GNBExam06 - GNB 12e Practice Exam Chapter 6 1 The following...

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GNB 12e Practice Exam – Chapter 6 1.The following is Shearer Corporation's contribution format income statement for last month: Sales $4,000,000 Less variable expenses 2,800,000 Contribution margin 1,200,000 Less fixed expenses 720,000 Net income $ 480,000 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? Determine the contribution margin (CM) per unit as follows: Total contribution margin ÷ Number of units sold = CM per unit $1,200,000 ÷ 80,000 units = $15 per unit So, breakeven in sales dollars are the fixed expenses ($720,000) divided by the 30% contribution margin percentage ($1,200,000 divided by $4,000,000, which equals 30%), or a breakeven of $2,400,000. Part (b) How many units would the company have to sell to attain target profits of $600,000? Calculate the unit sales required to achieve the targeted profit as follows: (Fixed expenses + Targeted profit) ÷ CM per unit = Required units ($720,000 + $600,000) ÷ $15 per unit = $1,320,000 ÷ $15 = 88,000 units Part (c) What is the company’s margin of safety?
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