The Contribution Margin Ratio Will Decrease
The Contribution Margin Ratio Will Decrease
The Contribution Margin Ratio Will Decrease
If a company's variable cost per unit increases, which of the following is true?
the contribution margin ratio will decrease
Operating income will increase
the breakeven point in units will decrease
the margin of safety will increase
Junior Company has a breakeven point of 34,600 units and is selling 35,000
units. If unit variable costs increase, the margin of safety will
Loessing Company produced and sold 12,000 units last year with sales price
of $45 per unit and unit variable cost of $20. Fixed costs totaled $250,000. In
the coming year, Loessing expects price to decrease by ten percent. Neither
unit variable cost nor fixed costs can be changed. If Loessing wants to
maintain the same level of income, what will the new level of production need
to be?
14,634 units
12,195 units
16,000 units
12,000 units
Solution:
Sales [12,000 x $45] 540,000
Variable cost [12,000 x $20] 240,000
Contribution margin 300,000
Fixed cost 250,000
Operating income 50,000
price to decrease by ten percent 45- [45 x 10%]= 40.5
Target profit in units= 250,000+50,000/ [40.5-20] =14,634 units
If a company has an income tax rate of 40% and fixed costs of $105,000, and
wishes to earn an after-tax profit of $150,000, what must its pre-tax income be?
$375,000
$425,000
$175,000
$250,000
Solution:
before tax income= 150,000/ [1-40%] = 250,000
Jester Company had unit contribution margin on $3.60 and fixed costs of
$29,664. Income was $2,520. What was the margin of safety in units?
630 units
7,540 units
8,940 units
700 units
Solution:
Income 2,520
Fixed 29,664
CM 32,184
First Class Corp. has sales of $200,000, a contribution margin of 20% and a
margin of safety of $80,000. What is First-class Corp's fixed cost?
$16,000
$96,000
$24,000
$80,000
SOLUTION:
MARGIN OF SAFETYDOLLAR= SALES- [FIXED/ CM RATIO]
$80,000= $200,000- [FIXED/ 20%]
-$200,000+ $80,000 = - FIXED/ 20%
-120,000 = - FIXED/ 20%
FIXED= 120,000 X 20%
FIXED= $24,000
Assuming that Korian increased sales of the product by 20%, what should the
operating income be?
$20,000
$80,000
$32,000
$24,000
SOLUTION:
Sales $300,000
Variable cost 240,000
CM 60,000
Fixed costs 40,000
OPERATING INCOME 20,000
Selling Price per Unit = $ 5 (Variable Cost per Unit $ 3.50 / 70%)
Sales for the Additional Units= $250,000 (50,000 units x Selling Price Per Unit
$ 5)
Targeted Profit From the Additional Units Sold = $ 25,000 (Sales $250,000 x
10%)
Sales $500,000
What is the margin of safety ratio (to the nearest percentage point)?
88%
47%
30%
70%
SOLUTION MARGIN OF SAFETY RATIO= SALES- BREAKEVEN /
SALES
= 500,000- 266,667 / 500,000
=47%