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Free CMA Exam Braindumps (page: 105)

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When an organization is operating above the breakeven point, the degree or amount that sales may decline before losses are incurred is called the?

  1. Residual income rate.
  2. Marginal rate of return,
  3. Margin of safety.
  4. Target (hurdle) rate of return.

Answer(s): C

Explanation:

The margin of safety is me excess of budgeted revenues over breakeven revenues. It is considered in sensitivity analysis



View Related Case Study

Donnelly Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year. the shirts sold for $7.50 each, and the variable cost to manufacture them was $2.25 per unit. The company needed to sell 20.000 shirts to break even. The net income last year was $5,040 Donnelly expectations for me coming year include the following:
· The sales price of the T-shirts will be $9
· Variable cost to manufacture Will increase by one-third · Fixed costs will increase by 10%
· The income tax rate of 40% will be unchanged
The selling price that would maintain the same contribution margin rate as last year is?

  1. $9.00
  2. $8.25
  3. $10.00
  4. $9.75

Answer(s): C

Explanation:

Last year, unit variable cost was $225, so the unit contribution margin (UCM) was $5.25 ($7.50 price --$2.25). and the contribution margin rate (CMR) was 70% ($5.25. $7.50). If variable costs increase by one-third, the new variable cost will be $3 [$2.25 x (4 3)]. If a 70% CMR is desired, the $3 variable cost will be 30% of sales, and the unit sales price will be $10 ($3 30%)



View Related Case Study

Donnelly Corporation manufactures and sells T-shirts imprinted with college names and slogans. Last year. the shirts sold for $750 each, and the variable cost to manufacture them was $2.25 per unit. The company needed to sell 20.000 shirts to break even. The net income last year was $5,040. Donnelly's expectations for the coming year include the following:
· The sales price of the T-shirts will be $9
· Variable cost to manufacture will increase by one-third · Fixed costs Will increase by 10%
· The income tax rate of 40% will be unchanged
The number of T-shirts Donnelly Corporation must sell to break even in the coming year is?

  1. 17.500
  2. 19.250
  3. 20,000
  4. 22.000

Answer(s): B

Explanation:

The breakeven point (BEP) in units equals fixed cost divided by UCM. Fixed cost for the previous year was $105,000 (20,000 units at breakeven x $5.25 UCM). Fixed cost for the current year is $1 15.500 ($105,000 x 110%) The new UCM is $6 ($9 selling price $3 variable cost). Accordingly, the BEP is 19,250 units ($115.500. $6).



View Related Case Study

Donnelly Corporation manufactures and sells T-shirts imprinted with collage names and slogans. Last year, the shirts sold for $7.50 each, and the variable cost to manufacture them was $2.25 per unit, The company needed to sell 20.000 shirts to break even. The net income last year was $5,040. Donnelly's expectations for the coming year include the following:
· The sales price of the T-shirts will be $9
· Variable cost to manufacture will increase by one-third · Fixed costs will increase by 10%
· The income tax rate of 40% will be unchanged
Sales for the coming year are expected to exceed last year's by 1000 units. If this occurs. Donnelly's sales volume in the coming year will be?

  1. 22,600 units.
  2. 21,960units.
  3. 23.400 units.
  4. 21,000 units.

Answer(s): A

Explanation:

Because last year's after-tax profit was $5,040, pretax net income must have been $8.400 [$5,040 ÷ (1 --40% tax rate)] Because fixed costs have been fully recovered at the BEP, all of the UCM beyond that sales level is included in pretax net income. The UCM was $5.25, so the units sold in excess of the 20,000-unit BEP equaled 1,600 ($8,400 ÷ $5.25). If 21.600 total units were sold last year, an increase of 1.000 units results in sales of 22,600 units






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