17) At Dwight Incorporated, tota I fixed and variable costs are $420,000 at a pr

Question

17) At Dwight Incorporated, tota I fixed and variable costs are $420,000 at a production level of 130,000 units. The company has total fixed costs of $225,000. The variable cost per unit at 200,000 units is B) $0.98 C) $1.50 D) $3.23 A) $1.73 e & Gold Corporation produces and sells a single product. Data for that product are Sales Fixed $500 $220 $1,000,000 4,000 units r unit expenses for the month Currently selling Management is discussing increasing the price to $525 to cover an increase in fixed expenses of $80.000. Management believes they might lose 2% of sales per month. How many units per month would the company have to sell to maintain its current level of operating income? Round up to the nearest whole unit. A) 3,572 units B) 3,934 units C) 5,269 units D) 4,000 units 19) Silva Corporation has budgeted the following amounts for its next fiscal year Total fixed expenses Sellin $900,000 $60 530 unit unit If Silva Corporation can reduce fixed expenses by $82,500, by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in units? A) $2.75 B) $27.25 C) $32.75 D) $30.00 20) Rorire Ice Cream Shop sells specialty ice cream in three flavors: Vanilla. Chocolate and Strawberry. It sold 19,000 gallons last year. For every five gallons of ice cream sold, one gallon is Strawberry and the remainder is split evenly between Vanilla and Chocloate. Fixed costs for Roarie Ice Cream Shopare $50,400 and additional information follows: ChocolateStrawberry $8.25 $3.25 Vanilla 25 Sales cost $3.75 The sales mix percentage of Strawberry based upon gallons is A) 40%. B)75%. C)20%. D) 71%. 1) Total contribution margin less total fixed expenses equals A) sales revenue. C) gross profit. B) operating income. D) contribution margin ratio.

Explanation / Answer

1. Option C

Variable cost per unit = (Total Costs - Fixed Costs) / Production Level = ($420000 - $225000) / 130000

Variable cost per unit = $195000 / 130000 = $1.50 per Unit

2. Option B

Current Level of Operating Income = Units * (Selling Price - Variable Costs) - Fixed Costs

Current Level of Operating Income = 4000 * ($500 - $220) - $1000000

Current Level of Operating Income = $1120000 - $1000000 = $120000

Units Required to Sell to Maintain current Operating Income = (Current Operating income + New Fixed Costs) / New Selling Price - Variable Costs

Units Required = ($120000 + $1080000) / $525 - $220

Units Required = $1200000 / $305 = 3934 Units

3. Option A

Computation of Variable cost Increase

Contribution Margin = Selling Price - Variable Cost = $60 - $30 = $30

Break Even Point = Fixed Expenses / Contribution Margin per unit = $900000 / $30 = 30000

Increase in Variable cost = Amount reduced / BEP = $82500 / 30000 = $ 2.75

4. Option C

Sales Mix of Strawberry = Strawberry Gallons / Total gallons

Sales Mix of Strawberry = (19000* 1/5) / 19000 = 20%

5. Option B

Total Contribution Margin - Total Fixed costs = Operating income

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