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SCSU / Engineering / CJS 292 / variable cost ratio

variable cost ratio

variable cost ratio

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Exercise 14-1 Your answer is correct. Fashion Headwear, Ltd. operates a chain of exclusive ski hat boutiques in the western United States.  The stores purchase several hat styles from a single distributor at $18 each. All other costs incurred  by the company are fixed. Fashion Headwear, Ltd. sells the hats for $30 each. (a) If fixed costs total $150,000 per year, what is the breakeven point in units? In sales dollars? (Use  your answer of breakeven units to calculate the breakeven point in dollars.) The breakeven point12500hats The breakeven sales$ 375000 (b) What is Fashion Headwear’s contribution margin ratio? Its variable cost ratio? (Round ratios to 2  decimal places, e.g. 0.38.) Contribution margin ratio0.40:1 Variable cost ratio0.60:1 Exercise 14-4 Your answer is correct. Delectable Dish Printery publishes the best-selling Captain Cajun Cookbook that sells for $8. The  company incurs variable costs of $3 per cookbook and total fixed costs are $300,000. If the company’s tax rate is 25%, how many cookbooks must be sold to generate $180,000 in net  income? (Use contribution margin per unit to calculate the answer.) 108000 cookbooks Exercise  14-8 Reid  Recreation  Products  sells the  Amazing  Foam  Frisbee for  $12. The  variable  cost per  unit is $3;  fixed costs  are  $36,000 per  month.Your answer is correct. What is the annual breakeven point in units? In sales dollars? (Use your answer of  breakeven units to calculate the breakeven point in dollars.) The breakeven point48000frisbees The breakeven sales$ 576000 SHOW SOLUTION LINK TO TEXT LINK TO TEXT


(a) If fixed costs total $150,000 per year, what is the breakeven point in units?



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Your answer is correct. How many frisbees must Reid sell to earn $18,000 in operating income? 50000 frisbees  SHOW SOLUTION LINK TO TEXT LINK TO TEXT

Your answer is correct. What operating income must Reid earn to realize net income of $16,200, assuming that the  company is in the 40% tax bracket? Operating income$ 27000SHOW SOLUTION

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Your  answer is  correct. How many  frisbees  must Reid  sell to earn  $16,200 in  net income,  assuming  that the  company is  in the 40%  tax bracket? 51000 frisbees Exercise 14-10 MathTot sells a learning system that helps preschool and elementary students  learn basic math facts and concepts. The company’s income statement from last  month is as follows: Total Per Unit Sales revenue $600,000 $50.00 Variable expenses 210,000 17.50 Contribution margin 390,000 $32.50 Fixed expenses 292,500 Operating income $ 97,500 Your answer is correct. What is MathTot’s contribution margin ratio? Its variable cost ratio? (Round ratios to 2  decimal places, e.g. 0.38.) Contribution margin ratio.65:1 Variable cost ratio.35:1 SHOW SOLUTION LINK TO TEXT


(b) What is Fashion Headwear’s contribution margin ratio?



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Your answer is correct. Compute breakeven sales. (Use the rounded contribution margin ratio calcuated in the  previous part to compute Breakeven Sales.) Breakeven sales$ 450000 SHOW SOLUTION LINK TO TEXT

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Your answer is correct. What is MathTot’s margin of safety? Margin of safety$ 150000 SHOW SOLUTION LINK TO TEXT

Your answer is correct. If MathTot’s sales were to increase by $100,000 with no change in fixed expenses, by how much  would operating income increase? (Use the rounded contribution margin ratio calcuated  in the previous part to compute Breakeven Sales.) Net Operating income will increase by$ 65000 SHOW SOLUTION LINK TO TEXT


If the company’s tax rate is 25%, how many cookbooks must be sold to generate $180,000 in net income?



Your answer is  correct. MathTot’s managers  have determined that  variable costs per unit  will increase by 16%  beginning next month.  To offset this increase  in costs, they are  considering a 10%  increase in the sales  price. Market research  indicates that the price  increase will result in  a 2% decrease in the  number of learning  systems MathTot sells.  What will be MathTot’s  expected operating  income if the price  increase is  implemented? (Round  per unit calculations  to 2 decimal places  e.g. 0.38 and final  answer to 0 decimal  places, e.g. 3,800.) $ 115572 Exercise 14-15 Hogue Sports Hut provides individual instruction and coaching to  children participating in the city’s baseball, softball, basketball, and  soccer youth leagues. Last year’s results were as follows: Sales revenue $950,000 Variable expenses 646,000 Contribution margin 304,000 Fixed expenses 182,400Operating  income Operating income $121,600 Your answer is correct. What is Hogue Sports Hut’s degree of operating leverage? (Round answer to 2 decimal  place, e.g. 13.25.) Operating leverage2.5  SHOW SOLUTION LINK TO TEXT

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Your answer is correct. If Anna Hogue, the company’s president, is successful in increasing sales revenue by 5%, by  what percent will the company’s operating income increase? (Round answer to 2 decimal  place, e.g. 13.25%.) Increase in operating income12.5%  SHOW SOLUTION LINK TO TEXT

Your answer is correct. After achieving the sales increase in part (b), what will be the company’s new operating  income? (Round answer to 0 decimal places, e.g. 25,000.) New operating income$ 136800SHOW SOLUTION

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Your answer is correct. After achieving the sales increase in part (b), what will be the company’s new operating  leverage? (Round answer to 2 decimal places, e.g. 0.38.) New operating leverage2.33 Exercise 14-22 Your answer is correct. Janet Hardee runs a popcorn stand in the local amusement park. Her cost to produce a bag of popcorn  is $0.40, which she sells for $2.00. (a) What is Janet’s markup percentage on a bag of popcorn? (Round answer to 0 decimal places,  e.g. 25%.) Markup percentage400% (b) If Janet wants to earn a 500% markup on a bag of popcorn, what price must she charge? (Round  answer to 2 decimal places, e.g. 0.38.) Price$ 2.4 (c) If Janet lowers her price per bag to $1.50, what markup percentage will she earn on a bag of  popcorn? (Round answer to 0 decimal places, e.g. 25%.) Markup percentage275% Exercise 14-25 Your answer is correct. Justin Allen, a product engineer for L’Oso Gaming, is designing a new electronic game. Market  research indicates that gamers will pay $36 for the game. (a) If L’Oso desires a 60% markup on production costs, what is the target cost for the new  game? (Round answer to 2 decimal places, e.g. 0.38.)The  target  cost Problem 14-32 $ 22.5 Justin Lake operates a  kiosk in downtown  Chicago, at which he sells  one style of baseball hat.  He buys the hats from a  supplier for $13 and sells  them for $18. Justin’s  current breakeven point  is 15,000 hats per year. Your answer is correct. Calculate contribution margin per unit. Contribution margin per unit$ 5 SHOW SOLUTION LINK TO TEXT

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Your answer is correct. What is Justin’s current level of fixed costs? (Use the rounded contribution margin per unit  calcuated in the previous part.) Current level of fixed costs$ 75000 SHOW SOLUTION LINK TO TEXT

Your answer is correct.Assume that Justin’s fixed costs, variable costs, and sales price were the same last year, when  he made $14,000 in net income. How many hats did Justin sell last year, assuming a 30%  income tax rate? (Use the rounded contribution margin per unit calcuated in the  previous part.) 19000hats  SHOW SOLUTION LINK TO TEXT

Your answer is correct. What was Justin’s margin of safety last year? Margin of safety$ 72000 SHOW SOLUTION LINK TO TEXT

Your answer is correct. If Justin wants to earn $17,500 in net income, how many hats must he sell? (Use the rounded  contribution margin per unit calcuated in the previous part.) 20000hats  SHOW SOLUTION LINK TO TEXT

Your answer is correct.How many hats must Justin sell to break even if his supplier raises the price of the hats to  $14 per hat? (Use the rounded contribution margin per unit for computation.) 18750hats  SHOW SOLUTION LINK TO TEXT

Your answer is correct. Justin has decided to increase his sales price to $20 to offset the supplier’s price increase. He  believes that the increase will result in a 5% reduction from last year’s sales volume. What is  Justin’s expected net income? Net income$ 23310
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