Question

It costs Bramble Corp. $12 of variable and $5 of fixed costs to produce one bathroom scale which normally sells for $35. A foreign wholesaler offers to purchase 1900 scales at $15 each. Garner would incur special shipping costs of $1 per scale if the order were accepted. Bramble has sufficient unused capacity to produce the 1900 scales. If the special order is accepted, what will be the effect on net income?

$28500 increase

$3800 increase

$3800 decrease

$5700 decrease

2.Waterway Industries has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Waterway incurs $4070000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%. What will sales be for the Sporting Goods Division at the break-even point?

$6152326.

$7150000.

$3850000.

$3300000.

Answer 1

The answer of first question is "B" i.e $3,800

Income Statement

Sales(A) =   $28,500 (1900*15)

V.cost (B) = $22,800(1900*12)

Gross profit (A-B) = $5,700

Shipping = $1,900 (1900*1)  

Net income = $ $3,800 (Increase)

The answer of second question is " B" i.e $7,150,000

Particulars	Sporting Goods	Sports Gear	Total
Sales Mix   (A)	65%	35%
Contribution Margin Ratio (B)	30%	50%
Weighted Average conrtibution (A*B)	19.50%	17.50%	37.00%

BEP = Fixed Cost/ Contribution

= $4,070,000/37%

=$11,000,000

The sales of Sporting Goods Division at the break-even point

=$11,000,000*65%

=$7,150,000

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