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Question 32: The excess of sales over variable cost is the contribution margin, which helps cover fixed costs and contribute to profit.

Business/Management

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Part 32

The excess of sales over variable cost is the contribution margin, which helps cover fixed costs and contribute to profit.

  • B. contribution

Part 33

Break-even analysis assumes that, for the relevant range of activity, certain costs behave predictably. Specifically, variable cost per unit is assumed to remain constant.

  • D. variable cost per unit remains constant.

Part 34

A cost unit is a unit of product or service for which costs are measured. In the transportation sector, costs are often measured per passenger carried.

  • B. passenger

Use the following information to answer questions 35 to 37:

  • Fixed cost: Production = GH¢ 180,000, Selling = GH¢ 20,000
  • Total Fixed Cost = GH¢ 180,000+GH¢ 20,000=GH¢ 200,000180,000 + \text{GH¢ } 20,000 = \text{GH¢ } 200,000
  • Selling price/unit = GH¢ 100
  • Variable cost/unit = GH¢ 80

Part 35· 2 steps

What is the break-even point in units?

  1. Calculate the contribution per unit.

    The contribution per unit is the selling price per unit minus the variable cost per unit.

    Contribution per unit=Selling price per unit−Variable cost per unit\text{Contribution per unit} = \text{Selling price per unit} - \text{Variable cost per unit} Contribution per unit=GH¢ 100−GH¢ 80=GH¢ 20\text{Contribution per unit} = \text{GH¢ } 100 - \text{GH¢ } 80 = \text{GH¢ } 20

  2. Calculate the break-even point in units.

    The break-even point in units is the total fixed costs divided by the contribution per unit.

    Break-even point (units)=Total Fixed CostContribution per unit\text{Break-even point (units)} = \frac{\text{Total Fixed Cost}}{\text{Contribution per unit}} Break-even point (units)=GH¢ 200,000GH¢ 20/unit=10,000 units\text{Break-even point (units)} = \frac{\text{GH¢ } 200,000}{\text{GH¢ } 20/\text{unit}} = 10,000 \text{ units}
    • C. 10,000 units

Part 36· 1 step

Determine the contribution to sales ratio.

  1. Calculate the contribution to sales ratio.

    The contribution to sales ratio (or P/V ratio) is the contribution per unit divided by the selling price per unit.

    Contribution to sales ratio=Contribution per unitSelling price per unit\text{Contribution to sales ratio} = \frac{\text{Contribution per unit}}{\text{Selling price per unit}} Contribution to sales ratio=GH¢ 20GH¢ 100=15\text{Contribution to sales ratio} = \frac{\text{GH¢ } 20}{\text{GH¢ } 100} = \frac{1}{5}

    This can be expressed as a ratio of 1:5.

    • B. 1:5

Part 37· 1 step

A desired sales to achieve a target profit of GH¢ 6,000 is

  1. Calculate the number of units needed to achieve the target profit.

    The number of units required to achieve a target profit is calculated by adding the target profit to the total fixed costs and then dividing by the contribution per unit.

    Units for target profit=Total Fixed Cost+Target ProfitContribution per unit\text{Units for target profit} = \frac{\text{Total Fixed Cost} + \text{Target Profit}}{\text{Contribution per unit}} Units for target profit=GH¢ 200,000+GH¢ 6,000GH¢ 20/unit\text{Units for target profit} = \frac{\text{GH¢ } 200,000 + \text{GH¢ } 6,000}{\text{GH¢ } 20/\text{unit}} Units for target profit=GH¢ 206,000GH¢ 20/unit=10,300 units\text{Units for target profit} = \frac{\text{GH¢ } 206,000}{\text{GH¢ } 20/\text{unit}} = 10,300 \text{ units}

    Assuming the "GH¢" in option D is a typo and it refers to units.

    • D. GH¢ 10,300 (interpreted as 10,300 units)

Part 38

The procedure for budget preparation typically starts with setting clear objectives that the budget aims to achieve.

  • D. identifying objectives to achieve.

Part 39

A limiting factor is a constraint that restricts an organization's activities. In capital expenditure budgeting, the most common limiting factor is the availability of funds.

  • D. non-availability of funds.
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