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1. Company A has fixed expenses of $150,000 and variable expenses of $75 per unit. Company...

1. Company A has fixed expenses of $150,000 and variable expenses of $75 per unit. Company B has fixed expenses of $300,000 and variable expenses of $50 per unit. The volume of unit sales necessary to produce exactly the same operating income for Company A and Company B is:

Multiple Choice

  • 2,000.

  • 6,000.

  • 4,000.

  • 8,000.

2. The contribution margin format income statement:

Multiple Choice

  • results in a larger amount of operating income than the traditional income statement format.

  • uses a behavior pattern classification for costs rather than a functional cost classification approach.

  • is most frequently used for financial statement reporting purposes.

  • emphasizes that all costs change in proportion to any change in revenues.

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Answer #1

1.

Company A has fixed expenses of $150,000 and variable expenses of $75 per unit.

Company B has fixed expenses of $300,000 and variable expenses of $50 per unit.

Let the volume of unit sales necessary to produce exactly the same operating income for Company A and Company B is K units

When operating income for Company A and Company B is same, total cost will also be same.

Total cost of company A = Total cost of company B

150,000 + 75K = 300,000 + 50K

25K = 150,000

K = 6,000

The volume of unit sales necessary to produce exactly the same operating income for Company A and Company B is: 6,000 UNITS

Second option is correct.

2.

The contribution margin format income statement uses a behavior pattern classification for costs rather than a functional cost classification approach.

Second option is correct.

The contribution margin format income statement and the traditional income statement format, both show same amount of operating income.

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