Quiz: Variable Cost and Contribution Margin

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Quiz – Chapter 17 – Solution 1. Rider Company sells a single product. The product has a selling price of $40 per unit and variable expenses of $15 per unit. The company's fixed expenses total $30,000 per year. The company's break-even point in terms of total dollar sales is: A) $100,000. B) $80,000. C) $60,000. D) $48,000. The answer is d. CMR = (P-V)/P = ($40 - $15)/$40 = 62.5% Px = F/ (CMR) Px = $30,000/.625 = $48,000 Use the following to answer questions 2-3: Weiss Corporation produces two models of wood chairs, Colonial and Early American. The Colonial sells for $60 per chair and the Early American sells for $80 per chair. Variable expenses for each model are as follows: Colonial $35 9 Early American $48 8

Variable production cost per unit ....... Variable selling expense per unit .......

Total fixed expenses are $39,600 per month. Expected monthly sales are: Colonial, 1,800 units; Early American, 600 units. 2. The contribution margin per chair for the Colonial model is: A) $51. B) $16. C) $35. D) $25. The answer is b. CM = P-V = $60 - $35 - $9 = $16.

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3. If the sales mix and sales units are as expected, the break-even in sales dollars is closest to: A) $132,000. B) $148,500. C) $143,000. D) $139,764. Price: Variable Costs: Contribution Margin: Contribution Margin Ratio: The answer is c. Colonial to Early American Sales Mix: 3:1 Weighted Average Contribution Margin Ratio: .75(.2667) +.25(.30)= .20 +.075=.275 PX = F/CMR = $39,600/.275 = $144,000 Weighted Average Contribution Margin: .75(16) + .25(24) = 12+6 = $18 X = F/CMU = $39,600/$18 = 2,200 units Colonial Sales Revenue: Early American Revenue: .75(2,200) = 1,650 x $60 = .25(2,200) = 550 x $80 = $99,000 44,000 $143,000 Colonial $60 -44 $16 26.67% Early American $80 -56 $24 30%

Use the following to answer questions 4-5: Southwest Industries produces a sports glove that sells for $15 per pair. Variable expenses are $8 per pair and fixed expenses are $35,000 annually. 4. The break-even...
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