A retail company determines its selling price by marking up variable costs 60%. In addition, the company uses frequent selling price markdowns to stimulate sales. If the markdowns average 10%, what is the company's contribution margin ratio?
Answer(s): B
The contribution margin equals revenues minus variable costs. The contribution margin ratio equals the unit contribution margin divided by the selling price. For example, if variable costs average $10 per unit, the average selling price is $16 (1.60 x $10). However, the 10% markdown implies that the actual average selling price is $14.40 (.90 x $16). The contribution margin ratio is therefore 30.6% [($14.40 --$10.00) ÷ $14.40]
The following data pertains to XYZ Company for the current year of operations. How many units does XYZ Company need to produce and sell to make a before-tax profit of 10% of sales?
Answer(s): C
Revenue minus variable and fixed expenses equals net income. If X equals unit sales1 revenue equals $25X, total variable expenses equal $16X ($4 + $7 + $2 + $3), total fixed expenses equal $585,000 ($360,000 + $225,000), and net income equals 10% of revenue. Hence, X equals 90,000 units.
The following data pertains to XYZ Company for the current year of operations.Assuming that XYZ Company sells 80,000 units, what is the maximum that can be paid for an advertising campaign while still breaking even?
Answer(s): A
The company will break even when net income equals zero. Net income is equal to revenue minus variable expenses and fixed expenses, including advertising. Thus, if X equals advertising cost, the equation
Total production costs of prior periods for a company are listed as follows. Assume that the same cost behavior patterns can be extended linearly over the range of 3,000 to 35,000 units and that the cost driver for each cost is the number of units produced.How many additional units should have been sold in order for the company to break even?
Answer(s): D
The breakeven point in units equals fixed costs divided by the difference between unit price and unit variable cost. Fixed costs were $160O00 [($300,000 sales--$180,000 VO) + $40,000 NOL], units sold equaled 24,000 ($300,000 sales · $12.50 SP), and unit variable cost was $7.50 ($180,000 VO + 24000 units sold). Accordingly, the breakeven point in units was 32,000 [$160,000 PC + ($12.50 SP --$7.50 unit VC)], and the additional units that should have been sold to break even equaled 8,000 (32,000 -- 24,000).
Total production costs of prior periods for a company are listed as follows. Assume that the same cost behavior patterns can be extended linearly over the range of 31000to 35.000 units and that the cost driver for each cost is the number of units produced.What is the average cost per unit at a production level of 8,000 units for costX?
CostX is a mixed cost (part variable and part fixed). The hi-low method can be used to determine the fixed and variable portions. Dividing the total cost of X at two different production volumes by the difference in units produced gives a unit variable cost of $4.83 [($178,260 --$23,700) + (35,000 units --3,000 units)]. Fixed cost must the before be $9,210 [$178,260 cost of X for 35,000 units--(35,000 units x $4.83)]. Total cost of X for 8,000 units is $47,850 [$9,210 + (8,000 units x $4.83)], and the average cost is $5.98 ($47,850 + 8,000).
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