3. Urbana Company had sales of $400,000, variable costs of $240,000, and fixed c

Question

3. Urbana Company had sales of $400,000, variable costs of $240,000, and fixed costs of $90,000. In order to break-even necessary sales would be: A. $240,000 B. $225,000 C. $70,000 D. $250,000 Kyle's Donut Shop has been the only donut shop in town. However, after Barry's Breakfast Treats opened up last month, Kyle's sales have dropped. Kyle decides to cut the selling price of his delicious donuts. The decrease in selling price will result in: A. A reduction in the unit contribution margin. B. An increase in the unit contribution margin. C. A reduction in the unit variable costs. D. An increase in the unit variable costs. E. A reduction in fixed costs. 4. 5. In the month of December, the Valhalla Company produced 28,000 units and sold 30,000 units. Under absorption costing: A. Fixed manufacturing costs will be "released" from inventory and therefore net operating income will be lower than it would under variable costing operating income will be lower than it would under variable costing statement and therefore net operating income will be higher than it would under B. Fixed selling & administrative costs will be "released" from inventory and therefore net C. Fixed manufacturing costs will be included in inventory instead of on the income costing D. All fixed costs will be "released" from inventory and therefore net operating income will be lower than it would under variable costing

Explanation / Answer

Answer 3

Contribution Margin Ratio = ( Sales - Variable cost ) / Sales = ($400,000 - $240000) / $400,000 = 40 %

Break even sales = FixedCost / Contribution Margin Ratio = $90,000 / 40 % = $225,000

Answer 4

A. Reduction in unit contribution margin

Explanation : Under variable costing, variable cost per unit does not change with the change in selling price .

Thus when only selling prices decreases , variable cost per units remains same . Therefore ,the decrease in selling price is will result in reduction in contribution margin per unit.

Answer 5

A. Fixed manufacturing costs will be "released" from inventory and therefore net operating income will be lower than it would under variable costing.

Explanation : Under Variable costing fixed manufacturing costs are not a part of product cost whereas in absorption costing fixed manufacturing costs included in product cost . Thus per unit product cost under absorption costing is higher than as under variable costing , resulting in lower net operating income under absorption costing.

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.