Question

A firm operated at 80% of capacity for the past year, during which fixed costs were...

A firm operated at 80% of capacity for the past year, during which fixed costs were $196,000, variable costs were 61% of sales, and sales were $912,000. Operating profit was

a.$556,320

b.$159,680

c.$127,744

d.$355,680

Spice Inc.'s unit selling price is $50, the unit variable costs are $32, fixed costs are $101,000, and current sales are 9,900 units. How much will operating income change if sales increase by 5,500 units?

a.$277,200 increase

b.$178,200 decrease

c.$99,000 increase

d.$178,200 increase

If fixed costs are $282,000, the unit selling price is $70, and the unit variable costs are $51, what are the old and new break-even sales (units) if the unit selling price increases by $6?

a.5,529 units and 10,780 units

b.4,029 units and 14,842 units

c.14,842 units and 4,029 units

d.14,842 units and 11,280 units

Business   Accounting   
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Answer #1

1) Option b $159,680

Working:

Variable cost= (912,000*61%) =$556,320

Contribution margin=Sales-Variable cost  

=912,000-556,320=$355,680

Less: Fixed costs= (196,000)

Operating profit=$159,680

2) Option C $99,000 increase

Working:

Current

Proposed

Unit sales

9900

(9900+5500)=15400

Sales

(9900*50)=495,000

(15400*50)=$770,000

Variable expenses

(9900*32)=316,800

(15400*32)=$492,800

Contribution margin

178,200

277,200

Fixed Costs

101,000

101,000

Operating income

77,200

176,200

Hence increase in Operating income= (176,200-77,200)=$99,000

3) Option d 14,842 units and 11,280 units

Working:

Break-even sales (units) =fixed costs / selling price -variable costs

$282,000/$70-$51=14,842 units

New break-even sales (units) = fixed costs / selling price -variable costs

$282,000/$76-$51=11,280 units

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