1) Florek Inc. produces and sells a single product. The company has provided its contribution...

Question:

1) Florek Inc. produces and sells a single product. The company has provided its contribution format income statement for March. Sales (6,500) : $292,500 Variable Expenses $195,000 Contribution Margin 97,500 Fixed Expenses 88,200 Net Operating Income $9,300 If the company sells 6,700 units, its net operating income should be closest to: a) $9,300 b) $12,300 c) $18,300 d) $9,586 2) Arthur Corporation has a margin of safety percentage of 25% based on its actual sales. The break-even point is $366,000 and the variable expenses are 45% of sales. Given this information, the actual profit is: a) $50,325 b) $18,300 c) 97,600 d) $67,100 3) Data concerning Wang Corporation's single product appear below: Selling Price Per Unit $240 Variable Expense Per Unit $76.80 Fixed Expense Per Month $146,880 The break-even in monthly dollar sales is closest to: a) $216,000 b) $146,880 c) $432,000 d) $285,120 4) The Clyde Corporation's variable expenses are 35% of sales. Clyde Corporation is contemplating an advertising campaign that will cost $29,000. If sales increase by $86,000, the company's net operating income will increase by: a) $74,750 b) $26,900 c) $1,100 d) $30,100 5) Minist Corporation sells a single product for $20 per unit. Last year, the company's sales revenue was $260,000 and its net operating income was $17,000. If fixed expenses totaled $87,000 for the year, the break-even point in unit sales was: a) 7,800 b) 10,875 c) 13,000 d) 13,850

Variable Cost.

Variable Cost is the Cost that is used in production. Variable Cost is not constant; it changes according to the increase or decrease of sale. The variable cost will increase as the sales of the company increases, and the variable cost will decrease as the sales will decrease.

Answer and Explanation:

(1)

The correct option is b(12,300)

Sales: 301,500

Less-VC: (201,000)

Contribution: 100,500

Less-Fixed Expenses: (88,200)

NOI: 12,300

As,

{eq}\begin{align*} {\rm{S}}& = {\rm{Units\;Sold}}\left( {Sales\;per\;unit} \right)\\ & = 6700\left( {45} \right)\\ & = 301,500\\ {\rm{VC}} &= {\rm{Units\;Sold}}\left( {VC\;per\;unit} \right)\\ & = 6700\left( {30} \right)\\ &= 201,000\\ \end{align*} {/eq}

(2)

The correct option is d(67,100)

{eq}\begin{align*} {\rm{MOS}} &= {\rm{AS}} - {\rm{BEPS}}\\ 366,000& ={\rm{AS}} - 0.25\;of\;AS\\ 366,000 &= 0.75\;of\;AS\\ {\rm{AS}}& = \dfrac{{366,000}}{{0.75}}\\ &= 488,000 \end{align*} {/eq}

{eq}\begin{align*} {\rm{FC}} &={\rm{BEPS}} \times {\rm{PV\;Ratio}}\\ & = 366,000 \times \left( {100\% - 45\% } \right)\\ & = 366,000\left( {55\% } \right)\\ &= 201,300 \end{align*} {/eq}

{eq}\begin{align*} {\rm{AP}}& = {\rm{Sales}} - {\rm{VC}} - {\rm{FC}}\\ & = 488,000 - 219,000 - 201,300\\ & = 67,100 \end{align*} {/eq}

(3)

The correct option is a(216,000)

{eq}\begin{align*} {\rm{C}}& ={\rm{S}} - {\rm{VC}}\\ & = 240 - 76.80\\ & = 163.2 \end{align*} {/eq}

{eq}\begin{align*} {\rm{Break\;Even\;sales}} &= \dfrac{{{\rm{FC}}}}{{{\rm{C}}}} \times SP\\ & = \dfrac{{146,880}}{{163.2}}\left( {240} \right)\\ & = 216,000 \end{align*} {/eq}

(4)

The correct option is b(26,900)

{eq}\begin{align*} {\rm{Ratio}} &= 1 - {\rm{VC}}\\ & = 1 - 0.35\\ & = 0.65\\ {\rm{NOI\;Increase}} &= \left( {0.65} \right)\left( {86,000} \right) - 29,000\\ & = 55,900 - 29,000\\ & = 26,900 \end{align*} {/eq}

(5)

The correct option is b(10875)

ParticularsTotalPer unit
Sales(13,000units)260,00020
Less-VC156,00012
Contribution104,0008

{eq}\begin{align*} {\rm{BEP(units)}}& = \dfrac{{{\rm{FC}}}}{{{\rm{Contribution\;per\;unit}}}}\\ & = \dfrac{{87,000}}{8}\\ &= 10875 \end{align*} {/eq}

Here,

FC is fixed cost.

VC is variable cost.

BEP is break even point.

SP is selling price.

MOS is margin of safety.

AS is actual sales.

AP is actual profit.


Learn more about this topic:

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Target-Profit & Break-Even Analysis

from

Chapter 3 / Lesson 5

Total costs are compared to total revenue and are either lower (profit), higher (loss), or equal (break-even point). Learn to calculate this and identify target profit, as well as establish a margin of safety to accommodate unanticipated risks.


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