Question

Green T-Shirt Processing has a unit sales price of $20 for their t-shirt. The contribution margin percentage is 70%.

Green T-Shirt Processing incurs only fixed and variable costs in its operations. When 10,000 T-shirts are produced, the company’s managerial accountant noted a fixed cost per shirt of $1.00 and a variable cost per pot of $6.00.

If production is expected to increase, which of the following statements is true?

Select one:

a. The fixed cost per T-shirt will not change; the variable cost per T-shirt will decrease.

b. Total fixed costs will decrease; the variable cost per T-shirt will not change.

c. The fixed cost per T-shirt will decrease; the variable cost per T-shirt will increase.

d. Total fixed costs will remain unchanged; total variable costs will increase.

Desired sales ($) = (Total Fixed Costs + Net Income) / Contribution margin ratio

Assume that a company is using the CVP formula to calculate sales needed to achieve a desired net income. If the company first calculates the breakeven point, what is true of desired net income (profit)?

Select one:

a. It will be equal to fixed costs

b. It will be equal to variable costs

c. It will be equal to unit contribution

d. It is equal to 0

Desired sales ($) = (Total Fixed Costs + Net Income) / Contribution margin ratio

Tony’s Pizzeria is estimated to have fixed costs of $30,000 and they want to achieve a profit of $120,000 before taxes. How many pizzas must they sell to achieve a before tax profit of $120,000 if they have a current contribution margin of $3 per unit?

Select one:

a. 125,000 pizzas

b. 60,000 pizzas

c. 50,000 pizzas

d. 120,000 pizzas

Desired sales ($) = (Total Fixed Costs + Net Income) / Contribution margin ratio

Using the same information from Question 7, what is the selling price per pizza?

Select one:

a. $4

b. $5

c. $7

d. We don’t have enough information to determine selling price

Answer 1

1.Fixed costs are costs that remains same at all levels of activity. Total fixed costs remains same irrespective of number of units produced.

Variable costs changes with change in production units.If production increases total variable costs increases. If production decreases total variable costs decreases.

Option A) Incorrect

Total fixed costs remains same, if production increases per unit fixed cost decreases

Total variable cost increases

Option B) Incorrect

Total fixed costs will remain same.variable cost per tshirt will remain same

Option C) Incorrect

Fixed cosr per t shirt will decrease ,variable cost per tshirt will remain unchanged

Option D) correct

Total fixed costs will remain same,Total variable cost will increase with increase in production

AnswerD)

2) Break even sales is the sales at which there is no profit no loss.

At break even Total fixed cost= Total contribution margin

total contribution margin = sales- variable cost

desired net income at break even is 0

Total sales= Total variable cost+Fixed cost

Answer D)

3) Break even sales = (fixed cost+desired net income)/ contribution margin

($30,000+$120,000)/$3 per unit

=$150,000/3

=50,000 pizza

Answer c)

4) Contribution margin = sale price-variable cost

we have contribution margin = $3

but we dont have sales price/variable cost

so we cannot find two variables i.e. selling price/ variable cost

d. We don’t have enough information to determine selling price

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