1-The Martin Company\'s variable costs are 35% of sales. Martin is contemplating

Question

1-The Martin Company's variable costs are 35% of sales. Martin is contemplating an advertising campaign that will cost $25,000. If sales are expected to increase $75,000, the company's net income will increase by: a. $26,250 b. $23,750 c. $1,250 d. $65,000 Use the following to answer the next three questions: Gossen Company sells 250,000 pliers for $4.00 per unit. The contribution margin ratio is 25%. Fixed costs $200,000. 2. What is Gossen's contribution margin per unit? a) $1.00 b) $1.50 c) $2.00 d) $2.50 3. What is Gossen's break-even in units? a) 100,000 units b) 160,000 units c) 200,000 units d) 300,000 units How much must Gossen's ales be if it wants to earn $150,000 in profit? a) $1,900,000 b) $1,400,000 c) $1,200,000 d) $ 960,000 4. 5. If Gossen raises it selling price by 10% and lowers it variable costs by 10%, then its contribution margin per unit a) remains the same. b) increases to $3.90 c) decreases to $1.00 d) increases to $1.70

Explanation / Answer

Question - 1, The Answer is B - $23,750

Increase in Contribution Margin = $75,000 *65% = $48,750

Therefore,The company's net Income will Increase by $ 48750 - $25000 = $23,750

Question - 2, The Answer is A - $ 1

Selling price per unit = $4

Contribution ratio = 25%

So,Contribution per unit = $4 x 25% = $1

Question - 3, The Answer is C - 2,00,000 Units

Break-Even Units = Fixed Costs / Contributionper unit

= $2,00,000 / $1

= 2,00,000 Units

Question - 4, The Answer is B - $14,00,000

Required sales to earn $150000 profit = (Fixed Cost + Proft) / Contribution ratio

= ($200000 + $150000 ) / 0.25

= $14,00,000

Question - 5, The Answer is D - Increases to $1.70

New Selling price = $4 x 110% = $4.40

New Variable cost = $3 x 90% = $2.70

New Contribution = $4.40 - $2.70 = $1.70

Therefore, The contribution per unit will increases to $1.70

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