Question

1. Wang Co. manufactures and sells a single product that sells for $600 per unit; variable costs are $324. Annual fixed costs are $984,400. Current sales volume is $4,340,000. Compute the break-even point in units.

Multiple Choice:

A. 4,697.

B.1,641.

C.3,567.

D.3,038.

E.528.

2. Wang Co. manufactures and sells a single product that sells for $400 per unit; variable costs are $232 per unit. Annual fixed costs are $844,200. Current sales volume is $4,210,000. Management targets an annual pre-tax income of $1,135,000. Compute the unit sales to earn the target pre-tax net income.

Multiple Choice

• 5,025.

• 8,513.

• 7,763.

• 11,781.

• 17,045.

3. Wang Co. manufactures and sells a single product that sells for $650 per unit; variable costs are $338 per unit. Annual fixed costs are $960,000. Current sales volume is $4,320,000. Compute the current margin of safety in dollars.

Multiple Choice

• $1,500,800.

• $2,000,000.

• $2,320,000.

• $3,382,518.

• $2,921,600.

4. Carver Packing Company reports total contribution margin of $95,400 and pretax net income of $21,200 for the current month. In the next month, the company expects sales volume to increase by 8%. The degree of operating leverage and the expected percent change in income, respectively, are:

Multiple Choice

• 4.0 and 32%

• 0.22 and 8%

• 0.22 and 4.1%

• 4.5 and 8%

• 4.5 and 36%

5. A manufacturer reports the following costs to produce 11,000 units in its first year of operations: Direct materials, $11 per unit, Direct labor, $7 per unit, Variable overhead, $55,000, and Fixed overhead, $143,000. The total product cost per unit under variable costing is:

Multiple Choice

• $18 per unit.

• $23 per unit.

• $36 per unit.

• $31 per unit.

• $16 per unit.

Answer 1

1. Break even point in units = fixed cost / contribution margin per unit = $984,400/($600-$324)= $984,400/$276 = 3566.66 = 3567 units (appx.)

Answer: C. 3,567

2. annual pre-tax income = $1,135,000

Add: Annual fixed costs = $844,200

Contribution required in total = $1,979,200

Contribution margin per unit = selling price - variable cost= $400-$232=$168

Required unit sales = total contribution/contribution margin per unit = $1,979,200/$168 = 11,780.95 = 11,781 units (appx.)

Answer : 11,781

3. Break even sales = fixed cost / contribution margin per unit = $960,000/($650-$338)= $960,000/$312 = 3077 units (appx.)

Break even sales = 3077 x $650 = $2,000,000 (appx.)

Margin of safety sales = actual sales - break even sales = $4,320,000- $2,000,000 = $2,320,000

Answer: $2,320,000

4. 1. Degree of operating leverage = Contribution margin/Operating income

= 95,400/ 21,200= 4.5

Increase in operating income = 4.5*8 = 36%

Answer: 4.5 and 36%

5. Total product cost =

+Direct materials, $11 per unit,

+Direct labor, $7 per unit,

+Variable overhead, $55,000/11,000= $5

= Total product cost $23

Answer: $23 per unit