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Free CMA Exam Braindumps (page: 81)

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What is the breakeven point in units for a product that sells for $10 if fixed costs are $4,000 and variable costs are 20%?

  1. 250
  2. 500
  3. 800
  4. 2,000

Answer(s): B

Explanation:

The breakeven point is where profit is zero and sales = fixed costs + variable costs, so 1 4,000 + 2x. Thus, 8x = 4,000, or x = 500 units. Alternatively, dividing the $4,000 of fixed costs by the $8 per unit contribution margin gives the same result.



View Related Case Study

Madengrad Company manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large industrial mixing machines used in flour, rubber, petroleum, and chemical manufacturing. Precisionmix sells for $900 per unit. The following variable costs are incurred to produce each Precisionmix device:



Madengrad's income tax rate is 40%, and annual fixed costs are $6,600,000. Except for an operating loss incurred in the year of incorporation, the firm has been profitable over the last 5 years.If Madengrad Company achieves a sales and production volume of 8.000 units, the annual before-tax income (loss) will be

  1. $(4,200000)
  2. $1,780,000
  3. $(2,520,000)
  4. $(420,000)

Answer(s): A

Explanation:

At a volume of 8000 units, sales will be $7,200,000 (8000 units x $900). Variable costs will ,be $4,800,000 (8,000 units x $600). Thus. the contribution margin is $2,400,000. Deducting the $6,600,000 of fixed 9costs from the contribution margin leaves a net loss of $4,200,000.



View Related Case Study

Madengrad Company manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large industrial mixing machines used in flour, rubber, petroleum, and chemical manufacturing. Precisionmix sells for $900 per unit. The following variable costs are incurred to produce each Precisionmix device:



Madengrad's income tax rate is4O%, and annual fixed costs are $6,600,000. Except for an operating loss incurred in the year of incorporation, the firm has been profitable over the last 5 years.The annual sales volume required for Madengrad Company to break even is

  1. 22,000 units.
  2. 11,000units.
  3. 8,400 units.
  4. 13,888 units.

Answer(s): A

Explanation:

The formula for the breakeven point in units divides the fixed costs by the unit contribution margin ($900 selling price -- $600 variable costs $300). Hence, the breakeven point is 22,000 units ($6,600,000 + 300).



View Related Case Study

Madengrad Company manufactures a single electronic product called Precisionmix. This unit is a batch-density monitoring device attached to large industrial mixing machines used in flour, rubber, petroleum, and chemical manufacturing. Precisionmix sells for $900 per unit. The following variable costs are incurred to produce each Precisionmix device:





Madengrad's income tax rate is 40% and annual fixed costs are $6,600,000. Except for an operating loss incurred in the year of incorporation, the firm has been profitable over the last 5 years.For Madengrad Company to achieve an after-tax net income of $540,000, annual sales revenue must be

  1. $23,850,000
  2. $225,000,000
  3. $2,700,000
  4. $21,420,000

Answer(s): B

Explanation:

The formula for the breakeven point in sales divides fixed costs by the contribution margin percentage. The contribution margin percentage is 33 1/3% [$300 unit contribution margin ($900 selling price -- $600 variable costs) + $900 selling price]. The after-tax income specified is $540000, which is equal to 60% (1 .0 -- A tax rate) of the before-tax income. Consequently, the before-tax income needed is $900,000 ($540,000 + .6). This amount may be treated as a fixed cost for the purpose of the formula. The breakeven point in sales dollar is therefore $22,500,000 [($6,600,000 + $900,000) + 33 1/3%].






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