Product 1 Has a Contribution Margin of £6

question 28

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)The contribution margin per unit of direct materials is lower for 1 than for 2.
• D)The ratio of contribution to total sales always will be larger for 1 than for 2.

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Definitions:

Short-Run Marginal Cost Curve

A graph that shows the cost of producing one more unit of a good or service in the short term, when some factors of production are fixed.

Optimal Level

The most efficient, effective, or desirable point or degree in a process, situation, or system.

Leases

Legal agreements that allow for the use of property or equipment for a specified time in exchange for payment.

Marginal Cost Functions

Mathematical representations or equations that show the cost required to produce one additional unit of output at each level of production.