Kumar Produces Large Decorative Tiles Used in Home Decor Kumar's Accountant Told Him About Contribution Margin Ratios and He

question 66

Multiple Choice

Kumar produces large decorative tiles used in home decor.The tiles sell for $720 and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | } \hline \text { Rent and utilities } & \$ 840 \\\hline \text { Management salaries } & 2,800 \\\hline \text { Other expenses } & 510 \\\hline\end{array}$$ Kumar's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and that anything past that point was pure profit.
Kumar's is planning to increase the selling price to $840.What impact will the increase in selling price have on the breakeven point in units?

• A) It will stay the same.
• B) It will go down from 12 to 10 units.
• C) It will go up from 10 to 13 units.
• D) It will go down from 10 to 8 units.

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Definitions:

Accounting Profit

The net income of a company as calculated by subtracting total expenses from total revenue, according to accounting rules.

Agency Problem

A conflict of interest arising between parties with a principal-agent relationship, where the agent's actions may not align with the principal's best interests.

Stockbrokers

Professionals who buy and sell stocks and other securities for their clients, on a stock exchange or over the counter, in return for a fee or commission.

Accounting

The organized logging, presenting, and scrutinizing of a corporation's monetary transactions.