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Free CMA Exam Braindumps (page: 83)

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A company with $280,000 of fixed costs has the following data:


Assume three units of A are sold for each unit of B sold. How much will sales be in dollars of product B at the breakeven point?

  1. $200,000
  2. $240,000
  3. $280,000
  4. $840,000

Answer(s): B

Explanation:

The breakeven point equals fixed costs divided by unit contribution margin. The composite unit contribution margin for A and B is $7 {[3 units of A x ($5 -- $3)] + [1 unit of B x ($6 -- $5)]}. Thus, 40,000 composite units ($280,000 ÷ $7), including 40,000 units of B, are sold at the breakeven point. Hence, sales of B at the breakeven point equal $240000 (40,000 units x $6).



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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?

  1. 27.5%
  2. 30.6%
  3. 37.5%
  4. 41.7%

Answer(s): B

Explanation:

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]



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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?

  1. 65000 units.
  2. 36.562 units.
  3. 90,000 units.
  4. 25,000 units.

Answer(s): C

Explanation:

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.



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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?

  1. $135,000
  2. $1,015,000
  3. $535,000
  4. $695,000

Answer(s): A

Explanation:

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






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