# Richland Enterprises has budgeted the following amounts for its next fiscal year: Total fixed expenses $53,000 Selling price per unit Richland Enterprises has budgeted the following amounts for its next fiscal year: Total fixed expenses$53,000 Selling price per unit $65 Variable expenses per unit$35 If Richland Enterprises can reduce fixed expenses by $18,870, how will breakeven sales in units be affected? A) Decrease by 629 units B) Increase by 189 units C) Increase by 629 units D) Decrease by 189 units ### Answers Contribution per unit = Selling price - Unit variable cost =$70 - $10 =$60

Break-even sales in units = Fixed cost

Contribution per unit

= $1,980,000$60

= 33,000 units

If fixed cost reduced by $49,500, new fixed cost will be$1.930,500

33,000     = $1,930,500$70 - VC

33,000(70 - VC) = $1,930,500 2,310,000 - 33,000VC =$1,930,500

2,310,000 - $1,930,500 = 33,000VC 379,500 = 33,000VC 379,500 = VC 33,000 VC =$11.50

Increase in variable expenses per unit

= $11.50 -$10 = $1.50 Explanation: In this case, we need to determine the break-even point in units, which is fixed cost divided by variable expenses per unit. If total fixed expenses reduced by$49,500, the new total fixed expenses will be $1,930,500. Then, we will equate the break-even point in units to the new fixed cost divided by contribution per unit, which is selling price minus variable expenses per unit. Since break-even point in units, new fixed cost and selling price were known with the exception of variable cost, variable cost becomes the subject of the formula. The old variable expenses will be deducted from the new variable expenses so as to obtain increase in variable expenses per unit. False. Explanation: Breakeven point is defined as the point in production where the revenue realised from sales is equal to the cost incurred in producing a product. It is the sales revenue that just covers cost. Any production above the breakeven point will rest in extra revenue above cost of production. So the statement that revenue amounts generated by the sales beyond breakeven point decreases at a faster rate than the costs tied to those sales is false. Rather revenues increase above costs. Instructions are listed below. Explanation: Giving the following information: She believes people will pay$ 10.00 for a large bowl of noodles. Variable costs are $5.00 per bowl. Mu estimates monthly fixed costs for a franchise at$9,000

First, we need to calculate the break-even point in dollars:

Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point (dollars)= 9,000/ [(10 - 5)/10]= $18,000 To determine whether it is convenient to the franchisees, we need to calculate the margin of safety in dollars and, compare it to a break-even point in dollars with the desired income: Break-even point (dollars)= (fixed costs + desired income)/ contribution margin ratio Break-even point (dollars)= (9,000 + 25,500) / 0.5=$69,000

Margin of safety=(current sales level - break-even point)

Margin of safety= 96,500 - 69,000= $27,500 It is a good business opportunity for franchisees. its true i got it wromng because of the previous guy who ansewred Explanation: Operating Leverage refers to how responsive a company's operating income is to changes in volume. Explanation: Risks can be differentiated into two categories: Business Risk and Financial Risk. Business Risk is the Risk in Operations and one of the factors that affect it is Operating Leverage which can be defined as the "%age Change in EBIT (Operating Profit) due to 1% Change in Sales". The leveraging factor is the Fixed Cost. A company with a high degree of operating leverage is said to have more Business Risk. To see how much Operating Profit will change due to 1% change in Sales Volume, we calculate the Degree of Operating Leverage. Lets say that you calculate the Degree of Operating leverage and gets 2 as your Answer. It means that a 1% change in Sales will change the Operating Profit by 2%. Thanks! refers to how responsive a company’s operating income is to changes in volume Explanation: Operating leverage is an efficiency ratio that measures the % of fixed and variable costs over total costs and how they affect profit. It helps to compare how efficiently a company is using its fixed costs to generate profits. there are two formulas used to calculate operating leverage: OL = (quantity x contribution margin) / [(quantity x contribution margin) – fixed operating costs]OL = (sales - total variable costs) / profit Operating leverage basically measures how an increase in sales volume will affect the company's profits. The higher the OL, the more a change in total sales volume will affect profits, e.g. OL = 115% (or 1.15) means that a 10% increase in sales volume will increase profits by 15%. The company will need fewer units to break even. Explanation: Giving the following information: Total fixed expenses$51,000

Selling price per unit $45 Variable expenses per unit$25

New fixed costs= 51,000 - 12,120= 38,880

First, we need to calculate the actual break-even point. After that, determine the effect​ of the reduction on fixed costs.

Break-even point= fixed costs/ contribution margin

Break-even point= 51,000 / (45 - 25)

Break-even point=  2,550 units

Now, with fixed costs= 38,880

Break-even point= 38,880 / (45 - 25)= 1,944

The company will need fewer units to break even.

The number of units needed to break even will decrease by 276 units

Explanation:

Giving the following information:

Total fixed expenses $48,000 Selling price per unit$45

Variable expenses per unit $30 Richland Enterprises can reduce fixed expenses by$4,140.

First, we need to calculate the actual break-even point in units:

Break-even point= fixed costs/ contribution margin

Break-even point= 48,000/ (45 - 30)= 3,200 units

New fixed costs= 48,000 - 4,140= 43,860

Now, we calculate the new break-even point:

Break-even point= 43,860 / 15= 2,924

The number of units needed to break even will decrease by 276 units.

Related Posts