1. Last year, Brown Manufacturing had a contribution margin ratio of 40%. This y

Question

1. Last year, Brown Manufacturing had a contribution margin ratio of 40%. This year, fixed expenses are expected to remain at 550,000 and sales are expected to increase by 500.000. What should the contribution margin ratio he this year if the company wishes to increase net income by $31,500?

A. 78.75%

B. 55.56%

C. 40.00%

D. 35.00%

2- which of the following is an assumption of CVP analysis;

A. Inventory levels increase at a constant rate

b. Costs are linear throughout the relevant range

C. the number of units sold is constant.

D. Fixed costs increase as production increases.

Explanation / Answer

1-Last year, Brown Manufacturing had a contribution margin ratio of 40%. This year, fixed expenses are expected to remain at 550,000 and sales are expected to increase by 500.000. What should the contribution margin ratio he this year if the company wishes to increase net income by $31,500?

Solution: 35%

Working: 31500 / 90,000 = 35%

2- which of the following is an assumption of CVP analysis;

Solution: Costs are linear throughout the relevant range

Explanation: The CVP model assumes behavior of linearity of both the revenue and cost functions throughout the relevant range of activity

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