Question

QUESTIONS 1 THROUGH 4 ARE BASED ON THE FOLLOWING INFORMATION:

Volunteers Company had the following income statement for the most recent year:

Sales (15,000 units)	Total $150,000	Per unit $10
Less: Variable expenses	90,000	6
Contribution margin	60,000	$ 4
Less: Fixed expenses	50,000
Net income	$ 10,000

1. What will be the operating income, if sales volume increases by 15%?

A. $19,000

B. $11,500

C. $20,450

D. $18,350

2. Refer to the original data, what will be the operating income (loss), if the selling price decreases by $3 and the sales volume increases by 50%?

A. $22,500

B. ($27,500)

C.   $29,750

D. ($32,850)

3. Refer to the original data, volunteers’ breakeven point in units is

            A. 18,000

B. 4,400

C. 11,000

D. 12,500

4. Refer to the original data, how many units of the product must be sold for Volunteers to realize an operating income of $30,000?

A. 19,000

B. 20,000

C. 22,000

D. 23,000

Answer 1

1. Sales = 15,000 + 15,000 x 15% = 17,250 units
Contribution margin = 17,250 x $4 = $69,000

Operating income = $69,000 - $50,000 = $19,000

2.

Sales (15,000 units + 15,000 X 50%=22,500 X $7)	$157,500
Less: Variable expenses (22,500 X $6)	$135,000
Contribution margin	$22,500
Less: Fixed expenses	$50,000
Operating income (loss)	($27,500)

3. Break even point = Fixed expenses / Contribution per unit
= $50,000 / $4 = 12,500 units

4. Break even point (at operating income of $30,000) = Fixed expenses + operating income / Contribution per unit
= ($50,000 + $30,000) / $4 = 20,000 units