Acc 202

2055 Words Nov 26th, 2012 9 Pages
| 1 INCORRECT | |
Redford, Inc. has provided the following data: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, net income will: | | | A) | decrease by $60,000. | | | B) | increase by $60,000. | | | C) | increase by $120,000. | | | D) | increase by $420,000. | | | | | | Feedback:The correct answer is C (Learning Objective 1):
Net income will change as follows.Calculations:
$600,000 x 10% = $60,000
$300,000 x 20% = $60,000 | | 2 INCORRECT | |
Gardner Manufacturing Company produces a product that sells for $120. A selling commission of 10% of the selling price is paid on each unit sold. Variable manufacturing costs are $60
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| | | A) | 0 units | | | B) | 48,000 units | | | C) | 72,000 units | | | D) | 80,000 units | | | | | | Feedback:The correct answer is B (Learning Objectives 1 and 6):
First, determine the contribution margin (CM) per unit as follows.
CM per unit = (Sales – Variable expenses) ÷ Number of units sold
CM per unit = ($8,000,000 - $5,600,000) ÷ 80,000 = $30 per unit
Then, the break-even point (in units) is determined as follows.
Break-even point in units = Fixed expenses ÷ CM per unit
Break-even point in units = $1,440,000 ÷ $30 per unit = 48,000 units | | 7 INCORRECT | |
Astair, Inc. reported sales of $8,000,000 for the month and incurred variable expenses totaling $5,600,000 and fixed expenses totaling $1,440,000. The company has no beginning or ending inventories. A total of 80,000 units were produced and sold last month. (Note that this is the same data that was provided for the previous question.) What is the company's margin of safety in dollars? | | | A) | $480,000 | | | B) | $2,400,000 | | | C) | $3,200,000 | | | D) | $3,520,000 | | | | | | Feedback:The correct answer is C (Learning Objectives 3, 6, and 7):
The company's contribution margin (CM) ratio is determined as follows.
CM ratio = (Sales – Variable expenses) ÷ Sales
CM ratio = ($8,000,000 - $5,600,000) ÷ $8,000,000 = 30%
Then, determine the break-even point (in sales dollars) as follows.
Break-even point in sales

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