Question

26) During March, a firm expects its total sales to be $169,000, its total variable costs to be $95,900, and its total fixed costs to be $25,900. The contribution margin for March is:

Multiple Choice

$73,100.

$25,900.

$47,200.

$121,800.

$95,900.

25)

Forrester Company is considering buying new equipment that would increase monthly fixed costs from $240,000 to $627,000 and would decrease the current variable costs of $60 by $15 per unit. The selling price of $100 is not expected to change. Forrester's current break-even sales are $600,000 and current break-even units are 6,000. If Forrester purchases this new equipment, the revised break-even point in dollars would be:

Multiple Choice

$330,000.

$763,636.

$1,140,000.

$436,364.

$600,000.

Answer 1

Contribution margin = Sales – variable cost

                                 =169000 – 95900

                                  = 73100

--------------------------------------------------------------------------------------------------------------------------

Break-even point is the level of sales that a company must achieve to reach at no profit no loss situation,

The formula to calculate BEP (in units) = Total Fixed cost/(selling price per unit - variable cost per unit)

Where,

Fixed cost = $627000

Selling price = 100 per unit

Variable cost = 45 per unit

Let's put all the values in the formula to get the BEP in units,

BEP = 627000/ (100 - 45)

BEP = 627000/55

BEP = 11400 Units

So to reach the BEP company must sell 11400 units

Break-even point in $ can be calculated by multiplying BEP in units with sale price per unit

BEP in $ = BEP units * sales price per unit

BEP in $ = 11400 * 100

BEP in $ = 1140000

So BEP in $ is 1140000

Correct answer is C.

--------------------------------------------------------------------------------------------------------------------------

Feel free to comment if you need further assistance J

Pls rate this answer if you found it useful.