Question

1) Selling price per unit Is $60, variable cost per unit is $30 and fixed cost per unit is $20. When this company operates above the break-even point, the sale of one more unit will increase net incomes by $10

a) True

b) False

2) A company with sales of $100,000, the variable cost of $70,000 and fixed cost of $50,000 will reach its break-even point if sales are increased by $20,000

a) True

b) False

Answer 1

Contribution margin=Sales-Variable costs

1.At breakeven;Contribution margin=Fixed costs

Hence above breakevek;additional units would increase net income by Contribution margin

ie=(60-30)=$30 per unit.

Hence the statement is False.

2.Contribution margin=(100,000-70000)=$30000

Contribution margin ratio=Contribution margin/Sales

=(30000/100,000)=0.3

Required Contribution margin=Fixed costs=$50000

Hence target sales=(50000/0.3)=$166,666.67

Hence increase in sales required=166,666.67-$100,000

=$66,666.67

Hence the statement is False.