Exhibit 26-1 Refer to Exhibit 26-l. What dollar value goes in blank (A)?

Question

Exhibit 26-1  Refer to Exhibit 26-l. What dollar value goes in blank (A)?

Quizplus · Accepted Answer

To determine the dollar value that goes in blank (A), we need to find the difference between the total revenue and the total variable costs.

Total revenue = 400 units x $80 per unit = $32,000 
Total variable costs = 400 units x $40 per unit = $16,000

Therefore, the contribution margin (which is the difference between total revenue and total variable costs) is $16,000.

To calculate the break-even point, we divide the total fixed costs by the contribution margin per unit:

Break-even point = $20,000 / ($80 - $40) = $20,000 / $40 = 500 units

Since the company sold only 400 units, it incurred a loss of 100 units.

The dollar value of this loss can be calculated using the contribution margin per unit:

Loss = 100 units x $40 per unit = $4,000

Finally, we subtract the loss from the total fixed costs to find the dollar value that goes in blank (A):

Blank (A) = $20,000 - $4,000 = $16,000

Therefore, the best choice is A, with an explanation that shows the calculation process.

Exhibit 26-1 Refer to Exhibit 26-L