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52. The cost function for Ciao Company is: TC $800+0.375 Revenue. If Ciao expects after-tax income of $600, and the tax rate is 40%, what is the firms margin of safety? a) $3,680 b) $2,400 c) $2,880 d) $1,600 Answer: d Difficulty: Hardard Learning Objective: Assess operational risk using margin of safety and operating leverage CPA: Management Accounting 53. Terrys Donut Shop had the following activity for Total donuts sold 17,000 Total revenues $595,000 Total fixed costs 99.000 Total variable costs 357,000 What was Terrys margin of safety, in dollars? a) $430,000 b) $247,500 c) $347,500 d) $357,000 Answer: C Difficulty: Medium Learning Objective: Assess operational risk using margin of safety and operating leverage CPA: Management Accounting 54. The margin of safety is: a) The difference between estimated sales and breakeven sales b) Not a useful measure for management in understanding the risk associated with a product line c) The amount sales can drop before the target profit is met. d) How far sales must increase to earn a profit. Answer: a Difficulty: Easy Learning Objective: Assess operational risk using margin of
62. The Laser Co. produces a single product. Its cost structure is: Variable Cost Fixed Cost PerUnit $35,000 $15 Manufacturing costs Non-manufacturing costs 60,000 10 If the firm sells 5,000 units per period, what price should be charged to earn $35,000? a) $44 b) $45 c) $50 d) $51 Answer: d Difficulty: Medium Learning Objective: Apply CVP calculations for a single product. CPA: Management Accounting 63. At a breakeven point of 300 units, the variable costs were $600 and the fixed costs were $300. What will the next (ie. 401st) unit sold contribute to profit before income taxes? a) $o b) $2 c) $1 d) Cannot be determined Answer: c Difficulty: Medium Learning Objective: Apply CVP calculations for a single product. CPA: Management Accounting 64. Stain Manufacturers contribution margin is $200, after-tax income is $96, and the tax rate is 40%. What are the fixed costs? a) $60 b) $50 c) $40 d) $33 Answer: C Difficulty: Medium Learning Objective: Apply CVP calculations for a single
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Answer #1

Solution 52

Calculation of margin of safety

Margin of safety = Actual salea - Break even sales

Break even sales

In case of break even, Total cost = Revenue

Function is Revenue = $800 + 0.375*Revenue

0.625 Revenue = $800

Break even Revenue = $1280

Actual sales

Profit befor tax = $600/60*100 = $1000

Function is, Revenue - Profit = $800 + 0.375*revenue

Revenue - $1000 = $800 + 0.375*revenue

0.675 Revenue = $1800

Revenue = $2880

Margin of safety = $2880 - $1280 = $1600

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