Question

In: Accounting

1. Suppose that total fixed costs are 600.000.000 $, margin of safety is 500 tons, and...

1. Suppose that total fixed costs are 600.000.000 $, margin of safety is 500 tons, and breakeven amount is 1.500 tons. What would be the profit?

a) 100.000.000 $

b) 200.000.000 $

c) 300.000.000 $

d) 400.000.000 $

e) Other:

2. A company has a total fixed cost of 500.000 $ and produced 1.000.000 $ of profit this year. What would be the profit amount had the company increased its sales volume by 10%?

a) 1.100.000 $

b) 1.150.000 $

c) 1.200.000 $

d) 1.250.000 $

e) Other:

3. Suppose that depreciation expense is 3.000.000 $ and profit is 15.000.000 $. Contribution margin percentage is 60%. Breakeven revenue is 25.000.000 $. Under these conditions, what would be the $ amount of margin of safety?

a) 10.000.000 $

b) 15.000.000 $

c) 20.000.000 $

d) 25.000.000 $

e) Other:

Solutions

Expert Solution

Requirement 1:

Total Fixed Costs = $600,000,000

Margin of safety = 500 tons

Breakeven Point = 1,500 tons

Total Fixed Costs / Contribution per ton = 1,500

$600,000,000 / Contribution per ton = 1,500

Contribution per ton = $600,000,000 / 1,500

Contribution per ton = $400,000

Total Sales

= Margin of Safety + Breakeven Point

= 500 + 1,500

= 2,000 tons

Profit

= Total Contribution - Total Fixed Costs

= (Total Sales * Contribution per ton) - Total Fixed Costs

= (2,000 * $400,000) - $600,000,000

= $800,000,000 - $600,000,000

= $200,000,000

Correct Option: b) $200,000,000

Requirement 2:

Total Fixed Cost = $500,000

Profit = $1,000,000

Total Contribution

= Total Fixed Cost + Profit

= $500,000 + $1,000,000

= $1,500,000

If Sales volume increases by 10%, total contribution also increases by 10%

Hence, Total Contribution when sales volume increases by 10%

= Total Contribution at existing sales volume * 110%

= $1,500,000 * 110%

= $1,650,000

Profit when the sales volume increases by 10%

= Total Contribution - Fixed Costs

= $1,650,000 - $500,000

= $1,150,000

Correct Option: b) $1,150,000

Requirement 3:

Depreciation Expense = $3,000,000

Profit = $15,000,000

Contribution Margin Percentage = 60%

Breakeven Revenue = $25,000,000

Total Fixed Costs

= Total Contribution at Breakeven Revenue

= Contribution Margin Percentage * Breakeven Revenue

= 60% * $25,000,000

= $15,000,000

Total Revenue

= Total Contribution / Contribution Margin Percentage

= (Total Fixed Costs + Profit) / Contribution Margin Percentage

= ($15,000,000 + $15,000,000) / 60%

= $30,000,000 / 60%

= $50,000,000

Margin of Safety

= Total Revenue - Breakeven Revenue

= $50,000,000 - $25,000,000

= $25,000,000

Correct Option: d) $25,000,000

ekkarill92 answered 1 week ago
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