Acc 202

Topics: Variable cost, Contribution margin, Costs Pages: 9 (2047 words) Published: November 17, 2012
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1 INCORRECT| |
Redford, Inc. has provided the following data:If the dollar contribution margin per unit is increased by 10%, total fixed cost is decreased by 20%, and all other factors remain the same, net income will:| | | A)| decrease by $60,000.|

| | B)| increase by $60,000.|
| | C)| increase by $120,000.|
| | D)| increase by $420,000.|
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Feedback:The correct answer is C (Learning Objective 1):
Net income will change as follows.Calculations: 
$600,000 x 10% = $60,000
$300,000 x 20% = $60,000|
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2 INCORRECT| |
Gardner Manufacturing Company produces a product that sells for $120. A selling commission of 10% of the selling price is paid on each unit sold. Variable manufacturing costs are $60 per unit. Fixed manufacturing costs are $20 per unit based on the current level of activity, and fixed selling and administrative costs are $16 per unit. The contribution margin per unit is:| | | A)| $104.|

| | B)| $72.|
| | C)| $60.|
| | D)| $48.|
| | | | |
Feedback:The correct answer is D (Learning Objective 1):
The contribution margin per unit is determined as follows.
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3 CORRECT| |
Newman Corporation produced and sold 80,000 units and reported sales of $4,000,000 during the past year. Management determined that variable expenses totaled $2,800,000 and fixed expenses totaled $720,000. What is the company's contribution margin ratio?| | | A)| 30%|

| | B)| 70%|
| | C)| 150%|
| | D)| 250%|
| | | | |
Feedback:The correct answer is A (Learning Objective 3):
The company's contribution margin (CM) ratio is determined as follows.  CM ratio = CM ÷ Sales = (Sales – Variable expenses) ÷ Sales CM ratio = ($4,000,000 - $2,800,000) ÷ $4,000,000 = 30%|
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4 INCORRECT| |
Astair, Inc. reported sales of $8,000,000 for the month and incurred variable expenses totaling $5,600,000 and fixed expenses totaling $1,440,000. The company has no beginning or ending inventories. A total of 80,000 units were produced and sold last month. If sales increase by 200 units, how much should net income increase?| | | A)| $1,600|

| | B)| $6,000|
| | C)| $10,000|
| | D)| $19,200|
| | | | |
Feedback:The correct answer is B (Learning Objectives 1 and 3): First, determine the contribution margin (CM) per unit as follows.  CM per unit = (Sales – Variable expenses) ÷ Number of units sold  CM per unit = ($8,000,000 - $5,600,000) ÷ 80,000 = $30 per unit Then, determine the impact of the increase in sales on net income as follows. Increase in net income = Increase in sales (in units) x CM per unit  Increase in net income = 200 units x $30 per unit = $6,000| |

5 CORRECT| |
Astair, Inc. reported sales of $8,000,000 for the month and incurred variable expenses totaling $5,600,000 and fixed expenses totaling $1,440,000. The company has no beginning or ending inventories. A total of 80,000 units were produced and sold last month. (Note that this is the same data that was provided for the previous question.) How many units would the company have to sell to achieve a desired profit of $1,200,000?| | | A)| 88,000|

| | B)| 100,000|
| | C)| 106,668|
| | D)| 150,000|
| | | | |
Feedback:The correct answer is A (Learning Objectives 1 and 5): First, determine the contribution margin (CM) per unit as follows.  Total contribution margin/Number of units sold = CM per unit $2,400,000/80,000 = $30 per unit

Then, the total unit sales required to achieve the desired targeted profit is determined as follows.  Break-even point in units = (Fixed expenses + Desired targeted profit) ÷ CM per unit Break-even point (in units) = ($1,440,000 + $1,200,000) ÷ $30 per unit = 88,000 units| |

6 INCORRECT| |
Astair, Inc. reported sales of $8,000,000 for the month and incurred variable expenses totaling $5,600,000 and fixed expenses totaling $1,440,000. The company has no beginning...
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