Question

76. A firm selling three products has the following data: Unit Unit Variable Product Sales Mix Price Cost 60,000 units $40 S20 40,000 units 60 30 20,000 units 30 5 If the firm can change the sales mix from 60,000 P, 40,000 Q, and 20,000 R to 60,000 P, 20,000 Q, and 40,000 R, pre-tax income will be a) Lower b) Higher c) Unchanged d) Cannot be determined Answer: a Difficulty: Medium Learning Objective: Apply CVP calculations for multiple products. CPA: Management Accounting 77. Grady, Inc. produces a single product and projects the following costs for a normal month in which 100 units are produced and sold Manufacturing Non- manufacturing Fixed costs Total variable costs $8,000 $5,000 7,700 6,050 The selling price per unit is $300. What volume, in units, must Grady sell to break even? a) 36 b) 58 c) 80 d) 90 Answer: Difficulty: Easy Learning Objective: Apply CVP calculations for a single product. CPA: Management Accounting 78. When sales are $1,000, the contribution margin is $600 and a pre-tax loss of $60 occurs. What is the breakeven point in dollars?

Answer 1

76) Solution: The correct option is “a” i.e Lower( see note below)

Note:

Income earned from each product=Selling price of product-Variable cost of product

Existing Pretax income=$20(60000units)+$30(40000units)+$15(20000units)=$27,00,000

Proposed Pretax income=$20(60000units)+$30(20000units)+$15(40000units)=$ 24,00,000

77)Solution: The correct option is “c” i.e 80 units( see note below)

Note:

Total variable cost for 100 units=$7700(manufacturing)+$6050(non manufacturing)

                                                         =$ 13750

Therefore variable cost per unit=$137.5/unit

Selling Price per unit=$ 300

Contribution per unit=$300-$137.5=$ 162.5

Total Fixed Cost=$8000(manufacturing)+$ 5000(non manufacturing)=$13000

Break –even point= Total Fixed Cost/Contribution per unit

                                =$ 13000/$162.5=80 units