04-70-255 Principles of Managerial Accounting FINAL EXAMINATION (Winter 2018) St

Question

04-70-255 Principles of Managerial Accounting FINAL EXAMINATION (Winter 2018) Student No: Student Name: Section B (20 marks) Answer all questions. Workings are not re Question 1 (10 marks) Beaver Company's most recent contribution margin income statement is given below: quired to be shown and will not be graded. Sales Less variable costs Contribution margin Less Fixed costs Net loss $60,000 45,000 15,000 18,000 Beaver sells its product for $10 per unit. There was no beginning or ending inventories. Required: Using the above information, answer the following questions. Each question carries 1 mark. a) Beaver's contribution margin ratio is b) Break-even point in sales dollars would be $ c) Total variable costs at break-even point would be $ d) In order to reach a target profit of $4,000, Beaver must sell $ of The targeted sales would provide Beaver with a margin of safety of $ e) Beaver company decides to increase sales and reduce costs in order to make a profit. If sales were to increase by 10% and fixed costs were to reduce by $2,000, complete the following revised expected income statement. sales dollars. Sales Less variable costs Contribution margin Less Fixed costs Net loss h.

Explanation / Answer

a) Contribution margin ratio = 15000*100/60000 = 25%

b) Break even sales dollar = 18000/.25 = 72000

c)Total variable cost at break even point = 72000*75% = 54000

d) Target sales = (18000+4000)/.25 = 88000

Margin of safety = 88000-72000 = 16000

e) Revised income statement :

Sales (60000*110%) 66000 Less; Variable cost (66000*75%) 49500 Contribution margin 16500 Less; FIxed cost 16000 Net operating income 500

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