Management And Accounting Web

Techniques & Controversial Issues

Chapter 11 Extra MC Solution

James R. Martin, Ph.D., CMA

Professor Emeritus, University of South Florida

The Gulf Company produces two products, A and B. The following sales prices, costs and product mix ratios are budgeted for 2000. (Note: all answers are rounded to whole units.)

1. The Gulf Company's conventional linear break-even point in total mixed units is

e. 7,000

2. Using conventional linear cost volume profit analysis, the number of units of A and B that Gulf Company needs to produce and sell to generate net income of $156,000 before taxes, based on the budgeted data above is

b. 8,000 A's and 2,000 B's

3. Using conventional linear cost volume profit analysis, the total number of mixed units that Gulf Company needs to produce and sell to generate a twenty percent return on sales dollars before taxes based on the budgeted data above is

d. 13,000

4. Now assume a tax rate of forty percent. Using conventional linear cost volume profit analysis, the total number of mixed units Gulf Company would need to produce and sell to generate a twenty-five percent return on sales dollars after taxes, based on the budgeted data given above is

a. 182,000

5. Assume the non-cash fixed cost (depreciation etc.) are $104,000. What is the before tax cash flow break-even point in total mixed dollars?

b. 600,000

6.What is the after tax cash flow break-even point in total mixed units?

c. 3,667

7. Which one of the following is not an assumption of conventional linear cost volume profit analysis?

d. Total costs per unit are constant.

8. In conventional linear cost volume profit analysis, which of the following assumptions causes the total variable costs and total cost functions to be linear rather than nonlinear?

e. Productivity is constant.

9. A Company's cash flow break-even point would normally be

a. below the Company's conventional linear break-even point.

10. Assuming sales are above the break-even level, the margin of safety multiplied by the contribution margin ratio is equal to

e. b and c.

11. Assuming sales are above the break-even level, the margin of safety multiplied by the contribution margin ratio multiplied by 1-tax rate is equal to

d. the net income after taxes.

The following is a continuation of the
Brace Company problems in the Chapter 9 and Chapter 10 Extra MC questions.

Brace Company produces and sells a single product with budgeted or standard
costs as follows:

12. How many units would Brace Company need to produce and sell to break even?

d. 652

13. How many units would Brace Company need to produce and sell to generate a before tax profit of $126,000?

a. 1,200

14. How many units would Brace Company need to produce and sell to generate a after tax profit of $126,000?

c. 1,565

15. How many units would Brace Company need to produce and sell to generate an after tax profit equal to 12 percent of sales?

b. 1,000

16. Assume the JR Company has sales that generate a margin of safety of $200,000. If the contribution margin ratio is 30 percent and the tax rate is 40 percent, what would be JR's before tax net income?

b. 60,000

17. What would be JR's after tax net income based on the situation in the question above?

c. 36,000

18. Which of the following represents a criticism of the linear cost volume profit approach from the activity based cost perspective?

b. It assumes that production volume is the only cost driver.

19. Which of the following represents a criticism of the linear cost volume profit approach from the lean enterprise perspective?

d. It ignores quality.

20. The non-linear theoretical cost volume profit model assumes that

a. total revenue increases at a decreasing rate.

The JIB Corporation produces and sells two products A and B.

21. What is JIB’s breakeven point in mixed units?

d. 19,200

22. How many mixed units would JIB need to produce and sell to generate net income before taxes of $50,000?

c. 27,200

23. How many units of B would be in the mixed units needed to generate net income after taxes of $24,000?

b. 19,200

24. N Company produces and sells a single product N with a contribution margin ratio of .24. Total fixed costs are $60,000 and the tax rate is 40%. N Company’s break even point in sales dollars is

c. $250,000

25. N Company’s sales needed to generate after tax income equal to a 12% of sales dollars is

b. $1,500,000

Now assume that N Company Developed a new product M and changed its name to M&N Company. Their two products have the following contribution margin and mix ratios.

26. M&N Company’s break even point in mixed sales dollars is

a. $400,000

27. If M&N Company’s margin of safety is $100,000, net income after taxes would be

b. $13,560

28. Which one of the following is an assumption used in conventional linear cost volume profit analysis, but not an assumption used when developing a master budget?

c. Units produced equal units sold.

29. In conventional linear cost volume profit analysis, which of the following assumptions causes the total variable costs and total cost functions to be linear rather than nonlinear?

e. Productivity is constant.

30. A Company's conventional linear break-even point would normally be

b. above the Company's cash flow break-even point.

The following problem appears in Chapter 11. Assume that a firm produces and sells a single product with a sales price of $10 and unit costs as follows: Direct material = $3.00, Direct labor = $ .25, Variable overhead = $2.00, and Variable selling and administrative cost = $ .75. Total fixed costs are $100,000 for manufacturing and $20,000 for the selling and administrative functions. The tax rate is 40%.

31. What is the slope of the before tax profit (NIBT) function?

a. 4

32. What is the slope of the after tax profit (NIAT) function?

d. 2.4

33. How many units would this company need to produce and sell to earn $30,000 in net income before taxes?

b. 37,500

The Keso Company sells dozens of products that are conveniently grouped into two product lines, Hardware and Software. Budgeted contribution margin ratios and sales mix ratios are provided below.

34. The conventional linear break-even point in Sales dollars for product lines H and S based on the budgeted data given above is

e. 180,000 H's and 120,000 S's

35. Using conventional linear cost volume profit analysis, the budgeted net income before taxes that Keso Company would generate based on total sales of $500,000 is

c. 132,000

The Gulf Company produces two products, A and B. Information concerning budgeted sales prices, costs and sale mix is provided in the table below. (Note: all answers are rounded.)

36. Assume the non-cash fixed costs (depreciation etc.) are $104,000. What is the before tax cash flow break-even point in total mixed sales dollars?

b. 600,000

37.What is the after tax cash flow break-even point in total mixed units?

c. 3,667