. Once the break - even point has been reached, net income will increase by the
ID: 2602608 • Letter: #
Question
. Once the break - even point has been reached, net income will increase by the selling price of each additional unit sold.
a. True
b. False
. The break - even point occurs where the contribution margin is equal to total variable expenses.
a. True
b. False
. The margin of safety:
a. Equals break - even unit sales less actual unit
b. Shows how far sales can fall below the planned level before losses occur
c. Is the sales price minus all the variable expenses
d. Is the same as break - even point
10. In a low - leveraged company:
a. Fixed costs are high and variable costs are low
b. Large changes in sales volume result in larger changes in net income
c. There is a higher possibili ty of large changes in net income or net loss and therefore more risk than a highly leveraged firm
d. There is a smaller possibility of large changes in net income or net loss and therefore less risk than a highly leveraged firm
11. The contribution margin ratio is 30% for the Honeyville Company and the breakeven point in sales is $150,000. If the company desires a target net income of $60,000, sales would have to be:
a. $200,000
b. $250,000
c. $350,000
d. None of the above
12. A shift in sales mix toward less profitable produc ts will cause the overall break - even point to fall.
a. True
b. False
Explanation / Answer
Answer Once the break - even point has been reached, net income will increase by the selling price of each additional unit sold. a. True
Answer The break - even point occurs where the contribution margin is equal to total variable expenses. b. False
Answer The margin of safety: b. Shows how far sales can fall below the planned level before losses occur
Answer 10 In a low - leveraged company:
d. There is a smaller possibility of large changes in net income or net loss and therefore less risk than a highly leveraged firm
Answer 11
Note : At breakeven point total contribution = total fixed cost
Fixed cost = $150,000 * 30 % = $45,000
Desired contibution = Fixed cost + Desires a target net income = $45,000 + $60,000 = $105,000
Required sales for target net income = $105,000 / 30 % = c. $350,000
Answer 12 : A shift in sales mix toward less profitable produc ts will cause the overall break - even point to fall.
b. False
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