Question

Multiple Choice Questions 1. A company makes and sells product A and B. Twice as many units of product B are made and sold as that of product A. Each unit of product A makes a contribution of $10 and each unit of product B makes a contribution of $4. Fixed costs are $90,000. What is the total number of units which must be made and sold to make a profit of $45,000? A B C D 7500 22,500 15,000 16875 2. B Ltd is considering changing the way it is structured by asking its employed staff to become freelance. Employees are currently paid a fixed salary of $240,000 per annum, but would instead be paid $200 per working day. On a typical working day, staff can produce 40 units. Other fixed costs are $400,000 pa. The selling price of a unit is $60 and material costs are $20 per unit. What will be the effect of the change on the breakeven point of the business and the level of operating risk? A B C D The breakeven point reduces by 6,000 units and the operating risk goes down. The breakeven point reduces by 4,571 units and the operating risk goes down The breakeven point reduces by 4,571 units and the operating risk goes up. The breakeven point reduces b 6,000 units and the operating risk goes up. 3. The CS ratio for a business is 0.4 and its fixed costs are $1,600,000. Budget revenue has been set at 6 times the amount of the fixed costs. What is the margin of safety in % measured in terms of revenue? 4. A company manufactures and sells a single product with a variable cost per unit of $36. It has a contribution ratio of 25%. The company has weekly fixed costs of $18,000. What is the weekly breakeven point, in units? A 1,500 B 1,600 C 1,800 D 2,000

Answer 1

1. Sales units needed = (Fixed costs +Target profit) /weighted average Contribution margin per unit Weighted average contribution margin per unit = 10 + (2/1)*4 = 18 = (90,000+45,000)/18 = 135,000/18 = 7,500 units