Question 1

Newton Company currently produces and sells 4,000 units of a product that has a contribution margin of $6 per unit.The company sells the product for a sales price of $20 per unit.Fixed costs are $18,000.The company is considering investing in new technology that would decrease the variable cost per unit to $8 per unit and double total fixed costs.The company expects the new technology to increase production and sales to 9,000 units of product.What sales price would have to be charged to earn a $99,000 target profit assuming the investment in technology is made?
A) $22
B) $23
C) $15
D) $13

Accepted Answer

First, let's calculate the current total contribution margin:
4,000 units x $6 contribution margin per unit = $24,000 total contribution margin

Now, let's calculate the total contribution margin with the new technology:
9,000 units x ($20 sales price - $8 variable cost per unit) = $108,000 total contribution margin

To earn a target profit of $99,000, we need to add this amount to the current fixed costs:
Target profit + Fixed costs = Total contribution margin
$99,000 + $18,000 = $117,000 Total contribution margin

Now, we can calculate the necessary sales price:
9,000 units x (Sales price - $8 variable cost per unit) = $117,000 total contribution margin
Solving for sales price:
Sales price - $8 = $13
Sales price = $13 + $8 = $21

Therefore, the sales price that would have to be charged to earn a $99,000 target profit assuming the investment in technology is made is $23 (choice B).

Question 2

During the current year,Winchester Company sold 80,000 units at a selling price of $20 per unit.Variable cost per unit was $15,and Winchester's net income for the year was $40,000.What was the amount of Winchester's fixed costs?
A) $360,000
B) $440,000
C) $1,160,000
D) $400,000

Accepted Answer

Fixed costs can be calculated by first determining the total contribution margin and then subtracting the net income from it. The contribution margin per unit is the selling price minus the variable cost per unit, which is $20 - $15 = $5. For 80,000 units, the total contribution margin is 80,000 units * $5 = $400,000. Subtracting the net income of $40,000 from the total contribution margin gives the fixed costs: $400,000 - $40,000 = $360,000.

Question 3

M and M,Inc.produces a product that has a variable cost of $3.00 per unit.The company's fixed costs are $30,000.The product is sold for $5.00 per unit and the company desires to earn a target profit of $20,000.What is the amount of sales that will be necessary to earn the desired profit?
A) $75,000
B) $50,000
C) $83,333
D) $125,000

Accepted Answer

To find the necessary sales to earn the desired profit, use the formula: Sales = (Fixed Costs + Target Profit) / (Selling Price per Unit - Variable Cost per Unit). Here, Sales = ($30,000 + $20,000) / ($5.00 - $3.00) = $125,000.

Question 4

Martin Company currently produces and sells 40,000 units of product at a selling price of $12.The product has variable costs of $6 per unit and fixed costs of $150,000.The company currently earns a total contribution margin of:
A) $280,000
B) $200,000
C) $240,000
D) $90,000

Accepted Answer

Contribution margin is calculated as selling price per unit minus variable cost per unit.

Contribution margin per unit = $12 - $6 = $6

Total contribution margin = contribution margin per unit × number of units sold = $6 × 40,000 = $240,000

Therefore, the best choice is C) $240,000.

Question 5

Bates Company currently produces and sells 4,000 units of a product that has a contribution margin of $5 per unit.The company sells the product for a sales price of $20 per unit.Fixed costs are $20,000.The company has recently invested in new technology and expects the variable cost per unit to fall to $12 per unit.The investment is expected to increase fixed costs by $15,000.After the new investment is made,how many units must be sold to break even?
A) 2,917 units
B) 4,375 units
C) 7,000 units
D) 4,000 units

Accepted Answer

After the investment, the contribution margin per unit is $8 ($20 - $12). The new fixed costs are $35,000 ($20,000 + $15,000). To break even, the company must sell 4,375 units ($35,000 / $8).

Question 6

Zeus,Inc.produces a product that has a variable cost of $9.50 per unit.The company's fixed costs are $40,000.The product sells for $12.00 a unit and the company desires to earn a $20,000 profit.What is the volume of sales in units required to achieve the target profit? (Do not round intermediate calculations.)
A) 24,000 units
B) 16,000 units
C) 17,000 units
D) 4,000 units

Accepted Answer

The correct answer is A.The contribution margin per unit is $12.00 - $9.50 = $2.50. The target profit is $20,000. So, the volume of sales in units required to achieve the target profit is $20,000 / $2.50 = 8,000 units.

Question 7

Harris Company produces a product whose cost is $10.Assuming the company uses a cost-plus pricing system,what selling price would the company set to earn a profit margin of 20% of cost?
A) $2.00
B) $12.50
C) $50.00
D) $12.00

Accepted Answer

To earn a profit margin of 20% of cost, the company needs to add 20% of the cost to the cost itself to get the selling price. So, 20% of $10 is $2. Therefore, the selling price would be $10 + $2 = $12. Therefore, the correct answer is option D.

Question 8

Kingston Company sells its product for $200 per unit.The company's accountant provided the following cost information: $$\begin{array} { l l l } 
\text { Manufacturing costs } & \$ 25,000 + 40 \% \text { of sales } \
\text { Selling costs } & \$ 10,000 + 20 \% \text { of sales } \
\text { Administrative costs } & \$ 15,000 + 10 \% \text { of sales }
\end{array}$$ What is Kingston Company's contribution margin ratio?
A) 30%
B) 15%
C) 35%
D) 20%

Accepted Answer

The contribution margin ratio is calculated by subtracting the variable costs from the sales price and then dividing by the sales price. Here, variable costs are 40% (manufacturing) + 20% (selling) + 10% (administrative) = 70% of sales. Thus, the contribution margin ratio is 100% - 70% = 30%.

Question 9

Phan Company has not reported a profit in five years.This year the company would like to narrow its loss to $7,500.Assuming its selling price is $36.50 per unit and its variable costs per unit are $24,how many units must be sold to achieve its target given that total fixed costs are $60,000? (Do not round intermediate calculations.)
A) 2,188
B) 1,439
C) 4,200
D) 1,600

Accepted Answer

To find the number of units needed to achieve a target loss, use the formula: (Fixed Costs + Target Loss) / (Selling Price per Unit - Variable Cost per Unit). Here, (60,000 + 7,500) / (36.50 - 24) = 4,200 units.

Question 10

At its $60 selling price,Atlantic Company has sales of $15,000,variable manufacturing costs of $4,000,fixed manufacturing costs of $1,000,variable selling and administrative costs of $2,000,and fixed selling and administrative costs of $1,000.What is the company's contribution margin per unit?
A) $26
B) $28
C) $44
D) $36

Accepted Answer

The contribution margin per unit is calculated by subtracting the variable costs per unit from the selling price per unit. First, calculate the total variable costs: $4,000 (variable manufacturing costs) + $2,000 (variable selling and administrative costs) = $6,000. Then, find the number of units sold: $15,000 / $60 = 250 units. The variable cost per unit is $6,000 / 250 = $24. Finally, subtract the variable cost per unit from the selling price per unit: $60 - $24 = $36.

Question 11

Pierce Company's break-even point is 12,000 units.Its product sells for $25 and has a $10 variable cost per unit.What is the company's total fixed cost amount?
A) $250,000
B) $180,000
C) $120,000
D) Fixed costs cannot be computed with the information provided.

Accepted Answer

The answer of Pierce Company's break-even point is 12,000 units.Its...

Question 12

Rocky Mountain Bottling Company produces a soft drink that is sold for a dollar.At production and sales of 800,000 units,the company pays $600,000 in production costs,half of which are fixed costs.At that volume,general,selling,and administrative costs amount to $250,000,of which $70,000 are fixed costs.What is the amount of contribution margin per unit?
A) $0.40
B) $0.5375
C) $0.25
D) None of these is correct.

Accepted Answer

The contribution margin per unit is calculated by subtracting variable costs per unit from the selling price per unit. The variable production cost per unit is $0.375 ($300,000 variable costs / 800,000 units), and the variable selling and administrative cost per unit is $0.225 ($180,000 variable costs / 800,000 units). The total variable cost per unit is $0.60. Therefore, the contribution margin per unit is $1.00 - $0.60 = $0.40.

Question 13

The records of Gemini Company show a contribution margin ratio of 40%.The company desires to earn a profit of $35,000 and has fixed costs of $70,000.What sales revenue would have to be generated in order to earn the desired profit?
A) $87,500
B) $262,500
C) $175,000
D) $42,000

Accepted Answer

To find the required sales revenue, we use the formula: Required Sales = (Fixed Costs + Desired Profit) / Contribution Margin Ratio. Plugging in the values: Required Sales = ($70,000 + $35,000) / 0.40 = $105,000 / 0.40 = $262,500.

Question 14

The pricing strategy that begins with the determination of a price at which a product will sell and then focuses on developing a cost structure for the product that will yield a profit is known as:
A) cost-plus pricing.
B) prestige pricing.
C) developmental pricing.
D) target costing.

Accepted Answer

Target costing starts with identifying the selling price consumers are willing to pay for a product, and then subtracts a desired profit margin to arrive at a target cost. Companies then work to create the product at or below this cost to ensure profitability.

Question 15

Camden Company sets the selling price for its product by adding a markup to the product's variable manufacturing costs.This approach to pricing is referred to as:
A) cost-plus pricing
B) target pricing
C) target costing
D) contribution margin-based pricing

Accepted Answer

Cost-plus pricing involves adding a markup to the product's variable manufacturing costs to determine the selling price. This approach ensures that the company covers its costs and earns a profit. Target pricing focuses on setting a price based on the market demand and competitors' prices, while target costing involves determining the maximum cost that can be incurred to meet the desired profit margin for a product. Contribution margin-based pricing involves setting a price based on the product's contribution margin, which is the difference between the selling price and variable costs.

Question 16

Mitchell Company sells its product for $100 per unit.The company's accountant provided the following cost information: $$\begin{array} { l l l } 
\text { Manufacturing costs } & \$ 25,000 + 45 \% \text { of sales } \
\text { Selling costs } & \$ 15,000 + 20 \% \text { of sales } \
\text { Administrative costs } & \$ 25,000 + 10 \% \text { of sales }
\end{array}$$
 What is the company's break-even point in units?
A) 1,000
B) 750
C) 2,600
D) 4,000

Accepted Answer

The answer of Mitchell Company sells its product for $100...

Question 17

Jarvis Company produces a product that has a selling price of $20.00 and a variable cost of $15.00 per unit.The company's fixed costs are $50,000.What is the break-even point measured in sales dollars?
A) $150,000
B) $200,000
C) $62,500
D) $100,000

Accepted Answer

The answer of Jarvis Company produces a product that has...

Question 18

Select the incorrect break-even equation from the following:
A) Total contribution margin = total variable costs
B) Total contribution margin = total fixed costs
C) Total fixed costs ÷ contribution margin ratio = break-even sales in dollars
D) Total revenue = total costs

Accepted Answer

The correct break-even equation is not "Total contribution margin = total variable costs." Break-even occurs when total revenue equals total costs, which includes both variable and fixed costs. The contribution margin is used to cover fixed costs at the break-even point, not equal to the variable costs.

Question 19

Once sales reach the break-even point,each additional unit sold will:
A) increase fixed cost by a proportionate amount.
B) reduce the margin of safety.
C) increase the company's operating leverage.
D) increase profit by an amount equal to the per unit contribution margin.

Accepted Answer

Once sales have reached the break-even point, the company has covered all of their fixed costs and is now earning profits equal to the per unit contribution margin for each additional unit sold. Therefore, each additional unit sold will increase profit by an amount equal to the per unit contribution margin.

Question 20

Cooper Company sells a product at $50 per unit that has unit variable costs of $20.The company's break-even sales point in sales dollars is $150,000.How much profit will the company make if it sells 4,000 units?
A) $210,000
B) $120,000
C) $60,000
D) $30,000

Accepted Answer

The answer of Cooper Company sells a product at $50...

Quiz 3: Analysis of Cost, volume, and Pricing to Increase Profitability

During the current year,Winchester Company sold 80,000 units at a selling price of $20 per unit.Variable cost per unit was $15,and Winchester's net income for the year was $40,000.What was the amount of Winchester's fixed costs?

M and M,Inc.produces a product that has a variable cost of $3.00 per unit.The company's fixed costs are $30,000.The product is sold for $5.00 per unit and the company desires to earn a target profit of $20,000.What is the amount of sales that will be necessary to earn the desired profit?

Martin Company currently produces and sells 40,000 units of product at a selling price of $12.The product has variable costs of $6 per unit and fixed costs of $150,000.The company currently earns a total contribution margin of:

Harris Company produces a product whose cost is $10.Assuming the company uses a cost-plus pricing system,what selling price would the company set to earn a profit margin of 20% of cost?

At its $60 selling price,Atlantic Company has sales of $15,000,variable manufacturing costs of $4,000,fixed manufacturing costs of $1,000,variable selling and administrative costs of $2,000,and fixed selling and administrative costs of $1,000.What is the company's contribution margin per unit?

Pierce Company's break-even point is 12,000 units.Its product sells for $25 and has a $10 variable cost per unit.What is the company's total fixed cost amount?

The records of Gemini Company show a contribution margin ratio of 40%.The company desires to earn a profit of $35,000 and has fixed costs of $70,000.What sales revenue would have to be generated in order to earn the desired profit?

The pricing strategy that begins with the determination of a price at which a product will sell and then focuses on developing a cost structure for the product that will yield a profit is known as:

Camden Company sets the selling price for its product by adding a markup to the product's variable manufacturing costs.This approach to pricing is referred to as:

Jarvis Company produces a product that has a selling price of $20.00 and a variable cost of $15.00 per unit.The company's fixed costs are $50,000.What is the break-even point measured in sales dollars?

Select the incorrect break-even equation from the following:

Once sales reach the break-even point,each additional unit sold will:

Cooper Company sells a product at $50 per unit that has unit variable costs of $20.The company's break-even sales point in sales dollars is $150,000.How much profit will the company make if it sells 4,000 units?