Below are income statements that apply to three companies: Austin, Brown, and Fr
ID: 2518133 • Letter: B
Question
Below are income statements that apply to three companies: Austin, Brown, and Freeman:
Austin Co.
Brown Co.
Freeman Co.
$100
$100
$100
(10)
(20)
(30)
$ 90
$ 80
$ 70
(30)
(20)
(10)
$ 60
$ 60
$ 60
a.
Refer to Austin, Brown, and Freeman Companies. Within the relevant range, if sales go up by one unit for each firm, which firm will experience the greatest increase in net income?
Austin Company
Brown Company
Freeman Company
can't be determined from the information given
b.
Refer to Austin, Brown, and Freeman Companies. At sales of $100, which firm has the highest margin of safety?
Austin Company
Brown Company
Freeman Company
They all have the same margin of safety.
Austin Co.
Brown Co.
Freeman Co.
Sales$100
$100
$100
Variable costs(10)
(20)
(30)
Contribution margin$ 90
$ 80
$ 70
Fixed costs(30)
(20)
(10)
Profit before taxes$ 60
$ 60
$ 60
Explanation / Answer
a Austin Company as its unit Contribution margin is highest b Freeman Company has the highest margin of safety as its Break even is lowest
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