GNB 12e Practice Exam – Chapter 6
Print these pages. Answer each of the following questions, explaining your answers or showing your work, as
appropriate, and then compare your solutions to those provided at the end of the practice exam.
1. The following is Shearer Corporation's contribution format income statement for last month:
Less variable expenses
Less fixed expenses
A total of 80,000 units were produced and sold last month. The company has no beginning or ending inventories.
Part (a) What is the company’s breakeven in sales dollars?
CM Ratio = Contribution margin
Breakeven = Fixed Expenses
720,000 = $2,400,000
Part (b) How many units would the company have to sell to attain target profits of $600,000?
Unit contribution margin = Contribution margin
Unit sales to attain target sales= (fixed expenses + target profit)
Unit contribution margin
Part (c) What is the company’s margin of safety?
Margin of safety= total budgeted or actual sales – breakeven sales