EXERCISES FOR DISCUSSION
CVP ANALYSIS
1. Bank Inc., a company that produces and sells a single product, has provided its
contribution format income statement for January.
Sales (4,200 units) $ 155,400
Variable expenses 100,800
Contribution margin 54,600
Fixed expenses 42,400
Net operating income $ 12,200
If the company sells 4,600 units, its total contribution margin should be closest to:
A) $54,600
B) $59,800
C) $69,400
D) $13,362
2. Aero Systems uses the following data in its Cost-Volume-Profit analyses:
Sales $ 400,000
Variable expenses 280,000
Contribution margin 120,000
Fixed expenses 100,000
Net operating income $ 20,000
What is total contribution margin if sales volume increases by 20%?
A) $80,000
B) $158,400
C) $200,000
D) $144,000
3. Navin Corporation has provided the following contribution format income
statement. Assume that the following information is within the relevant range.
Sales (3,000 units) $ 120,000
Variable expenses 90,000
Contribution margin 30,000
Fixed expenses 21,000
Net operating income $ 9,000
If sales decline to 2,900 units, the net operating income would be closest to:
A) $29,000
B) $1,000
C) $8,700
D) $8,000
4. Duve Corporation has provided the following contribution format income
statement. Assume that the following information is within the relevant rang
Sales (2,000 units) $ 40,000
Variable expenses 24,000
Contribution margin 16,000
Fixed expenses 11,200
Net operating income $ 4,800
If the selling price increases by $4 per unit and the sales volume decreases by
200 units, the net operating income would be closest to:
A) $7,200
B) $12,800
C) $10,400
D) $11,520
5.Stockmaster Corporation has provided the following contribution format
income statement. Assume that the following information is within the
relevant range.
Sales (8,000 units) $ 320,000
Variable expenses 192,000
Contribution margin 128,000
Fixed expenses 121,600
Net operating income $ 6,400
The margin of safety in dollars is closest to:
A) $6,400
B) $16,000
C) $121,600
D) $128,000
6. Hedman Corporation has provided the following contribution format income
statement. Assume that the following information is within the relevant range.
Sales (9,000 units) $ 270,000
Variable expenses 202,500
Contribution margin 67,500
Fixed expenses 63,750
Net operating income $ 3,750
The margin of safety percentage is closest to:
A) 75%
B) 1%
C) 6%
D) 24%
7. Black Corporation's sales are $600,000, its fixed expenses are $150,000, and its variable expenses are 60% of
sales. The margin of safety is:
A) $90,000
B) $190,000
C) $225,000
D) $240,000
8. Data concerning Pellegren Corporation's single product appear below:
Per Unit $ Percent of Sales
Selling price 200 100%
Variable expenses 40 20%
Contribution margin 160 80%
Fixed expenses are $531,000 per month. The company is currently selling 4,000 units per month. The
marketing manager would like to cut the selling price by $14 and increase the advertising budget by $35,000
per month. The marketing manager predicts that these two changes would increase monthly sales by 500
units. What should be the overall effect on the company's monthly net operating income of this change?
A) decrease of $18,000
B) increase of $38,000
C) decrease of $38,000
D) increase of $58,000
