Lecture Quiz The following information is for questions 1-4 Company A currently
ID: 2342184 • Letter: L
Question
Lecture Quiz The following information is for questions 1-4 Company A currently sells a product for $2 cach. Fixed cost and unit variable cost are S12,000 and $0.8, respectively. 1. What is the break-even point in units and in sales dollars, respectively? 10,000 units and $20,000. a. b. 12,000 units and $24,000. c. 10,000 units and S15,000. d. 20,000 units and $20,000. 2. What is the contribution margin ratio? a.20% b. 30%. c. 4000. d. 60%. To reach a target profit of $33,000, how many units of output should be sold? a 22,500 units. b. 31,750 units c, 37,500 units. d. 42,000 units 3. er unit is increased by 15%, fixed cost is increased to S 15,120, and the unit If variable cost price remains the same, what is the new breakeven point in sales dollars? a $22,000, b, S24.000. c S26,000. d. $28,000. 4. 5. Relative to companies with low operaling leverage, a company with high operating leverage a. Is more sensitive to cconomic fluctuations b. Has a high proportion of variable costs. c. Experiences a smaller break-even volume. d. Has a low contribution margin per unit. The excess of actual or projected sales over the break -even sales is known as a Contribution margin. b. Margin of safety, c. Gross margin 6. d. Target profit.Explanation / Answer
1
Answer: A) 10,000 units and $20,000
Working notes for the above answer is as under
Break even point in units
=Fixed cost / Contribution margin per unit
=12,000 /1.20
=10,000 units
Break even point in dollar
=Fixed cost / Contribution margin ratio
=12,000 /(2-0.08)/2
=12,000/(1.2/2)
=12,000/60%
=$20,000
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2
Answer: Contribution margin ratio =60%
Working notes for the above answer is as under
Contribution margin ratio
=(2-0.08)/2
=(1.2/2)
=60%
Sales
2
100%
less: variable cost
0.8
40%
Contribution margin
1.2
60%
__________________________________________________
3
Answer =37,500 units
Working notes for the above answer is as under
Units to be sold at desired profit
=Profit + fixe cost/ Contribution margin per unit
=33,000+12,000 /1.2
=45,000/1.2
=37,500 units
____________________________________________________
4
Answer: D) =$28,000
Working notes for the above answer is as under
Per unit
Sales
2
100%
less: variable cost (0.8*115%)
0.92
46%
Contribution margin (2-1.08)
1.08
54%
Break even point in dollar
=Fixed cost / Contribution margin ratio
=15,120 /(2-0.92)/2
=15,120/(1.08/2)
=15,120/54%
=$28,000
Note:
As this question has multiple question so as per guideline I have answered first 4 question
Sales
2
100%
less: variable cost
0.8
40%
Contribution margin
1.2
60%
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