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Free CMA Exam Braindumps (page: 82)

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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.Assume a 10% increase in annual fixed costs, a 20% unit cost increase for direct labor1 and a reduction in unit material costs of 25%, with no change in selling price. After incorporating these changes, Madengrad Compans contribution margin would be

  1. 34%
  2. 69%
  3. 36%
  4. 64%

Answer(s): C

Explanation:

The original unit contribution margin (UCM) was $300. But unit direct labor cost is 20% higher ($180 x 20% = $36). Unit direct materials cost will be reduced by 25%1 or $60 ($240 x 25%). Thus1 the net result is that unit variable cost is reduced by $24 ($60-- $36), and the UCM will be $324 ($300 + $24). The contribution margin percentage will therefore be 36% ($324 ÷ 900).



View Related Case Study

Madengrad Company manufactures a single electronic product called Precision mix. This unit is a batch-density monitoring device attached to large industrial mixing machines used in flour, rubber, petroleum, and chemical manufacturing. Precision mix sells for $900 per unit. The following variable costs are incurred to produce each Precision mix 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. Assume a 10% increase in annual fixed costs, a 20% unit cost increase for direct labor1 and a reduction in unit material costs of 25%, with no change in selling price. Madengrad Company's breakeven point would increase (decrease) (rounded to the nearest whole unit) by

  1. 3,960 units.
  2. (1.620) units.
  3. 1,604 units.
  4. 407 units.

Answer(s): D

Explanation:

The new contribution margin is $324. Dividing this amount into the fixed costs will determine the new unit breakeven point. Fixed costs have increased by 10%to $7,26O000 ($6600,O00 x 1.1), and the new breakeven point is 22,407 units ($7,260,000 ÷ $324). The original unit break even point was 22,000 units. Hence1 the production changes increased the breakeven point by 407 units (22,407-- 22,000).



View Related Case Study

Von Stutgatt International's breakeven point is 8,000 racing bicycles and 12,000 5- speed bicycles. If the selling price and variable costs are $570 and $200 for a racer, and $180 and $90 for a 5-speed respectively, what is the weighted- average contribution margin?

  1. $100
  2. $145
  3. $179
  4. $202

Answer(s): D

Explanation:

The contribution margin is selling price minus variable costs.
The contribution margins are:



View Related Case Study

A company has sales of $500,000, variable costs of $300,000, and pretax profit of $150,000. If the company increased the sales price per unit by 10%, reduced fixed costs by 20%1 and left variable cost per unit unchanged1 what would be the new breakeven point in sales dollars?

  1. $88000
  2. $100000
  3. $110,000
  4. $125,000

Answer(s): A

Explanation:

The breakeven point in sales dollars is equal to the sum of fixed costs plus any desired pretax profit, divided by the contribution margin ratio [(sales--variable costs) ÷ sales]. Fixed cost was $50,000 ($500,000 sales--$300,000 VC--$150,000 pretax profit). Given the increase in sales of 10% and decrease in fixed costs of 20%, the breakeven point in sales is $88,000.






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