Question

1 Gladstone Co. has expected sales of $326,000 for the upcoming month and its monthly break even sales are $300,000. What is the margin of safety as a percent of sales, rounded to the nearest whole percent?

A) 9%.

B) 108%.

C) 52%.

D) 8%.

2 A company has fixed costs of $320,000 and a contribution margin per unit of $15. If the firm wants to earn a target $40,000 pretax income, how many units must be sold (rounded to the nearest whole unit)?

A) 24,000.

B) 21,333.

C) 18,666.

D) 2,667.

3 Use the following information to determine the break-even point in sales dollars:

Unit sales	50,000 Units
Dollar sales	$	500,000
Fixed costs	$	204,000
Variable costs	$	187,500

A) $88,500.

B) $108,500.

C) $173,600.

D) $326,400.

4 Use the following information to determine the contribution margin ratio:

Unit sales	50,000 Units
Unit selling price	$	14.50
Unit variable cost	$	7.50
Fixed costs	$	204,000

A) 6.9%.

B) 48.3%.

C) 24.5%.

D) 51.7%.

5.       The following information is available for a company's utility cost for operating its machines over the last four months.

Month	Machine hours		Utility cost
January	900		$	5,450
February	1,800		$	6,900
March	2,400		$	8,100
April	600		$	3,600

Using the high-low method, the estimated variable cost per unit for utilities is:

A) $3.38.

B) $6.00.

C) $2.50.

D) $4.22.

6.       The sales level at which a company neither earns a profit nor incurs a loss is the:

A) Relevant range.

B) Margin of safety.

C) Contribution Margin

D) Break-even point.

7.       A product sells for $30 per unit and has variable costs of $18 per unit. The fixed costs are $720,000. If the variable costs per unit were to decrease to $15 per unit, fixed costs increase to $900,000, and the selling price does not change, break-even point in units would:

A) Increase by 20,000.

B) Equal 6,000.

C) Increase by 6,000.

D) Not change

8.       A firm sells two products, Regular and Ultra. For every unit of Regular the firm sells, two units of Ultra are sold. The firm's total fixed costs are $1,612,000. Selling prices and cost information for both products follow. What is the firm's break-even point in units of Regular and Ultra?

Product	Unit Sales Price		Variable Cost Per Unit
Regular	$	20	$	8
Ultra		24		4

A) 31,000 Regular units and 31,000 Ultra units.

B) 31,000 Regular units and 62,000 Ultra units.

C) 10,333 Regular units and 20,667 Ultra units.

D) 36,167 Regular units and 72,333 Ultra units.

9.       The ratio (proportion) of the sales volumes for the various products sold by a company is called the:

A) Current product mix.

B) Relevant mix.

C) Sales mix.

D) Inventory cost ratio.

E) Production ratio.

Answer 1

1. Margin of Safety = (Current Sales Level- Break Even Point) / Current Sales Level *100

= (326000 - 300000)/ 326000 * 100

= 8%

Answer : OPTION D i.e. 8%

2. Reqd. Sales = (Fixed Cost + Reqd. Profit )/ Contribution p.u.

= (320000 + 40000) / 15

= 24000

Answer : Option A

3. Contriution = 500000 - 187500

= 312500

Break Even Point = Fixed Cost/ Contribution * Sales

= 204000/312500 * 500000

=  $ 326400

Answer : Option D

4. Contribution Margin Ratio = Contribution/ Sales * 100

= 7/14.5 * 100

= 48.30%

Answer : Option B

5. The high low method involves taking the highest level of activity & comparing the lowest level of activity & comaparing the total costs at each level

Highest level : 2400

Lowest Level : 600

Variable cost p.u. = 8100 - 3600/ 2400-600 = 4500/1800 = $ 2.5

Answer : Option C

6.The sales level at which a company neither earns a profit nor incurs a loss is the Break Even Point

Answer : Option D

7. Answer : Option D i.e. Not Change

Previously, Contribution p.u. = 30 -18

= $ 12

Therefore, the BEP was 720000/12 = 60000 units

Then,

Variable cost p. u. = $ 15

Fixed Cost = $ 900000

Revised BEP = 900000/15 = 60000 Units

Therefore, we see that the BEP doesnt change.

8. Contribution p.u. sold of Regular Product = 20 - 8 =12

Contribution p.u. sold of Ultra Product = 24 - 4 = 20

Since for ever 1 unit of Regular product sold, 2 Ultra products are sold

Therefore, Contribution on every unit of Regular sold = 12 +(20*2) = $ 52

BEP = Fixed Cost/ Contribution p.u.

= $ 1612000/ 52

=31000 units

Therefore, BEP = 31000 units of Regular Product and 31000*2 = 62000 units pf Ultra Product

Answer : Option B

9. Option B = Sales Mix