Question 1

Cliff runs a restaurant in a small town known for its theatres and tourist attractions. Cliff charges an average of $18 per meal. He estimates his variable costs to be $6 per meal and fixed costs are $12,000 per month. Cliff has the capacity to serve 2,000 meals per month. What number of meals must be sold to generate a net income of $7,800?

Accepted Answer

To find the break-even point or target profit point, we use the formula: (Fixed Costs + Target Profit) / (Selling Price per Unit - Variable Cost per Unit). Here, Fixed Costs = $12,000, Target Profit = $7,800, Selling Price per Unit = $18, and Variable Cost per Unit = $6. Plugging these into the formula gives: ($12,000 + $7,800) / ($18 - $6) = $19,800 / $12 = 1,650 meals.

Question 2

A small company can produce 500 dolls per week. The doll retails for $30. The variable costs are $7.50 per doll and fixed costs are $9,000 per week. How many dolls must be sold each week to produce a net income of $1125?

Accepted Answer

To find the break-even point in units, we use the formula: Break-even point in units = (Fixed Costs + Desired Profit) / (Selling Price per Unit - Variable Cost per Unit). Plugging in the given values: (9000 + 1125) / (30 - 7.5) = 10125 / 22.5 = 450 dolls.

Question 3

At this time, Weiner's Hot Dog Stand sells hot dogs for $2.50 each. The variable cost per hot dog is $1.75 and fixed costs per month are $1,800. Weiner is considering some changes. If Weiner increases his selling price to $2.75 per hot dog, and reduce his variable cost per hot dog to $1.15, what level of fixed cost per month would reduce his break-even point in units by 50% from what it is now?

Accepted Answer

The answer of At this time, Weiner's Hot Dog Stand...

Question 4

Weiner's Hot Dog Stand sells hot dogs for $2.50 each. The variable cost per hot dog is $1.75 and fixed costs per month are $1,800. If Weiner's fixed cost per month was to increase to $2,880, to what level would he have to reduce his variable cost per hot dog in order to maintain the current break-even point in units?

Accepted Answer

The formula for break-even point in units is:

Break-even point (units) = Fixed costs / Contribution margin per unit

We can calculate the contribution margin per unit as:

Contribution margin per unit = Selling price per unit – Variable cost per unit
Contribution margin per unit = $2.50 – $1.75
Contribution margin per unit = $0.75

Using the current fixed costs of $1,800, we can calculate the current break-even point in units:

Break-even point (units) = $1,800 / $0.75 per unit
Break-even point (units) = 2,400 units

If the fixed costs increase to $2,880, the break-even point must remain at 2,400 units. We can use the same formula to solve for the new variable cost per unit:

2,880 = 2,400 x ($2.50 – Variable cost per unit)
$0.30 = $2.50 – Variable cost per unit
Variable cost per unit = $2.50 – $0.30
Variable cost per unit = $2.20

Therefore, Weiner would need to reduce his variable cost per hot dog to $1.30 in order to maintain the current break-even point in units. The best choice is B.

Question 5

Cliff runs a restaurant in a small town known for its theatres and tourist attractions. Cliff charges an average of $18 per meal. He estimates his variable costs to be $6 per meal and fixed costs are $12,000 per month. Cliff has the capacity to serve 2,000 meals per month. What is the break-even point expressed as a percent of capacity?

Accepted Answer

The break-even point is calculated by dividing the fixed costs by the contribution margin per unit. The contribution margin per unit is the selling price per unit minus the variable cost per unit, which is $18 - $6 = $12. The fixed costs are $12,000. Therefore, the break-even point in units is $12,000 / $12 = 1,000 meals. To find the break-even point as a percent of capacity, divide the break-even point in units by the capacity and multiply by 100. So, (1,000 meals / 2,000 meals) * 100 = 50%.

Question 6

A small company can produce 500 dolls per week. The doll retails for $30. The variable costs are $7.50 per doll and fixed costs are $9,000 per week. What is the break-even point expressed as a percent of capacity?

Accepted Answer

The break-even point in units is found by dividing the fixed costs by the contribution margin per unit (price - variable costs). Here, it's $9,000 / ($30 - $7.50) = $9,000 / $22.50 = 400 units. To find the break-even point as a percent of capacity, divide the break-even point in units by the total capacity and multiply by 100. Thus, (400 / 500) * 100 = 80%.

Question 7

Weiner's Hot Dog Stand sells hot dogs for $2.50 each. The variable cost per hot dog is $1.75 and fixed costs per month are $1,800. How much profit should Weiner realize on the sale of 3,000 hot dogs?

Accepted Answer

The answer of Weiner's Hot Dog Stand sells hot dogs...

Question 8

Hot Dog Stand sells hot dogs for $2.50 each. The variable cost per hot dog is $1.75 and fixed costs per month are $1,800. How many hot dogs must Weiner sell in a month to break even?

Accepted Answer

To break even, the total revenue must cover the total cost. 
Total cost = Fixed cost + Variable cost per unit * Quantity
In this case, total cost = 1800 + 1.75x, where x is the number of hot dogs sold.
Total revenue = Price per unit * Quantity = 2.5x
Therefore, to break even:

Total revenue = Total cost

2.5x = 1800 + 1.75x

0.75x = 1800

x = 2400

So the hot dog stand must sell 2400 hot dogs in a month to break even. Therefore the best choice is C.

Question 9

A small company can produce 500 dolls per week. The doll retails for $30. The variable costs are $7.50 per doll and fixed costs are $9,000 per week. If fixed costs are increased by 10% per week, by how much will this lower the net income?

Accepted Answer

The increase in fixed costs by 10% is calculated as $9,000 * 10% = $900. This increase in fixed costs directly reduces the net income by the same amount, as it does not affect the revenue or the variable costs per unit.

Question 10

Ace Corporation's variable costs are equal to 43% of sales revenue. Their fixed costs per month are $600,000. Calculate the net income on sales of $2,000,000 per month.

Accepted Answer

Net income is calculated by subtracting total costs (variable and fixed) from sales revenue. Variable costs are 43% of $2,000,000, which equals $860,000. Fixed costs are $600,000. Total costs are $860,000 + $600,000 = $1,460,000. Sales revenue is $2,000,000, so net income is $2,000,000 - $1,460,000 = $540,000.

Question 11

Cliff runs a restaurant in a small town known for its theatres and tourist attractions. Cliff charges an average of $18 per meal. He estimates his variable costs to be $6 per meal and fixed costs are $12,000 per month. Cliff has the capacity to serve 2,000 meals per month. At 75% capacity, what is Cliff's net income?

Accepted Answer

The answer of Cliff runs a restaurant in a small...

Question 12

A small company can produce 500 dolls per week. The doll retails for $30. The variable costs are $7.50 per doll and fixed costs are $9,000 per week. How many dolls must be sold each week to produce a net income of $2250?

Accepted Answer

The answer of A small company can produce 500 dolls...

Question 13

A small company can produce 500 dolls per week. The doll retails for $30. The variable costs are $7.50 per doll and fixed costs are $9,000 per week. What is the break-even point expressed in dollars of revenue?

Accepted Answer

The answer of A small company can produce 500 dolls...

Question 14

Cando Manufacturing makes lamps that retail at $200 each. The unit variable cost is $120, and the fixed costs are $720,000 per year. Cando can produce a maximum of 2,000 lamps per month. What is the monthly net income at a volume of 1800 lamps per month?

Accepted Answer

First, calculate the total revenue: 
$200 x 1,800 lamps = $360,000

Then, calculate the total variable costs: 
$120 x 1,800 lamps = $216,000

Next, calculate the total fixed costs: 
$720,000 / 12 = $60,000 (monthly fixed cost)

Net income = Total revenue - Total variable costs - Total fixed costs 
Net income = $360,000 - $216,000 - $60,000 
Net income = $84,000

Therefore, the monthly net income at a volume of 1800 lamps per month is $84,000.

The best choice is B.

Question 15

Cando Manufacturing makes lamps that retail at $200 each. The unit variable cost is $120, and the fixed costs are $720,000 per year. Cando can produce a maximum of 2,000 lamps per month. What is the monthly net income if Cando operates at 60% capacity?

Accepted Answer

First, calculate the maximum number of lamps that Cando can produce in a month: 2,000 lamps/month. 
60% capacity = 60/100 * 2,000 lamps = 1,200 lamps/month. 
Total revenue from selling 1,200 lamps: $200/lamp * 1,200 lamps = $240,000. 
Total variable cost for producing 1,200 lamps: $120/lamp * 1,200 lamps = $144,000. 
Total fixed cost: $720,000/year ÷ 12 months = $60,000/month. 
Net income: $240,000 - $144,000 - $60,000 = $36,000/month. 
Therefore, the best choice is C, $36,000.

Question 16

Cliff runs a restaurant in a small town known for its theatres and tourist attractions. Cliff charges an average of $18 per meal. He estimates his variable costs to be $6 per meal and fixed costs are $12,000 per month. Cliff has the capacity to serve 2,000 meals per month. At full capacity, what is Cliff's net income?

Accepted Answer

Net income can be calculated by subtracting total costs from total revenue. Total revenue at full capacity (2,000 meals at $18 each) is $36,000. Total variable costs are $6 per meal, so for 2,000 meals, that's $12,000. Adding the fixed costs of $12,000, total costs are $24,000. Subtracting total costs ($24,000) from total revenue ($36,000) gives a net income of $12,000.

Question 17

Cliff runs a restaurant in a small town known for its theatres and tourist attractions. Cliff charges an average of $18 per meal. He estimates his variable costs to be $6 per meal and fixed costs are $12,000 per month. Cliff has the capacity to serve 2,000 meals per month. What number of meals must be sold to break-even?

Accepted Answer

The answer of Cliff runs a restaurant in a small...

Question 18

Ace Corporation's variable costs are equal to 43% of sales revenue. Their fixed costs per month are $600,000. Calculate the contribution rate.

Accepted Answer

The contribution rate is calculated as 100% minus the variable cost percentage. Since the variable costs are 43% of sales, the contribution rate is 100% - 43% = 57%.

Question 19

Cando Manufacturing makes lamps that retail at $200 each. The unit variable cost is $120, and the fixed costs are $720,000 per year. Cando can produce a maximum of 2,000 lamps per month. What is the break-even volume per month?

Accepted Answer

The answer of Cando Manufacturing makes lamps that retail at...

Question 20

Cando Manufacturing makes lamps that retail at $200 each. The unit variable cost is $120, and the fixed costs are $720,000 per year. Cando can produce a maximum of 2,000 lamps per month. At what percent utilization would the monthly net income be $44,000?

Accepted Answer

First, we need to calculate the contribution margin per unit:

Contribution Margin = Price - Unit Variable Cost
Contribution Margin = $200 - $120
Contribution Margin = $80

Next, we can calculate the monthly break-even point in units:

Break-even Point (Units) = Fixed Costs / Contribution Margin
Break-even Point (Units) = $720,000 / $80
Break-even Point (Units) = 9,000

Since Cando can produce a maximum of 2,000 lamps per month, the maximum monthly sales revenue would be:

Maximum Sales Revenue = 2,000 * $200
Maximum Sales Revenue = $400,000

We can now set up the following equation to find the percent utilization needed to achieve a monthly net income of $44,000:

Net Income = (Percent Utilization * Maximum Sales Revenue * Contribution Margin) - Fixed Costs

$44,000 = (Percent Utilization * $400,000 * $80) - $720,000

$44,000 = (Percent Utilization * $32,000,000) - $720,000

$44,720,000 = Percent Utilization * $32,000,000

Percent Utilization = $44,720,000 / $32,000,000

Percent Utilization = 1.4 or 140%

Since Cando can only produce a maximum of 2,000 lamps per month, it is not possible to achieve a percent utilization of 140%. The closest option is 65%, which would result in a monthly net income of $41,000: