Question

Beckham Company has the following information available:

Selling price per unit               £100

Variable cost per unit               £55

Fixed costs per year       £400,000

Expected sales per year 20,000 units

What is the expected operating income (i.e. profit ) for a year?

Select one:

A. £500,000

B. £680,000

C. £700,000

D. £480,000

Johnson Company produces dolls. Each doll sells for £20.00. Variable costs per unit are £14.00 and total fixed costs for the period are £300,000. What is the break-even in sterling pounds?       

Select one:

A. £1,000,000

B. £50,000

C. £1,450,000

D. £621,429

Jensen Company produces dolls. Each doll sells for £20.00. Variable costs are £14.00 per unit. If the break-even in sterling pound 1,446,000, then the total fixed costs for the period are ________.

Select one:

A. £433,800    

B. £1,446,000

C. £516,425

D. £361,500

Thanks.

Answer 1

1. Operating income = (unit sales price - unit variable cost) *sales - Fixed cost = (100-55)*20,000 units - 400,000 = 500,000 Option A

2. Contribution margin ratio = (Sales price - Variable costs)/Sales price = (20-14)/20 = 30% Breakeven sales = Fixed cost/Contribution margin ratio = 300,000/30% = 1,000,000 Option A

3. Contribution margin ratio = (20-14)/20 = 30% Breakeven sales = Fixed cost/Contribution margin ratio 1,446,000 = Fixed cost/30% Fixed cost = 1,446,000*30% = 433,800 Option A