11 The rule to follow in making business decisions is A Choo

11. The rule to follow in making business decisions is: A. Choose the option with the highest total revenue B. Choose the option with the lowest total costs C. Choose the option with the highest opportunity costs D. Choose the option with the highest total profit E. Both C and D 12. The price is $3 per unit, variable costs are S1 per unit, and total fixed costs are $1,000. Current sales revenue in dollars is $6,000. Compute the margin of safety: A. not enough information--need to know the breakeven point 8.33% C. 25% D. 75% E. 91.67% 13. At current sales revenue of S350, total variable costs are $280 and total fixed costs are $50. How much sales revenue do you need to achieve a profit target of $50? (assume that the answer is in the relevant range A. $100 B. $125 C. S380 D. $500 E. not enough information-need data on units 14. A manufacturing company provided the following information $65 S50 $20 $15 $60 $25 $90 The company\'s cost of goods manufactured (CGM) is: Direct labor used Direct materials used Manufacturing overhead Beginning inventory of finished goods Beginning inventory of work-in-process Ending inventory of finished goods Ending inventory of work-in-process ?.S105 B. $125 C. S135 D. $145 E. S165

Solution

11. E. Both C and D While taking a decision for business investment, business owner has to consider both the oppotunity cost for various investment and highest total profit yield by the investment in the option it chooses. Opportunity cost is the profit given up by not investing in an other option. 12. Margin of Safety Contribution Margin Sales price $3 Less: Variable cost $1 Contribution Margin $2 Breakeven point = Fixed cost/Contribution Margin per unit                                    = $1000/$2                                    = 500 units Breakeven point in dollars = Breakeven point in units x sales price per unit                                                         = 500 units x $3                                                        = $1500 Margin of safety = (Actual sales - Breakeven Sales)/Actual sales x 100                                   =($6000-$1500)/$6000 x 100                                   = 75% D option is correct 13. Sales to achieve target profit of $50 Sales revenue - Variable cost - Fixed cost = Target Profit Now, assume Sales revenue is x X-$280-$50 = $50 x = $50+$280+$50 x = $380 C. $380 14. Cost of goods manufactured Direct Labor used $65 Direct material used $50 Manufacturing Overhead $20 Manufacturing cost in current period $135 Add: Beginning inventory of work in process $60 Less: Ending inventory of work in process ($90) Cost of goods manufactured $105 A. $105