Last year, Twins Company reported $750,000 in sales (25,000 units) and a net ope
ID: 2399493 • Letter: L
Question
Last year, Twins Company reported $750,000 in sales (25,000 units) and a net operating income of $25,000. At the break-even point, the company's total contribution margin equals $500,000. Based on this information, the company's:
contribution margin ratio is 40%.
break-even point is 24,000 units.
variable expense per unit is $9.
variable expenses are 60% of sales.
a.contribution margin ratio is 40%.
b.break-even point is 24,000 units.
c.variable expense per unit is $9.
d.variable expenses are 60% of sales.
Explanation / Answer
The Correct Answer is “C. The Company’s Variable Expense per unit is $9”
Contribution Margin Ratio = [(Net Operating Income + Contribution Margin at Break Even Point) / Sales] x 100
= [($25,000 + 500,000) / $750,000] x 100
= 70%
Variable Expense Ratio = 100% - Contribution Margin Ratio
= 100% - 70%
= 30%
Selling Price per unit = Total Sales / Number of units sold
= $750,000 / 25,000 Units
= $30 per unit
Variable Expense per unit = Selling price per unit x Variable Expense Ratio
= $30 x 30%
= $9 per unit
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