Product 1 Has a Contribution Margin of $6

question 113

Multiple Choice

Product 1 has a contribution margin of $6.00 per unit, and Product 2 has a contribution margin of $7.50 per unit.Total fixed costs are $300,000.Sales mix and total volume varies from one period to another.Which of the following is true?

• A) At a sales volume in excess of 25,000 units of 1 and 25,000 units of 2, operations will be profitable.
• B) The ratio of net profit to total sales for 2 will be larger than the ratio of net profit to total sales for 1.
• C) Variable costs are $1.50 more for 2 than for 1.
• D) The ratio of contribution margin to total sales always will be larger for 1 than for 2.

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Definitions:

Significant Influence

A level of control or impact an investor has over an investee, typically indicated by ownership of 20% to 50% of voting shares, allowing influence over business decisions without full control.

Intercompany Transactions

Financial transactions occurring between two divisions or subsidiaries within the same parent company.

Strategic Investment

An investment made by a company to build a lasting interest in a related company to help further business objectives.

Significant Influence Investments

Investments in which the investor has the power to participate in the financial and operating policy decisions of the investee but does not control or jointly control them.