Question

b. 20. In 2018, Loco Company's annual variable expenses were $30,000. Total operating income in 2018 was $100,000 and 10,000 units were sold. The contribution margin per unit was $25.00. The firm's fixed expenses were: $380,000 $250,000 c. $350,000 $150,000 21. The operating leverage factor for a firm was 3.0. If revenue is expected to increase 30%, operating income should increase: 10% 45% 300% 90% 22. Gardner Furniture Co, produces two kinds of chairs: an oak chair and an elm chair. The oak chair sells for $60.00 and the elm chair sells for $70.00. The variable expenses are as follows: Oak Elm Variable production cost per unit: $30.00 $35.00 Variable operating expense per unit: $ 6.00 $ 5.00 Fixed expenses are $151,200 per year. The firm currently sells 4 oak chairs for each elm chair. The break-even point in units for the current sales mix is: 11,340 5,600 6,000 2,326 a. d.

Answer 1

Question 21 Degree of Operating Leverage = % change in Net income / % change in sales 3 = % Change in Net income / 30% % Change in Net income - 90% Option (D) is Correct

Question 22 Oak Chair Elm Chair' 60 70 Selling price less : variable production cost variable operating expense -30 -6 -35 -5 30 Contribution margin per unit Sales mix 24 4::1 Weighted avg contribution margin = (24*4+30*1)/5 $ 25.20 Fixed expense 151200 6000 Units Break Even Point = Fixed cost / Weighted avg cm per unit 151200/25.2 Option[c] is Correct

Question 20 We Know , Net income - Contribution - Fixed Cost Therefore, Fixed Cost = Contribution-net Income Contribution : 10,000 units * $25 per unit Less : Total Operating income Fixed Expense $ 250,000.00 $ (100,000.00) $150,000.00 Option (D) is Correct