7. A company produces key chains. The data include price S1, unit variable cost

Question

7. A company produces key chains. The data include price S1, unit variable cost So4, monthly fixed cost $3,000 and tax rate 30P% The owner wants to earn an afher-tas profit of $10,500 per month. How many key chains must be produced and sold so met that goal? a. 24.000, b. 30,000. . 32.000. d. 36,000. 8. When more than one product is involved a. The CVP method reaches its limit. b. No paricular asumption is ncedel to calcalate the hreal-even volume c. A fixed product mix will produce a unique break-even solution. d. Weighted-average product mix method can be used. 9, A start-up company manufactures two peoducts: X is sold for $5 with variable cost of $3 each; Y is sold for $8 with variable cost o S4 each An anual fixed cost of $10000 is projected. The marketing department estimates a 3:1 natio between of X must be sold to break even for the first year of operation? a. 3,000 b. 3,600. c. 1,000. d. 1,500. X and Y. How many units 10. CVP analysis a. Requires certain assumptions to be made. b. Is inherently limited by its applicability c. Usually assumes un d. Does not allow for alternative assumptions. it variable cost to be constamly changing 11. In October, Fashionable Clothing manufactured 2,000 items with the folowing financial statement amounts Direct materials $12,000, Sales $48,000, Direct labor S16,000, Depreciation $3,60, Rent S1,500, and Variable overhead $9,000 How much is contribution margin per unit? a. $5.5 b. $2.95 . $3.4. 12. Which of the following statements regarding margin of salety is coreur? The margin of saf b. The break-even sales volume is not considered e. Margin of safety is expressed in sales dollars only d. The higher the fixed costs, the lower the margin of safety

Explanation / Answer

7

(Fixed Cost+Required before tax Profit)/Controbution Per unit

=(3000+10500*100/70)/(1-.40)

=30000 units

8

d Weighed average product mix method can be used

9

Weighed Contrbution Per unit

A =(5-3)*3/4

B=(8-4)*1/4

Weighed Contrbution Per unit=(5-3)*3/4+(8-4)*1/4=$2.5

Total Break even units =10000/2.5=4000 units

Break even Units of X =4000*3/4=3000 Units

10

Requires Certain assumption to be made

CVP assumes the following:

11

Contrbution Per Units =11000/2000 =$5.5

12

The Higher the fixed cost the lower the margin of safety

Sales 48000 Less Variable Cost 12000+16000+9000 37000 Contrbution Margin 11000

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