The following Contribution Format Income Statement for Jones Co. pertains to questions 6 and 7:

Sales $260,000

Variable Costs 156,000

Contribution Margin 104,000

Fixed Costs 74,000

Net Income $ 30,000

6. The president of Jones Co. believes that a 15% reduction in the selling price would increase sales volume by 70%. If both of these changes occur, what would be the effect on Jones net income?

a. net income would increase by $115,700.

b. net income would increase by $6,500.

c. net income would decrease by $6,500.

d. net income would decrease by $115,700.

7. What must Jones sales be to break even (in dollars)?

a. $135,000

b. $185,000

c. $230,000

d. $123,300

The following information for Boston Co. applies to questions 8 and 9:

Sales $1,500,000

Contribution Margin Ratio 30%

Degree of Operating Leverage 9

8. Use the three figures given above for Boston Co. and the formulas for Contribution Margin Ratio and Degree of Operating Leverage to determine their current net income.

a. $60,000 c. $400,000

b. $50,000 d. $450,000

9. If Bostons sales increase by $75,000, net income for the company will increase by:

a. 4.5% c. 45%

b. 10% d. 5%

Question 10 refers to the following:

Henning Corporation produces and sells two models of hair dryers, Standard and Deluxe. The company has provided the following monthly data relating to these two products.

Standard Deluxe

Selling price per unit $60 $75

Variable cost 39 45

Expected monthly sales in units 600 1,200

Total monthly fixed cost: $40,500

10. The break-even in units for the expected sales mix is (rounded):

a. 200 and 400 units, respectively c. 300 and 600 units, respectively

b. 500 and 1000 units, respectively d. 200 and 300 units, respectively