Question 1

Assume total fixed costs of $160,000, variable costs per unit of $6, and contribution margin per unit of $4.What are the sales dollars required to earn a target net income of $50,000 assuming a tax rate of 20%?

Accepted Answer

First, calculate the target net income before taxes by dividing the target net income by (1 - tax rate): $50,000 / (1 - 0.20) = $62,500. Then, add the fixed costs to find the total contribution margin needed: $62,500 + $160,000 = $222,500. Finally, divide the total contribution margin by the contribution margin per unit to find the sales dollars required: $222,500 / ($4 / $10) = $556,250, where $10 is the selling price per unit derived from adding the variable cost per unit ($6) and the contribution margin per unit ($4).

Question 2

Barbara's Boutique wants to know what it takes to have $20,000 in operating income.If her selling price is $20, variable cost is $8 and fixed costs total $40,000, what must her sales revenue be in order to reach her goal?

Accepted Answer

Operating income is calculated by subtracting total costs (variable costs + fixed costs) from sales revenue. Let's solve for the sales revenue using the given information:

Operating income = $20,000
Selling price = $20
Variable cost = $8
Fixed cost = $40,000

Sales revenue = (Operating income + Total costs) / Selling price
Sales revenue = ($20,000 + ($8Q + $40,000)) / $20, where Q is the quantity sold

Simplifying the equation, we get:

Sales revenue = $2,000 + $0.4Q

Now, let's substitute $20,000 for operating income and solve for Q:

$20,000 = $2,000 + $0.4Q
$0.4Q = $18,000
Q = 45,000 units

Finally, let's calculate the sales revenue using the quantity sold:

Sales revenue = Selling price x Quantity sold
Sales revenue = $20 x 45,000
Sales revenue = $900,000

Therefore, the answer is C) $100,000.

Question 3

The formula for converting desired net income into operating income is

Accepted Answer

To convert desired net income into operating income, we need to add the income tax to the desired net income. The formula for this is operating income = desired net income / (1 − tax rate). Therefore, choice C is the correct formula.

Question 4

At the breakeven point, the total contribution margin equals

Accepted Answer

The breakeven point is the point at which total revenue equals total costs. At this point, there is no profit or loss. Since the contribution margin is equal to total revenue minus variable costs, and fixed costs are not included in the contribution margin, the total contribution margin must equal fixed costs at the breakeven point. Therefore, the correct answer is C) fixed costs.

Question 5

A company requires $1,360,000 in sales to meet its operating income target.Its contribution margin is 30%, and fixed costs are $240,000.What is the target operating income?

Accepted Answer

The answer of A company requires $1,360,000 in sales to...

Question 6

Contribution margin is the amount

Accepted Answer

Contribution margin is the amount by which sales revenue exceeds variable costs. This amount is first used to cover fixed costs and any remaining amount is considered as profit. Therefore, option A is the best choice.

Question 7

At the break-even point of 2,000 units, variable costs are $55,000, and fixed costs are $32,000.How much is the selling price per unit?

Accepted Answer

At the break-even point, total revenue equals total costs (variable costs + fixed costs). The total costs are $55,000 (variable) + $32,000 (fixed) = $87,000. Since the break-even point is at 2,000 units, the selling price per unit is $87,000 / 2,000 units = $43.50.

Question 8

Assume total fixed costs of $160,000, variable costs per unit of $6, and contribution margin per unit of $4.How many units must be sold to meet a target operating income of $50,000?

Accepted Answer

Contribution margin per unit = Selling price per unit - Variable cost per unit

Solving for selling price:
Selling price per unit = Contribution margin per unit + Variable cost per unit = $4 + $6 = $10

To meet a target operating income of $50,000, we need to cover the fixed costs of $160,000 and add the operating income of $50,000. That gives us a total target profit of $210,000.

Using the contribution margin ratio:

Contribution margin ratio = Contribution margin / Selling price

Contribution margin ratio = $4 / $10 = 0.4

To cover the target profit of $210,000, we can use the following equation:

Target profit = (Contribution margin per unit * Units sold) - Fixed costs

$210,000 = ($4 * Units sold) - $160,000
$370,000 = $4 * Units sold
Units sold = $370,000 / $4
Units sold = 92,500

Therefore, we need to sell 92,500 units to cover the total fixed costs and earn a target operating income of $50,000.

Question 9

Assume total fixed costs of $160,000, variable costs per unit of $6, and contribution margin per unit of $4.What are the sales dollars required to meet a target operating income of $50,000?

Accepted Answer

To find the sales dollars required to meet a target operating income, you can use the formula: (Fixed Costs + Target Operating Income) / Contribution Margin Ratio. First, find the contribution margin ratio, which is Contribution Margin per Unit / Selling Price per Unit. However, we're not given the selling price directly but can deduce it from the variable cost and contribution margin given. If the variable cost is $6 and the contribution margin is $4, the selling price per unit must be $10 ($6 variable cost + $4 contribution margin). Thus, the contribution margin ratio is $4 / $10 = 0.4. Then, plug into the formula: ($160,000 + $50,000) / 0.4 = $210,000 / 0.4 = $525,000.

Question 10

On the breakeven graph, the point at which the total sales revenue line and the total cost line intersect is called

Accepted Answer

The point where the total sales revenue line and the total cost line intersect is known as the breakeven point. It is the point at which a company's total revenue equals its total costs, resulting in neither profit nor loss.

Question 11

Assume Buddy's Farm Supply wants to make $45,000 in net income.If the tax rate is 25%, how much operating income must Buddy have?

Accepted Answer

To find the operating income required to achieve a net income of $45,000 with a tax rate of 25%, we use the formula: Operating Income = Net Income / (1 - Tax Rate). Plugging in the values: Operating Income = $45,000 / (1 - 0.25) = $60,000.

Question 12

Barbara's Boutique wants to know what it takes to have $20,000 in operating income.If her selling price is $20, variable cost is $8, and fixed costs total $40,000, how many units must she sell to reach her goal?

Accepted Answer

To calculate the number of units Barbara's Boutique needs to sell, we can use the following formula:

Operating Income = (Selling Price - Variable Cost) x Units - Fixed Costs

Since we know that Barbara wants to have $20,000 in operating income, we can plug that in:

$20,000 = ($20 - $8) x Units - $40,000

We can simplify this to:

$60,000 = $12 x Units

And then solve for Units:

Units = $60,000 / $12 = 5,000 units

Therefore, the answer is choice C: 5,000 units.

Question 13

The formula for operating income is

Accepted Answer

Operating income is calculated by subtracting total variable costs and fixed costs from sales revenue. Profit is not subtracted from operating income as it is already included in sales revenue. Contribution margin is a separate calculation used to determine how much revenue is left over to cover fixed costs after variable costs have been covered. Gross margin is calculated by subtracting only the cost of goods sold from sales revenue.

Question 14

Assume total fixed costs of $160,000, variable costs per unit of $6, and contribution margin per unit of $4.How many units must be sold to meet a target net income of $50,000, assuming a tax rate of 20%?

Accepted Answer

To meet a target net income of $50,000 after taxes, we first need to calculate the pre-tax income required. Since the tax rate is 20%, the pre-tax income needed is $50,000 / (1 - 0.20) = $62,500. The contribution margin per unit is $4, so to cover the total fixed costs and the desired pre-tax profit, we calculate the total units needed as follows: Total units = (Fixed Costs + Desired Pre-tax Profit) / Contribution Margin per Unit = ($160,000 + $62,500) / $4 = 55,625 units.

Question 15

Bonita Corporation produces only one product.Monthly data includes: selling price per unit, $42; unit variable expenses, $14; total fixed expenses, $84,000; actual sales for the month of June, 4,000 units.What is the margin of safety?

Accepted Answer

Margin of safety = Total Sales - Break-even Sales
Break-even Sales = (Total Fixed Expenses)/(Contribution Margin per unit)
Contribution Margin per unit = Selling Price per unit - Unit Variable Expenses

Using the given data:
Contribution Margin per unit = $42 - $14 = $28
Break-even Sales = $84,000/$28 = 3,000 units
Total sales = 4,000 units x $42 per unit = $168,000
Margin of safety = $168,000 - $84,000 - ($14 x 4,000 units) = $42,000

Question 16

Miguel Manufacturing has fixed costs of $2,500,000 and variable costs are 40% of sales.What are the required sales if Montoya desires an operating income of $250,000?

Accepted Answer

To achieve a desired operating income, we can use the formula: Required Sales = (Fixed Costs + Desired Operating Income) / (1 - Variable Cost Percentage). Plugging in the values: Required Sales = ($2,500,000 + $250,000) / (1 - 0.40) = $2,750,000 / 0.60 = $4,583,333.

Question 17

Cross Creek Company sells concrete culverts.Currently, the company's sales revenue is $900,000, variable costs total $450,000, and fixed costs total $300,000.If Cross Creek's controller has calculated the company's breakeven point to be $597,000, what is the company's margin of safety?

Accepted Answer

Breakeven point = Fixed costs / Contribution margin per unit
Contribution margin per unit = Sales price per unit - Variable cost per unit
$597,000 = $300,000 / (Sales price per unit - $225)
Sales price per unit = $750
Contribution margin per unit = $525

Units sold at breakeven point = (Fixed costs + Variable costs) / Sales price per unit
Units sold at breakeven point = ($300,000 + $450,000) / $750 = 800

Margin of safety = Actual or expected sales - Breakeven sales
Margin of safety = $900,000 - ($750 * 800) = $303,000.

Therefore, the correct answer is choice C.

Question 18

The formula for calculating units required to meet target operating income is

Accepted Answer

The formula for calculating units required to meet target operating income is (total fixed costs plus target operating income) divided by contribution margin per unit. This is because contribution margin per unit represents the amount of each unit sale that contributes to covering fixed costs and generating a profit. By dividing the total fixed costs plus target operating income by the contribution margin per unit, we can determine how many units need to be sold in order to achieve the desired level of operating income.

Question 19

Breakeven point can be expressed in terms of

Accepted Answer

The breakeven point is typically expressed in terms of units, as it represents the number of units that must be sold to cover all fixed and variable costs, resulting in zero profit or loss.

Question 20

The formula for calculating the sales dollars required to meet target operating income is

Accepted Answer

The formula for calculating the sales dollars required to meet target operating income is (total fixed costs plus target operating income) divided by contribution margin ratio. This is because the contribution margin ratio represents the percentage of each sales dollar that contributes to covering fixed costs and generating profit. By dividing the sum of fixed costs and target operating income by the contribution margin ratio, we can determine the required sales dollars needed to meet the desired profit goal.

Quiz 3: Costvolumeprofit Analysis and Pricing Decisions