CompuTop Company sells toy laptop computers for $30 each. If the variable cost for each laptop is $20 and fixed costs total $25,000, how many laptops must CompuTop sell to generate a target income of $66,667?

CompuTop Company sells toy laptop computers for $30 each. If the variable cost for each laptop is $20 and fixed costs total $25,000, how many laptops must CompuTop sell to generate a target income of $66,667?
 
multiple choice

    2,500
    7,500
    9,167 Correct
    22,500

Explanation

Knowledge Check 01
 
Contribution margin = Sales per unit of $30 − Variable cost per unit of $20 = $10 per unit.
 
Unit sales at target income = [(Fixed costs of $25,000) + (Target income of $66,667)] ÷ Contribution margin of $10 per unit = 9,167 units.

CompuTop Company sells toy laptop computers for $30 each. If the variable cost for each laptop is $20 and fixed costs total $25,000, how much sales in dollars must it sell to generate a target income of $66,667?

multiple choice

    $7,500
    $9,167
    $225,225
    $275,276 Correct

Explanation

Knowledge Check 01
 
Contribution margin ratio = (Sales per unit of $30 − Variable cost per unit of $20) ÷ Sales per unit of $30 = 33.3% per unit.
 
Dollar sales at target income = [(Fixed costs of $25,000) + (Target income of $66,667)] ÷ Contribution margin ratio of 0.333 = $275,276.
 

A company expects to sell 1,000 units of their product at $20 each. Their variable costs are $5 each and fixed costs are $10,000. What is their expected income?

multiple choice

    $20,000
    $15,000
    $10,000
    $5,000 Correct

Explanation

Knowledge Check 01
 
This company’s expected sales is $20,000 (1,000 times $20). Their variable costs are $5,000 (1,000 times $5). Their contribution margin is $15,000 ($20,000 minus $5,000). Subtracting fixed costs from the contribution margin equals income of $5,000 ($15,000 minus $10,000).
 

Remote Company has expected sales of 55,000 units and break-even sales of 50,000 units. If fixed costs are $75,000, what is the margin of safety?
 
multiple choice

    10%
    9% Correct
    15%
    91%

Explanation

Knowledge Check 01
 
Margin of safety = [(Expected sales of 55,000 − Break-even sales of 50,000) ÷ Expected sales of 55,000] = 9%.