truck is dr

Total grade: 0.01/2 + 0.01/2 = 0% + 0%

Total grade: 0.01/1 = 0%

80,000 kilometers $0.074 per

Question 8: Score 0/4

Exercise 5-8 High-Low Method; Predicting Cost [LO1, LO

Total grade: 0.01/2 + 0.01/2 = 0% + 0%

Variable cost element:

Fixed cost element:

12,000 guest-days $0.75 per guestday

Exercise 5-10 High-Low Method; Predicting Cost [LO1, LO3]

Total grade: 0.01/1 = 0%

Exercise 5-10 High-Low Method; Predicting Cost [LO1, L

Total grade: 0.01/1 = 0%

360 beds 30 days $7 per bed-day

Total grade: 0.01/3 + 0.01/3 + 0.01/3 = 0% + 0% + 0%

Question 10: Score 0.8/4

Exercise 6-1 Preparing a Contribution Format Income Sta

conditions (consider each case independently):

conditions (consider each case independently):

Total grade: 0.01/5 + 0.01/5 + 0.01/5 + 1.01/5 + 0.01/5 = 0% + 0% + 0% + 20% + 0%

(100 units $15.00 per

Total grade: 0.01/5 + 0.01/5 + 0.01/5 + 1.01/5 + 0.01/5 = 0% + 0% + 0% + 20% + 0%