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.
Homework Answers
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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