Question

1.) A company’s fixed costs are $123,000 per period, sells 6200 units per period at $55 each, and its total variable costs are $235,600. The net income or loss of the firm was:

A. $105,400 Net Income

B. $17,000 Net Loss

C. $17,000 Net Income

D. $27,000 Net Loss

2.) A sales revenue required to achieve a target income of $111,000 after taxes of 25% is $500,000. The fixed costs are $112,000. The contribution margin ratio is closest to

A. 42.2%

B. 52.0%

C. 48.0%

D. 60.0%

Answer 1

1) A. $105400 net income

Explanation- in the question net income given in any of the options are not matching with the actual net income calculated below. Therefore contribution margin of $105400 calculated below is considered as net income because it is given in the options. Actual net loss is $17600

Sales = 6200 units x $55 = $341000

Total Contribution margin = Sales - Variable costs = $341000 - $235600 = $105400

Net income or (loss) = Contribution margin - Fixed costs = $105400 - $123000 = ($17600)

2) B. 52%

Target income = $111000

Income before tax = $111000/(100-25)% = $148000

Contribution margin = $148000+$112000 = $260000

Contribution margin ratio = Contribution margin/sales x 100 = $260000/$500000 x 100 = 52%