Final Fa2009 Solution

Contribution margin fixed cost 75000 40 r 240000

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Unformatted text preview: ind revenue so that profit is $75,000. Contribution Margin – fixed cost = $75,000 40% * R - $240,000 = $75,000 R = ($75,000 + $240,000) / 40% R = $787,500 8. City Books also sells textbooks. Its profit function is identical to that of University Book Store (in problem 7, above): its contribution margin ratio is 40%; its total fixed costs are $240,000 per year. However, because City Books is a for-profit enterprise, it pays 25% income tax. Compute the annual sales revenue it must achieve in order to generate an after tax profit of $75,000. City Books want a $75,000 after tax profit. You know how to solve problems in before tax profit. So, convert after tax profit to before tax profit and then use what you already know to find the solution. $75,000 after tax = Before tax profit – tax = Before tax profit – (25% * before tax profit) = (75%) * Before tax profit Before tax profit = $75,000 / 40% = $100,000 So, find revenue where 40%*Revenue - $240,000 = $100,000 Revenue = ($100,000 + $240,000) / 40% = $850,000 6A:002 Fall 2009 – Final Exam Page 5 Use the following information about Quality Boots to answer questions 9 through 13. Quality Boots, Inc. prepares a Master Budget for each month. It reported the following information for October. Sales Volume Revenue Variable Manufacturing Cost Variable Selling and Administrative Cost Contribution Margin Fixed Manufacturing Cost Fixed Selling and Administrative Cost Operating Income --- Master Budget --Total Per unit 4,000 $320,000 80,000 20,000 220,000 120,000 30,000 $70,000 $80.00 20.00 5.00 55.00 30.00 7.50 $17.50 --- Actual Results --Total Per unit 3,000 $270,000 66,000 24,000 180,000 120,000 33,000 $27,000 $90.00 22.00 8.00 60.00 40.00 11.00 $9.00 9. Compute Quality’s flexible budget operating income for October. Flexible budget uses the actual quantity and the planned profit function. Operating Income = Contribution Margin – Fixed Cost Operating Income = 3,000 units @ $55 - $150,000 = $15,000 10. Compute Quality’s Sales Volume Variance for October. Sales volume variance measures the c...
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This note was uploaded on 09/29/2011 for the course 06A 002 taught by Professor Stuff during the Spring '11 term at University of Iowa.

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