Art Panache, the Sole Employee of Panache Sales, Has Gross

question 153

True/False

Art Panache, the sole employee of Panache Sales, has gross salary for March of $5,000. The entire amount is under the OASDI limit of $110,100, and thus subject to FICA. He is also subject to federal income tax at a rate of 20%. His year-to-date pay has already exceeded the $7,000 cap for FUTA and SUTA. The journal entry in the payroll cycle to record employer's payroll tax expense includes a credit to FICA-Medicare Taxes Payable for $145. (Assume a FICA-OASDI Tax of 6.2% and FICA-Medicare Tax of 1.45%.)

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Definitions:

Contribution Margin Ratio

The percentage of each sales dollar remaining after deducting variable costs, used to cover fixed costs and profit.

Margin Of Safety

The difference between actual or expected sales and the break-even point, expressing the level of sales fall that can be tolerated before a loss occurs.

Contribution Margin Ratio

The percentage of sales revenue that exceeds variable costs, representing how much revenue contributes towards covering fixed costs and generating profit.

Monthly Fixed Expense

Costs that do not fluctuate with the volume of production or sales, such as rent, salaries, and insurance, incurred on a monthly basis.