Unit quiz: Planning With Those Measurements: Pricing, Variance, Records and Review

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Question 1

A product has monthly fixed costs of $26,000, a price of $52 and a variable cost of $31. The owner proposes a price cut to $46 to win volume. Compute break-even before and after the cut, and state what the cut requires.Contribution falls from $21 to $15 per unit, so break-even rises from about 1,238 units to about 1,733 units, a 40 percent increase in required volume for an 11.5 percent price reductionBreak-even rises to about 1,733 units, and because a 40 percent volume increase is within the relevant range the cut improves profit automatically

Question 2

A monthly plan sets $3,180 of essentials, $1,240 of variable spending and $420 of sinking funds against $5,400 of income. The actual month produced $3,290 of essentials, $1,690 of variable spending, the planned sinking funds, and a $980 car repair. Decompose the variance and state what it indicates.The variance is $1,540 and the largest single line, essentials at $3,290, is the main cause and should be cutThe plan forecast a $560 surplus and the month ran a $980 deficit, a variance of $1,540 that decomposes into $110 of essentials, $450 of variable spending and the $980 repair, indicating that the repair alone accounts for 63.6 percent of the variance and belongs in a sinking fund

Question 3

A business has four employees each paid $2,850 gross a month, with illustrative withholding of $250, employee social security at 6.2 percent and Medicare at 1.45 percent, and it collects 9.5 percent tax on $62,000 of monthly taxable sales. Compute the employee share of payroll taxes accumulated over a year and the monthly sales tax, and state the set-aside.Employee social security is $176.70 and Medicare is $41.33 per employee, so the employee share is $218.03 a month and about $10,465 across four employees over twelve months, while the sales tax collected is $5,890 a month, or $453.08 a weekThe amounts are about $10,465 and $5,890, and both may be retained as working capital provided they are repaid before the next annual filing

Question 4

A business asks how long to keep four items: a 2026 income tax return and its supporting schedules, its 2026 employment tax records, the purchase invoice for a machine bought in 2026 and still in use, and the credit applications of customers whose financing it arranged. State the retention rule for each.All four should be kept for seven years and then destroyed, because seven years is the longest period stated in the guidanceSupporting records for the return run to the end of that return's period of limitations, employment tax records at least four years after the tax became due or was paid, the machine invoice until the period of limitations for the year of its disposal because it supports depreciation and basis, and the credit applications must be disposed of under the FTC rule with burning, pulverising or shredding

Question 5

A plan compares option X, costing $50,000 and returning $11,000 a year for seven years, with option Y, costing $75,000 and returning $15,000 a year for seven years. A colleague argues that Y must add more value because it is the larger commitment. Using an assumed 9 percent discount rate, evaluate the argument.The argument fails: at 9 percent the net present value of X is $5,362.48 against $494.29 for Y, and the internal rate of return is 12.13 percent for X against 9.20 percent for Y, so the smaller option wins on both criteriaThe argument holds, because a larger investment returning more dollars a year must create more value once the discount rate is applied

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