Multiple Choice Questions

1. A company makes and sells product A and B. Twice as many units of product B are made and sold as that of product A. Each unit of product A makes a contribution of $10 and each unit of product B makes a contribution of $4. Fixed costs are $90,000.

   What is the total number of units which must be made and sold to make a profit of $45,000?

   A 7500 B 22,500 C 15,000 D 16875

2. B Ltd is considering changing the way it is structured by asking its employed staff to become freelance. Employees are currently paid a fixed salary of $240,000 per annum, but would instead be paid $200 per working day. On a typical working day, staff can produce 40 units. Other fixed costs are $400,000 pa.

   The selling price of a unit is $60 and material costs are $20 per unit.

   What will be the effect of the change on the breakeven point of the business and the level of operating risk?

   1. A The breakeven point reduces by 6,000 units and the operating risk goes down.

   2. B The breakeven point reduces by 4,571 units and the operating risk goes down

   3. C The breakeven point reduces by 4,571 units and the operating risk goes up.

   4. D The breakeven point reduces b 6,000 units and the operating risk goes up.

3. The CS ratio for a business is 0.4 and its fixed costs are $1,600,000. Budget revenue has been set at 6 times the amount of the fixed costs.

   What is the margin of safety in % measured in terms of revenue?

4. A company manufactures and sells a single product with a variable cost per unit of $36. It has a contribution ratio of 25%. The company has weekly fixed costs of $18,000.

   What is the weekly breakeven point, in units? A 1,500 B 1,600 C 1,800

   D 2,000

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2

5. The management accountant of C plc has calculated the firms breakeven point from the following data:

Selling price per unit $20 Variable costs per unit $8 Fixed overheads for next year $79,104

It is now expected that the products selling price and variable cost will increase by 8% and 5.2% respectively.

These changes will cause C plcs breakeven point for next year to:

1. A Rise by 9.0%

2. B Rise by 2.8%

3. C Fall by 2.8%

4. D Fall by 9%