Question

1. When using the high-low method for estimating the fixed and variable portion of a mixed cost, you must first find the high and low points of sales. Then, to find the variable cost per unit, you must: Select one: a. Divide the difference in unit sales by the difference in total cost b. Divide the difference in total cost by the difference in unit sales c. Divide the difference in dollar sales by the difference in total cost d. Divide the difference in total cost by the difference in dollar sales

2. Sales mix is Select one: a. the relative percentage in which a company sells its multiple products b. the trend of sales over recent periods c. the mix of variable and fixed expenses in relation to sales d. a measure of leverage used by the company

3. In a sales mix situation, at any level of units sold, net income will be higher if Select one: a. more higher contribution margin units are sold than lower contribution margin units b. more lower contribution margin units are sold than higher contribution margin units c. more fixed expenses are incurred d. weighted-average unit contribution margin decreases

4. Ramirez Corporation sells two types of computer chips. The sales mix is 30% (Q-Chip) and 70% (Q-Chip Plus). Q-Chip has variable costs per unit of $60 and a selling price of $100. Q-Chip Plus has variable costs per unit of $70 and a selling price of $130. The weighted-average unit contribution margin for Ramirez is Select one: a. $46 b. $50 c. $54 d. $100

5. Ramirez Corporation sells two types of computer chips. The sales mix is 30% (Q-Chip) and 70% (Q-Chip Plus). Q-Chip has variable costs per unit of $60 and a selling price of $100. Q-Chip Plus has variable costs per unit of $70 and a selling price of $130. Ramirez’s fixed costs are $540,000. How many units of Q-Chip would be sold at the break-even point? Select one: a. 3,000 b. 3,522 c. 5,000 d. 7,000

Answer 1

• All working forms part of the answer
• 1. When using the high-low method for estimating the fixed and variable portion of a mixed cost, you must first find the high and low points of sales. Then, to find the variable cost per unit, you must: Select one:

b. Divide the difference in total cost by the difference in unit sales = CORRECT ANSWER

Example:

A	Difference in Cost	$                                 20,000.00
B	Difference in Units	1000
C=A/B	Variable cost per unit	$                                          20.00

• 2. Sales mix is Select one:

a.the relative percentage in which a company sells its multiple products = CORRECT ANSWER

Example:

Products	A	B	C	Total
No. of units sold	10000	15000	25000	50000
Sales Mix	20%	30%	50%	100%

• 3. In a sales mix situation, at any level of units sold, net income will be higher if Select one:

a.more higher contribution margin units are sold than lower contribution margin units = CORRECT ANSWER

This is because, when units with higher contribution margin are sold in greater quantity, contribution margin will increase at a faster rate than it would have increased otherwise.

• Question 4

Working:

		Q Chip	Q Chip Plus
A	Sales Mix	30%	70%
B	Selling price	$                                       100.00	$                   130.00
C	variable cost	$                                          60.00	$                     70.00
D=B-C	Unit Contribution margin	$                                          40.00	$                     60.00
E = A x D	Weighted Average contribution margin	$                                          12.00	$                     42.00

Total Weighted Average contribution margin = $ 12 + $ 42 = $54 = CORRECT ANSWER = Option ‘C’

• Question 5

Working

A	Fixed Cost	$                              5,40,000.00
B [Calculated in Question 4]	Weighted Average contribution margin	$                                          54.00
C = A/B	Total Break Even Units	10000
D = C x 30%	Q Chip's Break Even	3000
E = C x 70%	Q Chips Plus's Break Even	7000

Hence, the correct answer is Option ‘A’: 3,000 units = Break Even for Q CHip