Folk Exam Questions - Chapter 6
1.
A company has provided the following data:
Sales
12,000 units
Sales price
$100 per unit
Variable cost
$50 per unit
Fixed cost
$300,000
If the dollar contribution margin per unit is increased by 10%, total fixed cost is
decreased by 20%, and all other factors remain the same, by how much will net
income increase?
Solution:
Current
Change
Revised
Sales (12,000 x $100)
$1,200,000
Less variable expenses (12,000 x $50)
600,000
Contribution margin
600,000
$
60,000
(1)
$660,000
Less fixed expenses
300,000
(60,000
) (2)
240,000
Net income
$
300,000
$120,000
$420,000
(1) $600,000 x 10% = $60,000
(2) $300,000 x 20% = $60,000
2.
Hamada Company sells a single product. The product has a selling price of $100 per
unit and variable expenses of 80% of sales. If the company's fixed expenses total
$150,000 per year, what will the break-even be?
Solution:
The contribution margin (CM) percentage may be calculated as:
Sales percentage (100%) minus Variable expenses percentage equals CM percentage