Question

Question 83: Cannondale makes a certain part that it sells for $10 each. The variable costs are $6 per part. The annual fixed costs are $2,000. How many of this part must Cannondale sell to breakeven?

1. 1,000
2. 333
3. 200
4. 500

Question 84: Suppose that the master budget for Cannondale shows total variable expenses of $10,000. The budget was based on production of 5,000 units. Cannondale sells all units it produces. Budgeted net income was $5,000. Actual production and sales was 4,500. What is the variable expense variance?

1. $500
2. $4,500
3. $5,000
4. $1,000

Answer 1

83. Selling Price of part(per unit)= $10

Variable Cost (per unit) = $6

Contribution per unit = Selling Price - Variable Cost = $(10-6) = $4

So this $4 contribution will be used to cover annual fixed cost , so number of parts to sell to breakeven is

Breakeven sales = Total Fixed cost / Contribution per unit

Breakeven sales = 2000/ 4 = 500 parts

So, answer is d.

84. Total Variable expense = $10000

Unit Sold = 5000

So, Variable expense per unit = 10000/5000 = $2

Actual Production and Sales = 4500 unit

So, Total Variable actual expense = $2*4500 = $9000

Variable expense variance = Total Variable actual expense - Total Variable budgeted expense

Variable expense variance = 9000 - 10000 = -$1000 (Favorable variance as actual is less then budgeted)

So answer is D