Question

23. Albany Industries produces two products. Information about the products is as follows: Product 1 Product 2 Units produced and sold 4,000 10.000 Selling price per unit $15 $13 Variable costs per unit The company's fixed costs totaled $70,000, of which $15.000 can be directly traced to Product 1 and $40,000 can be directly traced to Product 2. The effect on the firm's if Product 2 is dropped would be a A. $10,000 increase B. $35,000 increase C. $35,000 decrease D. $10,000 decrease Problems (points as marked) Show all work to be eligible for partial credit! 24. The following information pertains to Syl Co.: Sales $800,000 Variable Costs 160,000 Fixed Costs 40,000 What is Syl's break-even point in sales dollars? (4 points) 25. The following pertains to Clove Co. for the year ending December 31, 2008: Budgeted Sales $1,000,000 Breakeven Sales 700,000 Budgeted Contribution Margin 600,000 Cashflow Breakeven 200.000 What is Clove's margin of safety? (3 points)

Answer 1

23. Contribution margin from product 2 = (13-8)*10,000 = 50,000 Avoidable fixed cost = 40,000 Increase (Decrease) in profits = Avoidable fixed costs - Contribution margin lost = 40,000 - 50,000 = (10,000) Option D

24. Contribution margin ratio = (800,000-160,000)/800,000 = 80% Breakeven point in sales = Fixed cost/Contribution margin ratio = 40,000/80% = 50,000