Question

11.      A financial model is only as good as

a.	the rate of growth in the economy.
b.	the company’s operating leverage.
c.	the assumptions it uses and the data it uses.
d.	None of the answers are correct.

12.      How does cost-volume-profit analysis allows management to determine the relative profitability of a product?

a.	By highlighting potential bottlenecks in the production process.
b.	By keeping fixed costs to an absolute minimum.
c.	By determining the contribution margin and projected profits at various levels of production.
d.	By assigning costs to a product in a manner that maximizes the contribution margin.

13.      If a company has variable costs of $40 per unit, fixed costs of $3,000 per month and sells its product for $50, how many units must it sell to break-even?

a.	300
b.	250
c.	100
d.	50

14.      A company produces two products, A and B. A sells for $16 and has variable costs of $10. B sells for $12 and has variable costs of $8. Fixed Costs for the period are $35,000. Normally four units of A are sold for every two units of B units. How many units of B must be sold if the company expects profits of $50,000?

a.	15,947
b.	10,637
c.	5,313
d.	Cannot be determined

Answer 1

ANSWER 11

A financial model is only as good as

c) the assumptions it uses and the data it uses

ANSWER 12

How does cost-volume-profit analysis allows management to determine the relative profitability of a Product

c) By determining the contribution margin and projected profits at various levels of production.

ANSWER 13

If a company has variable costs of $40 per unit, fixed costs of $3,000 per month and sells its product for $50, how many units must it sell to break-even

a) 300

Fixed cost= $3000

Contribution p.u= selling price -variable cost

50-40 =10

Breakeven= Fixed Cost/Contribution p.u

3000/10=300 UNITS

ANSWER 14

A company produces two products, A and B. A sells for $16 and has variable costs of $10. B sells for $12 and has variable costs of $8. Fixed Costs for the period are $35,000. Normally four units of A are sold for every two units of B units. How many units of B must be sold if the company expects profits of $50,000?

c) 5313

fixed cost=$35000

Profit = $50000

Total $85000

FOR EVERY 2 UNIT OF B 4 UNIT OF A SOLD

PRODUCT 'A' contribution per unit =16-10=6

'B' contribution per unit =12-8=4

4 unit contribution of A= 4*6=24

2 unit contribution of B= 2*8=8

Total contribution in one batch =24+8=$32

unit produced=$85000/$32=2656 unit

so B unit sold=2656*2= 5313 unit approx