Question 1

A Company is planning to sell Product Z for $10 a unit.Variable costs are $6 a unit and fixed costs are $110,000.If the company is currently selling 30,000 units,what is the margin of safety in units?

Accepted Answer

Margin of safety = (Actual Sales - Break-even Sales) / Actual Sales

Break-even sales = Fixed Costs / Contribution Margin per unit

Contribution Margin per unit = Selling Price per unit - Variable Costs per unit

Contribution Margin per unit = $10 - $6 = $4

Break-even sales = $110,000 / $4 = 27,500 units

Margin of safety = (30,000 - 27,500) / 30,000 = 0.083333

Margin of safety in units = 0.083333 x 30,000 = 2,500

Therefore, the margin of safety in units is 2,500, which is option A.

Question 2

If the fixed costs related to a product increase while variable costs and sales price remain constant,what will happen to (1)contribution margin and (2)break-even point?

Accepted Answer

The answer of If the fixed costs related to a...

Question 3

Bradley Inc.has the capacity to make 100,000 windows.Bradley is currently operating at 80% capacity.The windows usually sell for $20.00 each.Costs for each window follow:  The Army has offered to buy 10,000 windows for $12.00 each for barracks.Bradley should:

Accepted Answer

Bradley currently has the capacity to produce 80,000 windows (100,000 x 0.8). The Army has offered to buy 10,000 windows, which would bring Bradley's total production up to 90,000 windows (80,000 + 10,000). Since this is still below Bradley's capacity, the company has enough capacity to accept the order.

To determine the profitability of the order, we need to calculate the contribution margin. The contribution margin per window is the selling price ($20.00) minus the variable cost per window ($12.00 + $6.00 + $1.00 + $0.50 + $0.50 = $20.00). Therefore, the contribution margin per window is $2.00 ($20.00 - $18.00).

The contribution margin for the 10,000 windows is $20,000 (10,000 x $2.00). Since the contribution margin is positive, accepting the order would increase Bradley's profitability. Therefore, the company should accept the offer because the company will realize $20,000 in additional contribution margin.

Question 4

Consider the income statement for Pickbury Farm:  What is the margin of safety ratio (to the nearest percentage point)?

Accepted Answer

The answer of Consider the income statement for Pickbury Farm:...

Question 5

The Blue Saints Band is holding a concert in Toronto.Fixed costs relating to staging a concert are $350,000.Variable costs per patron are $5.00.The selling price for a tickets $25.00.The Blue Saints Band has sold 24,000 tickets so far. ​
At the current level of sales,what is the margin of safety in dollars?

Accepted Answer

To find the margin of safety, we need to calculate the difference between the actual sales revenue and the break-even revenue.

Actual Sales Revenue = Selling Price per ticket x Number of tickets sold
= $25.00 x 24,000
= $600,000

Break-even Revenue = Fixed Costs/Contribution Margin Ratio
= $350,000/($25.00 - $5.00)
= $350,000/$20.00
= $17,5000

Margin of Safety = Actual Sales Revenue - Break-even Revenue
= $600,000 - $175,000
= $425,000

Therefore, the margin of safety in dollars is $425,000, which is closest to option A ($162,500).

Question 6

The margin of safety is the amount:

Accepted Answer

The margin of safety is the amount by which sales can decrease before the company will suffer a loss. It is a measure of the level of risk associated with a company's operations. A higher margin of safety indicates a lower level of risk, while a lower margin of safety indicates a higher level of risk. Options A, B, and C are all related to other financial concepts and not directly related to the margin of safety.

Question 7

The margin of safety ratio is equal to:

Accepted Answer

The answer of The margin of safety ratio is equal...

Question 8

Which of the following would cause the break-even point to change?

Accepted Answer

An increase in fixed costs, such as the addition to a physical plant, would change the break-even point as it affects the total fixed costs that need to be covered by sales.

Question 9

Income taxes

Accepted Answer

The answer of Income taxes
...

Question 10

The relative percentage of unit sales among the various products made by a firm is the:

Accepted Answer

Sales mix refers to the relative percentage of unit sales among the various products made by a firm. It is important for businesses to understand their sales mix in order to make strategic decisions about product lines, pricing, and resource allocation. Sales volume refers to the total number of units sold, sales margin refers to the difference between the selling price and the cost of goods sold, and sales ratio refers to the proportion of sales revenue to total assets.

Question 11

A study that highlights the significant cost and revenue data between two alternatives is a(n):

Accepted Answer

The study described in the question is a differential analysis, as it compares the costs and revenues of two alternatives. A cost analysis and income analysis typically focus on only one option and do not compare alternatives. Distribution analysis refers to the study of how goods and services are allocated among different groups or locations, and is not relevant to this question.

Question 12

Consider the following information about the Gumm Company:  Budgeted fixed costs are $550,000.The break-even number of cases for the mint gum is:

Accepted Answer

The answer of Consider the following information about the Gumm...

Question 13

The difference in cost between two alternatives,such as to make a component part of a final product versus buying the part from an outside supplier is called:

Accepted Answer

The difference in cost between two alternatives is called differential cost. It is the incremental cost that arises from choosing one alternative over the other. It helps in decision-making by identifying the cost savings or incremental cost that would result from choosing one alternative over the other.

Question 14

Consider the following information about the Gumm Company:  Budgeted fixed costs are $550,000.The weighted-average unit contribution margin is:

Accepted Answer

Since the information does not provide the unit contribution margin, we need to calculate it using the formula:
Unit Contribution Margin = (Total Sales - Total Variable Costs) / Total Units Sold

We do not have information about the total sales, total variable costs, or total units sold, but we are given the weighted-average contribution margin. This means that we can use the formula:
Weighted-Average Contribution Margin = (Total Sales - Total Variable Costs) / Total Units Sold

Solving for Total Variable Costs, we get:
Total Variable Costs = Total Sales - (Weighted-Average Contribution Margin * Total Units Sold)

We know that the fixed costs are $550,000, so we can use the formula:
Total Costs = Total Fixed Costs + Total Variable Costs

Substituting the variables we have, we get:
Total Costs = $550,000 + [Total Sales - (Weighted-Average Contribution Margin * Total Units Sold)]

We also know that the breakeven point is where Total Costs = Total Sales, so we can set the two equations equal to each other:
Total Sales = $550,000 + [Total Sales - (Weighted-Average Contribution Margin * Total Units Sold)]

Solving for Total Sales, we get:
Total Sales = $550,000 / (1 - Weighted-Average Contribution Margin)

We can now substitute the values we have to solve for the weighted-average contribution margin:
$2.20 = Total Contribution Margin / Total Units Sold
Total Sales = Total Units Sold * $2.20
$550,000 / (1 - Weighted-Average Contribution Margin) = Total Units Sold * $2.20

Using algebra to solve for the weighted-average contribution margin, we get:
Weighted-Average Contribution Margin = $2.20

Therefore, the answer is C: $2.20.

Question 15

Donellan Company produces a special gear used in automatic transmissions.Each gear sells for $30,and the company sells approximately 500,000 gears each year.Unit cost data for the year follows:  Donellan has received an offer from a foreign manufacturer to purchase 25,000 gears.Domestic sales would be unaffected by this transaction.If the offer is accepted,variable distribution costs will increase $1.00 per gear for insurance,shipping,and import duties.The relevant unit cost to a pricing decision on this offer is:

Accepted Answer

The answer of Donellan Company produces a special gear used...

Question 16

A company has fixed costs of $700,000.The selling price and variable cost per unit are $50.00,and $10.00,respectively. ​
How many units does the company need to sell to achieve net income of $100,000 after income tax,assuming the income tax rate is 50%?

Accepted Answer

To achieve a net income of $100,000 after tax at a 50% tax rate, the company needs a pre-tax income of $200,000. The total contribution margin per unit is $40 ($50 selling price - $10 variable cost). The required sales in units is calculated as: (Fixed Costs + Pre-tax Income) / Contribution Margin per Unit = ($700,000 + $200,000) / $40 = 22,500 units.

Question 17

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?

Accepted Answer

The answer of If a company has an income tax...

Question 18

A company increased the selling price for its product from $1.00 to $1.20 a unit when total fixed costs increased from $400,000 to $450,000 and variable cost per unit remained unchanged.How would these changes affect the break-even point?

Accepted Answer

The break-even point in units would decrease because the increase in selling price increases the contribution margin per unit, which offsets the increase in fixed costs.

Question 19

Spire Ridge Company produces bells.Fixed costs are $800,000.Variable costs per bell are $60.00,and each bell sells for $100.00.The company' sales budget calls for sales of 24,000 units. At the budgeted level of sales,what is the margin of safety ratio?

Accepted Answer

Margin of safety ratio = (Total sales - Break-even sales)/(Total sales)

Break-even sales = Total fixed costs/Contribution margin per unit
Contribution margin per unit = Selling price per unit - Variable cost per unit = $100.00 - $60.00 = $40.00

Break-even sales = $800,000/$40 = 20,000 units

Total sales = 24,000 units

Margin of safety ratio = (24,000 - 20,000)/24,000 = 4,000/24,000 = 0.1667 or 16.67%

Therefore, the best choice is B.

Question 20

Calico Corporation makes the following products:  Budgeted fixed costs are $1,560,000.The break-even point in total yards is:

Accepted Answer

The answer of Calico Corporation makes the following products: ...

Quiz 10: Cost Analysis for Management Decision Making

A Company is planning to sell Product Z for $10 a unit.Variable costs are $6 a unit and fixed costs are $110,000.If the company is currently selling 30,000 units,what is the margin of safety in units?

If the fixed costs related to a product increase while variable costs and sales price remain constant,what will happen to (1) contribution margin and (2) break-even point?

Bradley Inc.has the capacity to make 100,000 windows.Bradley is currently operating at 80% capacity.The windows usually sell for $20.00 each.Costs for each window follow: The Army has offered to buy 10,000 windows for $12.00 each for barracks.Bradley should:

Consider the income statement for Pickbury Farm: What is the margin of safety ratio (to the nearest percentage point) ?

The margin of safety is the amount:

The margin of safety ratio is equal to:

Which of the following would cause the break-even point to change?

Income taxes

The relative percentage of unit sales among the various products made by a firm is the:

A study that highlights the significant cost and revenue data between two alternatives is a(n) :

Consider the following information about the Gumm Company: Budgeted fixed costs are $550,000.The break-even number of cases for the mint gum is:

The difference in cost between two alternatives,such as to make a component part of a final product versus buying the part from an outside supplier is called:

Consider the following information about the Gumm Company: Budgeted fixed costs are $550,000.The weighted-average unit contribution margin is:

A company has fixed costs of $700,000.The selling price and variable cost per unit are $50.00,and $10.00,respectively. How many units does the company need to sell to achieve net income of $100,000 after income tax,assuming the income tax rate is 50%?

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?

A company increased the selling price for its product from $1.00 to $1.20 a unit when total fixed costs increased from $400,000 to $450,000 and variable cost per unit remained unchanged.How would these changes affect the break-even point?

Spire Ridge Company produces bells.Fixed costs are $800,000.Variable costs per bell are $60.00,and each bell sells for $100.00.The company' sales budget calls for sales of 24,000 units. At the budgeted level of sales,what is the margin of safety ratio?

Calico Corporation makes the following products: Budgeted fixed costs are $1,560,000.The break-even point in total yards is:

Quiz 10: Cost Analysis for Management Decision Making

A Company is planning to sell Product Z for $10 a unit.Variable costs are $6 a unit and fixed costs are $110,000.If the company is currently selling 30,000 units,what is the margin of safety in units?

If the fixed costs related to a product increase while variable costs and sales price remain constant,what will happen to (1) contribution margin and (2) break-even point?

Bradley Inc.has the capacity to make 100,000 windows.Bradley is currently operating at 80% capacity.The windows usually sell for $20.00 each.Costs for each window follow: The Army has offered to buy 10,000 windows for $12.00 each for barracks.Bradley should:

Consider the income statement for Pickbury Farm: What is the margin of safety ratio (to the nearest percentage point) ?

The margin of safety is the amount:

The margin of safety ratio is equal to:

Which of the following would cause the break-even point to change?

Income taxes

The relative percentage of unit sales among the various products made by a firm is the:

A study that highlights the significant cost and revenue data between two alternatives is a(n) :

Consider the following information about the Gumm Company: Budgeted fixed costs are $550,000.The break-even number of cases for the mint gum is:

The difference in cost between two alternatives,such as to make a component part of a final product versus buying the part from an outside supplier is called:

Consider the following information about the Gumm Company: Budgeted fixed costs are $550,000.The weighted-average unit contribution margin is:

A company has fixed costs of $700,000.The selling price and variable cost per unit are $50.00,and $10.00,respectively. ​ How many units does the company need to sell to achieve net income of $100,000 after income tax,assuming the income tax rate is 50%?

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?

A company increased the selling price for its product from $1.00 to $1.20 a unit when total fixed costs increased from $400,000 to $450,000 and variable cost per unit remained unchanged.How would these changes affect the break-even point?

Spire Ridge Company produces bells.Fixed costs are $800,000.Variable costs per bell are $60.00,and each bell sells for $100.00.The company' sales budget calls for sales of 24,000 units. At the budgeted level of sales,what is the margin of safety ratio?

Calico Corporation makes the following products: Budgeted fixed costs are $1,560,000.The break-even point in total yards is:

A company has fixed costs of $700,000.The selling price and variable cost per unit are $50.00,and $10.00,respectively. How many units does the company need to sell to achieve net income of $100,000 after income tax,assuming the income tax rate is 50%?