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Free CMA Exam Braindumps (page: 77)

Page 77 of 336
PDF with 1336 Questions
View Related Case Study

Product A accounts for 75% of a company's total sales revenue and has a variable cost equal to 60% of its selling price. Product B accounts for 25% of total sales revenue and has a variable cost equal to 85% of its selling price. What is the breakeven point given fixed costs of $150,000?

  1. $375,000
  2. $444,444
  3. $500,000
  4. $545,455

Answer(s): B

Explanation:

Sales = VC + PC. The proportion of each product's sales must be considered.



View Related Case Study

Which of the following will result in raising the breakeven point?

  1. A decrease in the variable cost per unit.
  2. An increase in the semivariable cost per unit.
  3. An increase in the contribution margin per unit.
  4. A decrease in income tax rates.

Answer(s): B

Explanation:

The BEP equals fixed cost divided by the UCM (selling price -- unit variable cost). An increase in semivariable costs increases fixed costs and/or variable costs. An increase in either will raise the BEP. If fixed costs increase, more units must be sold, assuming the same UCM, to cover the greater fixed costs. If variable costs increase, the UCM will decrease and again more units must be sold to cover the fixed costs.



View Related Case Study

A company's breakeven point in sales dollars may be affected by equal percentage increases in both selling price and variable cost per unit (assume all other factors are constant within the relevant range). The equal percentage changes in selling price and variable cost per unit will cause the breakeven point in sales dollars to

  1. Decrease by less than the percentage increase in selling price.
  2. Decrease by more than the percentage increase in the selling price.
  3. Increase by the percentage change in variable cost per unit.
  4. Remain unchanged.

Answer(s): D

Explanation:

The BEP in sales dollars is equal to the fixed cost divided by the CMR. Accordingly, equal percentage changes in selling price and variable cost per unit will not affect the BEP in sales dollars. For example, assume the unit price of a product is $1 and its unit variable cost is $.60. The CMR equals 40% [($1 -- $.60) UCM ÷,$1 unit price]. If fixed cost is $100, the BEP in sales dollars is $250 ($100 ÷ 40%). Raising the selling price and variable cost by 20% to $1.20 and $.72, respectively, leaves the CMR at4O% ($48 ÷ $1.20). Similarly, lowering the selling price and variable cost to $.80 and $48, respectively, also leaves the CMR at 40% ($.32_÷$.80).



View Related Case Study

Two companies produce and sell the same product in a competitive industry. Thus, the selling price of the product for each company is the same. Company 1 has a contribution margin ratio of 40% and fixed costs of $25 million. Company 2 is more automated, making its fixed costs 40% higher than those of Company 1. Company 2 also has a contribution margin ratio that is 30% greater than that of Company 1. By comparison, Company 1 will have the <List A> breakeven point in terms of dollar sales volume and will have the <List B> dollar profit potential once the indifference point in dollar sales volume is exceeded.

  1. Option
  2. Option
  3. Option
  4. Option

Answer(s): A

Explanation:

Company 1's breakeven point is lower because its fixed costs are lower. Company 1's breakeven point is $62,500,000 ($25,000,000 ÷ 40%). Company 2's breakeven point is $67,307,692 [($25,000,000 x I A) ÷ (40% x 1 .3)]. The indifference point, at which dollar profits are equal, is $83,333,333 ($25,000,000 + .60X = 35,000,000 + .48X). Once the indifference point is passed, Company 1 will make lower profits than Company 2 because Company 2 has a higher contribution margin.



Page 77 of 336



Post your Comments and Discuss Financial CMA exam with other Community members:

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