Question

In: Accounting

15. What does sensitivity analysis refers to? a. control. b. what-if situations. c. variable costs only. d....

15. What does sensitivity analysis refers to?

a.	control.
b.	what-if situations.
c.	variable costs only.
d.	fixed costs only.

Cheesy Company

The Company is considering the introduction of a new product with the following price and cost characteristics

Sales price	$150 each
Variable cost	$60 each
Fixed cost	$135,000 per year

The company expects to sell 2,000 units for the year.

16. Refer Cheesy Company. How many units must be sold to break even?

a.	900
b.	2,250
c.	2,000
d.	1,500

17. What effect could an increase (investment) in fixed costs have on the break-even point and the contribution margin?

Break-even Point Contribution Margin

a.	Increase Increase
b.	Increase Decrease
c.	Decrease Increase
d.	Decrease Decrease

18. Calculate margin of safety using the following assumptions:

Sales Price per unit	$500
Variable cost per unit	$300
Fixed Costs in total	$200,000
Actual Sales Volume	1,750 units

a.	1,000 units
b.	$500,000
c.	1,750 units
d.	750 units

19. Which of the following is a typical cost structure for home builders?

a.	high fixed costs relative to variable costs.
b.	high variable costs relative to fixed costs.
c.	high profits relative to total costs.
d.	None of the answers is correct.

Expert Solution

Q 15
	Correct answer is
	c.	what-if situations.

Q 16	S.P	$ 150
	V.C	$ 60

	Contribution margin per unit	$ 90

	Fixed cost (per year)	$ 135,000

	Breakeven units =	Fixed cost (per year)
		Contribution margin per unit

	Breakeven units =	$ 135,000
		$ 90

	Breakeven units =	1,500	Units


	Correct answer is d.) 1500 units


Q 17	Correct answer is
		Break-even Point	Contribution Margin
	b)	Increase	Decrease

	Reason :	Break even point is directly proportional to Fixed costs & inversely proportional to Contribution marin per unit
		Overall margin decreases with increase in costs

Q 18	S.P	$ 500
	V.C	$ 300

	Contribution margin per unit	$ 200

	Fixed cost (per year)	$ 200,000

	Breakeven units =	Fixed cost (per year)
		Contribution margin per unit

	Breakeven units =	$ 200,000
		$ 200

	Breakeven units =	1,000	units

	Actual Sales units=	1,750	units

	Margin of safety=	Actual sales(units)-Breakeven units

	Margin of safety=	750	units


	Correct answer is d.) 750 units


Q 19	Correct answer is
	b) high variable costs relative to fixed costs.

	Reason: As home builders have salaries to workers as their fixed costs
	But construction of home requires land and other materials which constitute major part of costs.

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ekkarill92 answered 1 year ago

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