Question

part 1 Candle Co. has sales of $200,000 this month, contribution margin of $100,000, monthly fixed...

part 1
Candle Co. has sales of $200,000 this month, contribution margin of $100,000, monthly fixed cost of $80,000 and profit of $20,000. What is the firm’s current breakeven volume in dollars? (rounded)
Select one:
a. All listed choices are incorrect.
b. $160,000.
c. $180,000.
d. $140,000.

part 2
Candle Co. has sales of $200,000 this month, contribution margin of $100,000, monthly fixed cost of $80,000 and profit of $20,000. What is the firm’s current breakeven ratio to sales? (rounded)
Select one:
a. All listed choices are incorrect.
b. 0.80.
c. 0.70.
d. 0.60.

part 3
Candle Co. has sales of $200,000 this month, contribution margin of $100,000, monthly fixed cost of $80,000 and profit of $20,000.What is the firm’s current operating leverage number? (rounded)
Select one:
a. 5.00.
b. All listed choices are incorrect.
c. 0.20.
d. 0.40.

part 4
Candle Co. has sales of $200,000 this month, contribution margin of $100,000, monthly fixed cost of $80,000 and profit of $20,000. What is the firm’s current margin of safety ratio to sales [ie., safety margin ratio]? (rounded)
Select one:
a. 0.20.
b. All listed choices are incorrect.
c. 0.25.
d. 0.40.

Homework Answers

Answer #1

Part 1

Contribution margin ratio = Contribution margin / Sales * 100

= $100,000 / $200,000 * 100

= 50%

Break-even volume in dollars = Fixed cost / Contribution margin ratio

= $80,000 / 50%

= $160,000

The answer is Option b.

Part 2

Contribution margin ratio = Contribution margin / Sales * 100

= $100,000 / $200,000 * 100

= 50%

Break-even volume in dollars = Fixed cost / Contribution margin ratio

= $80,000 / 50%

= $160,000

Break-even ratio to sales = Break-even volume in dollars / Sales

= $160,000 / $200,000

= 0.8

The answer is Option b.

Part 3

Operating leverage = Contribution margin / Profit

= $100,000 / $20,000

= 5

The answer is Option a.

Part 4

Margin of safety ratio to sales = (Sales - Break even sales) / Sales

= ($200,000 - $160,000) / $200,000

= 0.2

The answer is Option a.

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