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CA ANZ Core 5 practice questions

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Question 1Financial Accounting and Reporting

Under the IASB Conceptual Framework, which qualitative characteristic requires information to be capable of making a difference in users' decisions?

  1. Relevance Correct answer.
  2. Timeliness
  3. Comparability
  4. Verifiability

Explanation

Relevance is a fundamental qualitative characteristic: information is relevant when it has predictive value, confirmatory value, or both, so it can make a difference to decisions. Verifiability, timeliness and comparability are enhancing characteristics that support otherwise useful information.

Question 2Financial Accounting and Reporting

An entity pays $12,000 in advance for 12 months of insurance on 1 July. Under accrual accounting, what amount is recognised as an expense for the year ended 31 December?

  1. $12,000
  2. $0
  3. $1,000
  4. $6,000 Correct answer.

Explanation

Accrual accounting recognises expenses as the benefit is consumed, so six months of cover (July to December) is expensed at $1,000 per month, giving $6,000. The remaining $6,000 is a prepayment asset representing future benefit.

Question 3Financial Accounting and Reporting

Which statement best describes the purpose of the statement of profit or loss and other comprehensive income?

  1. It presents an entity's financial position at a point in time.
  2. It shows financial performance for a period. Correct answer.
  3. It reports changes in equity from owner transactions.
  4. It shows cash inflows and outflows from operating activities.

Explanation

The statement of profit or loss and OCI reports financial performance over a period, presenting income and expenses and separating OCI items from profit or loss. Financial position at a date is shown in the statement of financial position.

Question 4Financial Accounting and Reporting

A machine costs $50,000, has a residual value of $5,000 and a useful life of five years. Using straight-line depreciation, what is the annual depreciation charge?

  1. $5,000
  2. $11,000
  3. $9,000 Correct answer.
  4. $10,000

Explanation

Straight-line depreciation spreads the depreciable amount, being cost less residual value, evenly over the useful life. Here ($50,000 - $5,000) / 5 years = $9,000 per year.

Question 5Financial Accounting and Reporting

Which of the following is an asset under the Conceptual Framework definition?

  1. Revenue earned but not yet invoiced
  2. Contributions received from shareholders
  3. A present obligation to pay a supplier next month
  4. A resource controlled by the entity with potential to produce economic benefits Correct answer.

Explanation

An asset is a present economic resource controlled by the entity as a result of past events, where an economic resource is a right with potential to produce economic benefits. A present obligation is a liability, and equity contributions are not assets of the entity.

Question 6Financial Accounting and Reporting

A company issues 1,000 shares with a face value of $1 for $5 each. How is the excess over face value recorded?

  1. As a share premium reserve within equity Correct answer.
  2. As retained earnings
  3. As a liability
  4. As share capital

Explanation

Amounts received above the nominal value of shares are recorded in a share premium (share capital) reserve within equity, separate from the nominal share capital. It is not profit, so it is not recognised in retained earnings.

Question 7Financial Accounting and Reporting

Which of the following best describes the going concern assumption?

  1. The entity will continue in operation for the foreseeable future. Correct answer.
  2. Assets are measured at their liquidation value.
  3. Transactions are recorded when cash is received or paid.
  4. The entity is separate from its owners.

Explanation

Going concern assumes the entity will continue operating for the foreseeable future without intending or needing to liquidate or cease trading. This underpins measuring assets on a cost or recoverable basis rather than at break-up values.

Question 8Financial Accounting and Reporting

Inventory costing $4,000 has a net realisable value of $3,200 at reporting date. At what amount should the inventory be carried?

  1. $4,000
  2. $3,600
  3. $3,200 Correct answer.
  4. $800

Explanation

Inventory is measured at the lower of cost and net realisable value, so it is written down to $3,200. The $800 write-down is recognised as an expense in profit or loss for the period.

Question 9Financial Accounting and Reporting

Which of the following costs is capitalised as part of the cost of a purchased item of property, plant and equipment?

  1. Initial operating losses before the asset reaches full capacity
  2. Costs of relocating the entity's head office
  3. Delivery and installation costs Correct answer.
  4. Staff training on operating the asset

Explanation

The cost of an item of PPE includes its purchase price plus directly attributable costs of bringing the asset to the location and condition necessary for intended use, such as delivery and installation. Training, relocation and start-up losses are expensed.

Question 10Financial Accounting and Reporting

An entity has taxable temporary differences of $30,000 and a tax rate of 30%. Assuming the differences are expected to reverse and taxable profit will be available, what is the deferred tax position?

  1. A deferred tax asset of $9,000
  2. A deferred tax liability of $9,000 Correct answer.
  3. A deferred tax liability of $30,000
  4. No deferred tax is recognised

Explanation

A taxable temporary difference means the entity will pay more tax in future when the carrying amount of an asset is recovered, creating a deferred tax liability. Multiplying $30,000 by the 30% rate gives a liability of $9,000.

Question 11Financial Accounting and Reporting

Which of the following best describes the purpose of the consolidation process?

  1. To eliminate the parent's own equity from the group statement
  2. To combine the financial statements of a parent and its subsidiaries as a single economic entity Correct answer.
  3. To record the parent's investment at fair value each period
  4. To present each subsidiary's statements separately in the group report

Explanation

Consolidation presents the parent and its controlled subsidiaries as one economic entity by combining like items, eliminating intragroup balances and transactions, and recognising non-controlling interests. The parent's separate investment carrying amount is replaced by the subsidiary's assets and liabilities.

Question 12Financial Accounting and Reporting

A parent owns 80% of a subsidiary. The subsidiary reports profit after tax of $100,000 for the year. What amount is attributed to non-controlling interests?

  1. $0
  2. $100,000
  3. $20,000 Correct answer.
  4. $80,000

Explanation

Non-controlling interests share in the subsidiary's profit in proportion to their ownership, which is 20% of $100,000, being $20,000. The remaining $80,000 is attributed to owners of the parent.

Question 13Financial Accounting and Reporting

At acquisition, a subsidiary has identifiable net assets with a fair value of $500,000 and a carrying amount of $450,000. The parent acquires 100% for $600,000. What is the amount of goodwill under the proportionate method?

  1. $50,000
  2. $150,000
  3. $600,000
  4. $100,000 Correct answer.

Explanation

Goodwill is the excess of consideration over the acquirer's share of the fair value of identifiable net assets. Here $600,000 less $500,000 equals $100,000 of goodwill.

Question 14Financial Accounting and Reporting

Which of the following items is recognised in other comprehensive income rather than profit or loss?

  1. Cost of goods sold
  2. Impairment loss on receivables
  3. Gain on revaluation of property, plant and equipment under the revaluation model Correct answer.
  4. Interest expense on borrowings

Explanation

Under the revaluation model, increases in the carrying amount of PPE are recognised in other comprehensive income and accumulated in a revaluation surplus, unless reversing a prior decrease. Operating costs, interest and impairment losses are recognised in profit or loss.

Question 15Financial Accounting and Reporting

An entity has current assets of $150,000, inventory of $60,000 and current liabilities of $90,000. What is the quick ratio?

  1. 0.40
  2. 1.00 Correct answer.
  3. 1.67
  4. 0.67

Explanation

The quick ratio excludes inventory from current assets and divides by current liabilities: ($150,000 - $60,000) / $90,000 = 1.00. This measures the ability to meet short-term obligations without relying on inventory sales.

Question 16Financial Accounting and Reporting

Under the Conceptual Framework, which measurement basis reflects the price that would be received to sell an asset in an orderly transaction between market participants?

  1. Value in use
  2. Fair value Correct answer.
  3. Amortised cost
  4. Historical cost

Explanation

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is an exit price concept, unlike historical cost.

Question 17Financial Accounting and Reporting

An entity recognises a provision for a warranty. Which condition must be satisfied?

  1. A future obligation expected to arise from future sales
  2. An obligation that is possible but remote
  3. A present obligation arising from a past event, probable outflow and reliable measurement Correct answer.
  4. A contingent asset that is probable

Explanation

A provision is recognised when there is a present obligation from a past event, an outflow of resources is probable, and the amount can be reliably estimated. Future obligations from future sales do not create a present obligation.

Question 18Financial Accounting and Reporting

An entity sells goods on credit for $10,000 with a right of return allowing customers to return goods within 30 days. At reporting date, expected returns are estimated at $1,000. Under the revenue standard, how is revenue recognised?

  1. $10,000, with returns recognised when they occur
  2. $10,000, with no adjustment for returns
  3. $9,000, with a refund liability of $1,000 Correct answer.
  4. $0 until the return period expires

Explanation

Revenue is recognised for the amount to which the entity expects to be entitled, so expected returns reduce revenue. A refund liability is recognised for the expected refund, and a return asset for the expected recovery of goods.

Question 19Financial Accounting and Reporting

Which of the following is an example of a non-adjusting event after the reporting period?

  1. Discovery of fraud showing financial statements were misstated
  2. Settlement of a court case confirming a provision amount
  3. A major fire destroying a warehouse after year end Correct answer.
  4. A customer becoming insolvent, confirming a receivable was impaired at year end

Explanation

A non-adjusting event provides evidence of conditions that arose after the reporting period, such as a fire after year end, and requires disclosure rather than adjustment. Adjusting events confirm conditions that existed at the reporting date.

Question 20Financial Accounting and Reporting

A company has a bank overdraft of $20,000 that is repayable on demand and a positive bank balance of $35,000 in another account at the same bank. How should these be presented in the statement of financial position?

  1. Show $55,000 as cash
  2. Show $20,000 as a non-current liability
  3. Net the balances and show $15,000 as cash
  4. Show $35,000 as cash and $20,000 as a current liability Correct answer.

Explanation

Offsetting is permitted only where a legally enforceable right of set-off exists and settlement is intended on a net basis, which is generally not the case for separate bank accounts. The positive balance is cash and the overdraft is a current liability.

Question 21Financial Accounting and Reporting

Which of the following best describes the effect of a bonus issue of shares on the statement of financial position?

  1. Cash decreases and share capital increases
  2. Total equity is unchanged, with a transfer between reserves Correct answer.
  3. Total equity decreases
  4. Total equity increases

Explanation

A bonus issue converts reserves such as retained earnings or share premium into share capital without raising new funds. Total equity is unchanged because only the composition of equity alters.

Question 22Financial Accounting and Reporting

An entity uses the revaluation model for a building. The carrying amount is $400,000 and the fair value is $460,000. There was no prior revaluation. How is the increase treated?

  1. Recognised as a liability
  2. Recognised in profit or loss as a gain
  3. Recognised as a reduction in depreciation expense
  4. Recognised in other comprehensive income as a revaluation surplus Correct answer.

Explanation

Under the revaluation model, an increase in the carrying amount of PPE is recognised in other comprehensive income and accumulated in equity as a revaluation surplus, unless it reverses a previously recognised decrease. The surplus is not recycled to profit or loss on disposal, but transferred within equity.

Question 23Financial Accounting and Reporting

A lessee enters a five-year lease with annual payments of $20,000 payable at the end of each year and an incremental borrowing rate of 5%. The present value of the lease payments is approximately $86,590. What is the interest expense in the first year?

  1. $4,330 Correct answer.
  2. $1,000
  3. $20,000
  4. $5,000

Explanation

Interest is calculated on the lease liability at the start of the period using the discount rate, so $86,590 × 5% is approximately $4,330. The payment then reduces the liability by the balance of the payment after interest.

Question 24Financial Accounting and Reporting

A parent owns 75% of a subsidiary and uses the proportionate method for goodwill. The subsidiary has identifiable net assets at fair value of $800,000 and consideration paid is $700,000. What is the goodwill and the NCI at acquisition?

  1. Goodwill $100,000; NCI $0
  2. Goodwill $100,000; NCI $200,000 Correct answer.
  3. Goodwill $0; NCI $200,000
  4. Goodwill $200,000; NCI $100,000

Explanation

Under the proportionate method, goodwill is consideration less the parent's share of net assets: $700,000 - (75% × $800,000) = $100,000. NCI is measured at its proportionate share of net assets, being 25% × $800,000 = $200,000.

Question 25Financial Accounting and Reporting

An entity has a deductible temporary difference of $50,000 and a tax rate of 25%. It is uncertain whether future taxable profits will be available. How should the deferred tax asset be treated?

  1. Recognised only to the extent that future taxable profit is probable Correct answer.
  2. Recognised in full at $12,500
  3. Ignored permanently
  4. Recognised as a deferred tax liability

Explanation

A deferred tax asset is recognised only to the extent that it is probable sufficient taxable profit will be available against which the deductible temporary difference can be utilised. Where recovery is uncertain, the asset is reduced accordingly and reassessed at each reporting date.

Question 26Financial Accounting and Reporting

Which qualitative characteristic of useful financial information is enhanced when information is reported promptly enough to influence users' decisions?

  1. Understandability
  2. Timeliness Correct answer.
  3. Verifiability
  4. Comparability

Explanation

Timeliness is an enhancing qualitative characteristic: information must be available to decision-makers before it loses its capacity to influence decisions. It does not make information accurate by itself but supports relevance.

Question 27Financial Accounting and Reporting

An entity pays $12,000 in advance for 12 months of insurance on 1 October, and the reporting date is 31 December. Under accrual accounting, what expense is recognised for the year ended 31 December?

  1. $0
  2. $3,000 Correct answer.
  3. $12,000
  4. $9,000

Explanation

Accrual accounting recognises expenses as the benefit is consumed, so three months of cover (October to December) is expensed: $12,000 x 3/12 = $3,000. The remaining $9,000 is a prepayment recognised as an asset.

Question 28Financial Accounting and Reporting

An entity issues a three-year bond at a discount. Using the effective interest method, how does the carrying amount of the bond liability behave over its life?

  1. It increases only when the market rate of interest falls
  2. It decreases as the discount is amortised each period
  3. It increases towards the face value as interest expense exceeds coupon payments Correct answer.
  4. It remains constant at the issue proceeds until maturity

Explanation

Under the effective interest method, interest expense equals the carrying amount multiplied by the market rate, and any excess over the coupon paid is added to the liability. The carrying amount therefore accretes from the discounted proceeds up to the face value at maturity.

Question 29Financial Accounting and Reporting

A machine costing $50,000 has an estimated residual value of $5,000 and a useful life of five years. Using straight-line depreciation, what is the depreciation expense for the second year?

  1. $11,000
  2. $9,000 Correct answer.
  3. $10,000
  4. $8,000

Explanation

Straight-line depreciation is the depreciable amount divided by useful life: ($50,000 - $5,000) / 5 = $9,000 each year. The expense is the same in every full year of the asset's life.

Question 30Financial Accounting and Reporting

An entity sells goods for $50,000 on credit with a two-year interest-free period when the market rate for similar credit is 8%. How should the revenue be measured at inception?

  1. At the full nominal amount of $50,000
  2. At the present value of the consideration discounted at 8% Correct answer.
  3. At the fair value of the goods plus accrued interest for two years
  4. At the amount of cash ultimately expected to be received

Explanation

When the arrangement contains a significant financing component, revenue is measured at the present value of the consideration, discounted at the rate that would apply in a separate financing transaction. The unwinding of the discount is recognised as interest income over time.

Question 31Financial Accounting and Reporting

An entity has a defined benefit obligation with a present value of $800,000 and plan assets with a fair value of $750,000. What is reported in the statement of financial position?

  1. No amount, because the plan is not in surplus
  2. A net defined benefit liability of $50,000 Correct answer.
  3. A net defined benefit liability of $800,000
  4. A net defined benefit asset of $50,000

Explanation

The net defined benefit liability or asset is the present value of the defined benefit obligation less the fair value of plan assets. Here $800,000 minus $750,000 gives a net liability of $50,000.

Question 32Financial Accounting and Reporting

An entity acquires a patent for $200,000 with a useful life of 10 years but the legal protection lasts 15 years. It expects to sell products using the patent for 10 years. What is the annual amortisation charge?

  1. $0, because intangibles with legal protection are not amortised
  2. $13,333
  3. $200,000 in the first year
  4. $20,000 Correct answer.

Explanation

An intangible with a finite useful life is amortised over its useful life, which here is the shorter 10-year period of expected economic benefit. The legal life of 15 years does not extend the period over which benefits are consumed.

Question 33Financial Accounting and Reporting

An entity's investment property is carried at fair value. In a year when fair value falls by $40,000, how is the decrease recognised?

  1. As a reduction in the cost of the property without recognition in profit or loss
  2. In profit or loss as a fair value loss Correct answer.
  3. As a direct adjustment to retained earnings
  4. In other comprehensive income as a revaluation reserve movement

Explanation

Under the fair value model for investment property, changes in fair value are recognised in profit or loss in the period they arise. There is no revaluation surplus or other comprehensive income treatment for investment property under this model.

Question 34Financial Accounting and Reporting

An entity has profit before tax of $200,000. The tax rate is 30%. Fines of $10,000 are non-deductible and entertainment expenses of $5,000 are non-deductible. What is the current tax expense?

  1. $60,000
  2. $61,500
  3. $64,500 Correct answer.
  4. $63,000

Explanation

Current tax is based on taxable profit, which adds back non-deductible items: ($200,000 + $10,000 + $5,000) x 30% = $64,500. Permanent differences affect the current tax charge but do not create deferred tax.

Question 35Financial Accounting and Reporting

An entity has a 30% shareholding in an associate and exercises significant influence. How is the investment accounted for in the investor's separate financial statements under the equity method?

  1. The associate's assets and liabilities are consolidated line by line
  2. The carrying amount is increased by the share of profit and reduced by dividends received Correct answer.
  3. The investment is carried at fair value with changes in profit or loss
  4. The investment is carried at cost and tested for impairment only

Explanation

Under the equity method, the investment is initially recognised at cost and subsequently adjusted for the investor's share of the associate's profit or loss and other comprehensive income. Dividends received reduce the carrying amount because they represent a distribution of previously recognised earnings.

Question 36Financial Accounting and Reporting

A company has 100,000 ordinary shares and 20,000 convertible notes, each convertible into two ordinary shares. Profit for the year is $300,000 and the after-tax interest saving on conversion is $24,000. What is the diluted earnings per share?

  1. $2.16
  2. $2.50
  3. $2.31 Correct answer.
  4. $3.00

Explanation

Diluted EPS adds the after-tax interest saving to profit and the potential ordinary shares to the denominator: ($300,000 + $24,000) / (100,000 + 40,000) = $324,000 / 140,000 = $2.31. Dilution assumes conversion occurs at the start of the period.

Question 37Financial Accounting and Reporting

An entity enters a sale and leaseback transaction, selling a building for $1,000,000 and leasing it back for 10 years. The carrying amount of the building is $600,000 and the sale qualifies as a sale under the revenue standard. How is the right-of-use asset measured?

  1. At the proportion of the previous carrying amount relating to the retained right of use Correct answer.
  2. At the full fair value of the building of $1,000,000
  3. At the present value of the lease payments only
  4. At nil, because the building has been sold

Explanation

For a sale and leaseback that qualifies as a sale, the seller-lessee measures the right-of-use asset at the proportion of the previous carrying amount that relates to the right of use retained. Only the gain relating to the rights transferred to the buyer-lessor is recognised in profit or loss.

Question 38Financial Accounting and Reporting

An entity changes an accounting policy for inventory valuation. The change is material and the effect can be measured reliably. How should the change be applied?

  1. By disclosing the change without adjusting any amounts
  2. By recognising the cumulative effect in profit or loss of the current year only
  3. Prospectively, with no adjustment to prior periods
  4. Retrospectively, adjusting opening retained earnings and restating comparative information Correct answer.

Explanation

A change in accounting policy resulting from a new standard or a voluntary change is generally applied retrospectively, restating comparatives and adjusting opening equity as if the policy had always been applied. Prospective application is limited to cases where retrospective application is impracticable or where a transitional provision requires it.

Question 39Financial Accounting and Reporting

An entity has a contingent liability that is possible but not probable, and the amount cannot be measured reliably. What is the correct treatment?

  1. The item is recognised in other comprehensive income
  2. A liability is recognised at the best estimate of the outflow
  3. No liability is recognised, but disclosure is made unless the possibility of outflow is remote Correct answer.
  4. A liability is recognised at the maximum possible amount

Explanation

A provision is recognised only when there is a present obligation, an outflow is probable and a reliable estimate can be made. Where outflow is possible rather than probable, or no reliable estimate exists, the item is disclosed as a contingent liability unless the possibility of outflow is remote.

Question 40Financial Accounting and Reporting

A parent owns 60% of a subsidiary and sells half of its holding, reducing its interest to 30% and losing control but retaining significant influence. How is the retained interest measured at the date control is lost?

  1. At the original cost of the retained shares
  2. At the proportionate carrying amount of the subsidiary's net assets
  3. At nil, because control has been lost
  4. At fair value, with the gain or loss on disposal including the remeasurement of the retained interest Correct answer.

Explanation

When control is lost, the parent derecognises the subsidiary's assets and liabilities and measures any retained interest at fair value at that date. The resulting gain or loss in profit or loss includes the remeasurement of the retained interest to fair value.

Question 41Management Accounting and Performance Measurement

A product has a selling price of $50, variable cost per unit of $30, and total fixed costs of $60,000. What is the break-even point in units?

  1. 2,000 units
  2. 1,500 units
  3. 3,000 units Correct answer.
  4. 1,200 units

Explanation

Break-even units equal fixed costs divided by the contribution margin per unit. The contribution margin is $50 minus $30, which is $20 per unit. Dividing $60,000 by $20 gives 3,000 units.

Question 42Management Accounting and Performance Measurement

Which statement best describes the contribution margin ratio?

  1. It is the proportion of each sales dollar available to cover fixed costs and generate profit. Correct answer.
  2. It is the proportion of total costs that varies with output.
  3. It is the profit remaining after all costs are deducted from sales.
  4. It is the proportion of each sales dollar consumed by fixed costs.

Explanation

The contribution margin ratio expresses contribution margin as a percentage of sales revenue. It shows how much of each sales dollar remains after variable costs to cover fixed costs and then contribute to profit.

Question 43Management Accounting and Performance Measurement

A company has a margin of safety of 25%. Which interpretation is correct?

  1. Fixed costs are 25% of total contribution.
  2. The company earns a 25% return on its investment.
  3. Variable costs equal 25% of sales revenue.
  4. Sales could fall by 25% before the company incurs a loss. Correct answer.

Explanation

Margin of safety measures how far actual or budgeted sales exceed break-even sales, expressed as a percentage of those sales. A 25% margin means sales can decline by one quarter before the entity reaches break-even and starts making losses.

Question 44Management Accounting and Performance Measurement

Which cost is classified as a fixed cost in the short term?

  1. Packaging cost per unit shipped
  2. Sales commission paid per unit sold
  3. Monthly factory rent under a one-year lease Correct answer.
  4. Raw material consumed per unit produced

Explanation

A fixed cost remains constant in total over a relevant range regardless of activity level. Committed rent under a lease does not change with output in the short term.

Question 45Management Accounting and Performance Measurement

In a process costing system where losses are abnormal, how should abnormal loss be treated?

  1. Added to the cost of closing work in progress
  2. Written off to the profit and loss account as a period cost Correct answer.
  3. Absorbed into the cost of good units completed
  4. Charged to the process account as a normal product cost

Explanation

Abnormal loss arises from inefficiency and is not an expected cost of production. It is therefore removed from process costs and written off against profit rather than being absorbed into inventory values.

Question 46Management Accounting and Performance Measurement

A company uses a predetermined overhead rate based on machine hours. Budgeted overhead is $240,000 and budgeted machine hours are 8,000. Actual overhead incurred was $250,000 and actual machine hours were 8,500. What is the amount of overhead applied?

  1. $212,500
  2. $255,000 Correct answer.
  3. $240,000
  4. $250,000

Explanation

The predetermined rate is $240,000 divided by 8,000 hours, which equals $30 per machine hour. Applying this rate to 8,500 actual hours gives $255,000 of overhead applied.

Question 47Management Accounting and Performance Measurement

Which item is a relevant cost for a decision?

  1. A sunk cost from a past purchase
  2. A future cost that differs between alternatives Correct answer.
  3. An unavoidable allocated fixed cost
  4. A committed cost that cannot change

Explanation

Relevant costs are future costs that differ between the alternatives being considered. Costs that are sunk, committed, or common to all options do not influence the choice.

Question 48Management Accounting and Performance Measurement

A manager is evaluated on the profit generated by their division, calculated after deducting a charge for the assets employed. Which performance measure is being used?

  1. Contribution margin
  2. Gross profit margin
  3. Residual income Correct answer.
  4. Return on investment

Explanation

Residual income is divisional profit reduced by an imputed interest charge on the investment employed. It rewards managers for earning more than the required return on the assets they control.

Question 49Management Accounting and Performance Measurement

A company sells 5,000 units at $40 each. Variable costs are $24 per unit and fixed costs are $50,000. What is the operating profit?

  1. $150,000
  2. $80,000
  3. $200,000
  4. $30,000 Correct answer.

Explanation

Contribution margin per unit is $40 minus $24, which equals $16. Total contribution is 5,000 units multiplied by $16, giving $80,000. Deducting fixed costs of $50,000 leaves operating profit of $30,000.

Question 50Management Accounting and Performance Measurement

A company needs to earn a target profit of $90,000. Selling price is $60, variable cost is $36 per unit, and fixed costs are $120,000. How many units must be sold?

  1. 8,750 units Correct answer.
  2. 5,833 units
  3. 3,500 units
  4. 2,500 units

Explanation

Contribution per unit is $60 minus $36, which equals $24. Required contribution is fixed costs of $120,000 plus target profit of $90,000, totalling $210,000. Dividing by $24 gives 8,750 units.