Question

1. A company's product sells for $150 and has variable costs of $60 associated with the product. What is its contribution margin per unit?

a. $150

b. $90

c. $60

d. $40

2. A company's contribution margin per unit is $25. If the company increases its activity level from 200 units to 350 units, how much will its total contribution margin increase?

a. $1,250

b. $8,750

c. $3,750

d. $5,000

3. If a company has fixed costs of $6,000 per month and their product that sells for $200 has a contribution margin ratio of 30%, how many units must they sell in order to break even?

a. 100

b. 200

c. 180

d. 2,000

4. A company wants to earn an income of $60,000 after taxes. If the tax rate is 32%, what must the company's pre-tax income be in order to have $60,000 after-taxes?

a. $88,235

b. $19,200

c. $79,200

d. $143,000

Answer 1

Answers

1) B) $90

2) C) $ 3,750

3) A) 100

4) A) 88,235

1) contribution MArgin Per Unit = Selling Price - Vaiaible Cost Per Unit

= 150+60

= $90 (Answer)

2)Increase in Total contibution MArgin

= Increase in Units * Contribution MArgin Per Unit

= (350-200)*25 = 150*25

= $3,750 (Answer)

3) Breka Even Point in Units = Fixed cost / CM per Unit

CM Per Unit = 200*30% = $60

Break Even Point = 6,000 /60 = 100 Units (answer)

4) Pre Tax income = After Tax income / (1-Tax)

Pretax income = ( 60,000)/(1-32%) = 60,000/68% =$ 88,235 (Answer)