During its most recent fiscal year, Pacific Stores sold 200,000 electric screwdr

Question

During its most recent fiscal year, Pacific Stores sold 200,000 electric screwdrivers at a price of $15 each. Fixed costs amounted to $400,000 and pretax income was $600,000. What amount should have been reported as variable costs in the company's contribution margin income statement for the year in question?

A) $2,400,000
B) $1,600,000
C) $3,000,000
D) $2,000,000
E) $1,000,000
Please explain

Salsa company has fixed costs of $36,000 and a contribution margin ration of 24%. If expected sales are $200,000 , what is the margin of safety as a percent of sales?

A) 6%
B) 25%
C) 33%
D) 50%
E) 75%
Please explain

Explanation / Answer

a) Income (or profit) is revenue minus total cost: Income = Revenue - Total Cost Revenue is quantity times price: Revenue = Quantity * Price Total cost is fixed cost plus variable cost: Total Cost = Fixed Cost + Variable Cost In the problem, we're given quantity sold, price it was sold at, fixed cost and income. So, to find variable costs, first we find revenue by multiplying quantity by price (200000*15). Then we manipulate the first equation to get Revenue - Income = Total Cost to get total cost (200,000*15 - 600,000). Then we manipulate the second equation to get Variable Cost = Total Cost - Fixed cost. So, variable cost will equal 200000*15-600000-400000 which is 2,000,000. b) I don't know what a margin or ration or margin of safety is, sorry. That's not a calculus thing.

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