Question

 

1) Desired sales ($) = (Total Fixed Costs + Net Income) / Contribution margin ratio

Assume that a company is using the CVP formula to calculate sales needed to achieve a desired net income. If the company first calculates the breakeven point, what is true of desired net income (profit)?

a. It will be equal to fixed costs

b. It will be equal to variable costs

c. It will be equal to unit contribution

d. It is equal to 0

2) Desired sales ($) = (Total Fixed Costs + Net Income) / Contribution margin ratio

Tony’s Pizzeria is estimated to have fixed costs of $30,000 and they want to achieve a profit of $120,000 before taxes. How many pizzas must they sell to achieve a before tax profit of $120,000 if they have a current contribution margin of $3 per unit?

a. 125,000 pizzas

b. 60,000 pizzas

c. 50,000 pizzas

d. 120,000 pizzas

3) Desired sales ($) = (Total Fixed Costs + Net Income) / Contribution margin ratio

Using the same information from Question 2, what is the selling price per pizza?

Select one:

a. $4

b. $5

c. $7

d. We don’t have enough information to determine selling price

4) Desired sales ($) = (Total Fixed Costs + Net Income) / Contribution margin ratio

Using the same information from Question 2 and assuming an original CM ratio of 60% for Tony’s Pizzeria. If variable costs increased by $.50 because Tony’s Pizzeria had to switch suppliers, how many pizzas must the company sell to achieve a before tax profit of $120,000?

Select one:

a. 125,000 pizzas

b. 60,000 pizzas

c. 50,000 pizzas

d. 120,000 pizzas

Answer 1