A company has sales of one of its products of $400,000 per year and a contribution margin ratio of 20%. s margin of safety is $40,000 What is the company's breakeven point?
Answer(s): A
The margin of safety equals sales above the breakeven point. Thus, if the margin of safety is $40,000, the breakeven point must be $360,000 ($400,000 sales -- $40,000)
A company has sales of one of its products of $400,000 per year and a contribution margin ratio of 20%. Its margin of safety is $40,000. What are the company's fixed costs?
The margin of safety equals sales above the breakeven point. Thus, if the margin of safety is $40,000. the breakeven point in sales dollars must be $360,000. If the contribution margin rah is 20%, the contribution margin (sales -- variable costs) at the breakeven point is $72,000 ($360,000 x 20%). This amount must equal fixed costs because sales equal the sum of fixed and variable costs at the breakeven point.
For one of its divisions, Buona Fortune Company has fixed costs of $300,000 and a van able-cost percentage equal to 60% of its $10 per unit selling price. It would like to earn a pre-tax income 01 $90,000 per year from the division. What is the breakeven point in dollars?
Answer(s): C
Breakeven point is calculated by dividing the fixed costs ol $300,000 by the contribution margin percentage, which was 40%. Dividing $300,000 by .4 results in a breakeven point of $750,000.
For one of its divisions, Buona Fortuna Company has fixed costs of $300,000 and a variable-cost percentage equal to 60% of its $10 per unit selling price. It would like to earn a pre-tax income of $90,000 per year from the division. How many units will Buona Fortuna have to sell to earn a pre-tax income of $90,000 per year?
Answer(s): D
The breakeven point is calculated by dividing the fixed costs by the unit contribution margin in dollars To determine how many units need to be sold to yield a specific income, that income should be treated as a fixed cost. Thus, adding the $90,000 of desired income to the $300,000 of fixed costs results in a numerator of $390,000. Hence, the necessary unit sales equals 97.500 units [$390,000 + ($10 unit price -- $6 unit variable cost)].
A company wants to open a new store in one of two nearby shopping malls. In Mall A. the rent will be $250 .000 per year. In Mall B. the rent will be 4% of gross revenues. Assuming that revenues and all other elements under consideration are the same for both malls, at what level of revenues will the company be indifferent between the two malls?
The level of indifference is calculated by setting the equation for the first mall (a flat $250,000) equal to the equation for the second mall). Solving for that equation involves dividing $250,000 by 4%. resulting in an indifference level of revenues of $6,250,000.
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