Question

 

1) Green T-Shirt Processing has a unit sales price of $20 for their t-shirt. The contribution margin percentage is 70%.

If they sold 7,000 shirts last quarter and fixed costs totaled $10,000, what is their net operating income?

a. $98,000

b. They are at breakeven

c. $88,000

d. None of the above     

2) Green T-Shirt Processing has a unit sales price of $20 for their t-shirt. The contribution margin percentage is 70%.

What is their breakeven point in sales dollars?

a. $10,000

b. $12,500

c. $14,700

d. $14,286

3) Green T-Shirt Processing has a unit sales price of $20 for their t-shirt. The contribution margin percentage is 70%.

What is true of Green T-Shirt Processing’s breakeven point?

a. For each unit sold beyond the breakeven point, $14 of additional contribution margin is generated to help produce a profit

b. For each unit sold beyond the breakeven point, $6 of additional contribution margin is generated to help produce a profit

c. Their contribution margin is $6, if they lower prices, they will breakeven

d. None of the above

4) Green T-Shirt Processing has a unit sales price of $20 for their t-shirt. The contribution margin percentage is 70%.

Green T-Shirt Processing incurs only fixed and variable costs in its operations. When 10,000      T-shirts are produced, the company’s managerial accountant noted a fixed cost per shirt of $1.00 and a variable cost per pot of $6.00.

If production is expected to increase, which of the following statements is true?

a. The fixed cost per T-shirt will not change; the variable cost per T-shirt will decrease.

b. Total fixed costs will decrease; the variable cost per T-shirt will not change.

c. The fixed cost per T-shirt will decrease; the variable cost per T-shirt will increase.

d. Total fixed costs will remain unchanged; total variable costs will increase.

Answer 1

Given information

	$
Selling price per t-shirt	$20
Contribution margin percentage	70%
Contribution margin per t-shirt ($20 x 70%)	$14
Variable cost per t-shirt ($20 x 30%)	$6
Fixed cost	$10,000

1. Calculation of net operating income if 7,000 shirts are sold:

	$
Contribution margin from 7,000 shirts (7,000 x $14)	$98,000
Less: Fixed costs	$10,000
Net operating income	$88,000

Correct answer is Option c $88,000.

2. Calculation of break-even point in sales dollars:

Breakeven point in sales dollars = Fixed cost / Contribution margin percentage = $10,000 / 70% = $14,286

Correct answer is Option d $14,286.

3. True statement of Green T-Shirt Processing’s breakeven point:

Break-even point is that point where the contribution margin produced equals the fixed cost. After such breakeven point every unit sold will get the profit of contribution margin per unit.

Here the contribution margin is $14 ($20 x 70%).

Therefore For each unit sold beyond the breakeven point, $14 of additional contribution margin is generated to help produce a profit.

Correct answer is Option a.

4.

Given information

When 10,000T-shirts are produced, fixed cost per shirt of $1.00 and a variable cost per Shirt of $6.00.

Considering the above situation, the true statement will be:

If production is expected to increase then the total fixed costs will remain unchanged and total variable costs will vary with the change in production.

Correct answer is Option d.

d. Total fixed costs will remain unchanged; total variable costs will increase.