8. Maxfield Company has fixed costs of $300,000 and variable costs are 60% of sa
ID: 2443371 • Letter: 8
Question
8. Maxfield Company has fixed costs of $300,000 and variable costs are 60% of sales. How much will Maxfield Company report as sales when its net income equals $30,000?A) $825,000
B) $550,000
C) $780,000
D) $198,000
9. Small Tots Toys has actual sales of $400,000 and a break-even point of $280,000. How much is its margin of safety ratio?
A) 30%
B) 70%
C) 143%
D) 43%
10. Fletcher, Inc. produces hair brushes. The selling price is $20 per unit and the variable costs are $8 per brush. Fixed costs per month are $4,800. If Fletcher sells 20 more units beyond breakeven, how much does profit increase as a result?
A) $240
B) $400
C) $160
D) $800
Explanation / Answer
Fixed Cost = $300,000
Variable Cost = 60% of Sales
Net Income = $30,000
Net Income = [Sales – Variable Cost – Fixed Cost]
$30,000 = [X – 0.60X - $300,000]
$30,000 + $300,000 = X – 0.60X
$330,000 = 0.40X
0.40X = $330,000
Sales (X) = $330,000 / 0.40
Sales (X) = $825,000
Sales = $825,000
Correct option is (A) $825,000
Net Income = [Sales – Variable Cost – Fixed Cost]
Net Income = [$825,000 – ($825,000 * 0.60) - $300,000]
Net Income = [$825,000 - $495,000 - $300,000]
Net Income = [$825,000 - $795,000]
Net Income = $30,000
Actual Sales = $400,000
Break-even point = $280,000
Margin of Safety = ?
Margin of Safety in dollars = [Total Budgeted or actual sales – Break even sales]
Margin of Safety in dollars = [$400,000 - $280,000]
Margin of Safety in dollars = $120,000
Margin of Safety Ratio = [Margin of Safety in dollars / Total budgeted or actual sales]
Margin of Safety Ratio = [$120,000 / $400,000]
Margin of Safety Ratio = 0.30 (or) 30%
Margin of Safety Ratio = 30%
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