Q1. A company expects to sell 1,000 units at a price of $20 each. If the variable cost per unit is $12, what is the expected total contribution margin?
Solution:
Total contribution margin = (Selling price - Variable cost) * Number of units = ($20 - $12) * 1,000 = $8,000
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Q2. Which costing method includes both fixed and variable costs in product costing?
Solution:
Absorption costing includes both fixed and variable costs in the cost of a product.
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Q3. What is the margin of safety if the break-even sales are $200,000 and the actual sales are $300,000?
Solution:
Margin of Safety = Actual Sales - Break-even Sales = $300,000 - $200,000 = $100,000.
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Q4. Which costing method includes both fixed and variable costs in product costs?
Solution:
Absorption costing includes both fixed and variable costs in product costs.
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Q5. A company incurs $10,000 in fixed costs and has a contribution margin of $25 per unit. How many units must be sold to achieve a target profit of $15,000?
