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Chapter 20: Q16RQ (page 1119)

Of the three approaches to calculate sales required to achieve the breakeven point, which one(s) calculate the required sales in units and which one(s) calculate the required sales in dollars?

Short Answer

Expert verified

Answer

  1. Contribution margin approach
  2. Contribution margin ratio approach

Step by step solution

01

Approach used to calculate the required sales in units

The contribution margin approach helps in calculating required sales in units. It is calculated by dividing the total fixed cost by contribution margin per unit.

02

Approach used to calculate the required sales in dollars

The contribution margin ratio approach helps in calculating required sales in units. It is calculated by dividing the total fixed cost by contribution margin ratio.

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Most popular questions from this chapter

Owner Shan Mu is considering franchising her Noodles by Murestaurant concept. She believes people will pay \(10.00 for a large bowl ofnoodles. Variable costs are \)5.00 per bowl. Mu estimates monthly fixed costsfor a franchise at \(9,000.

Requirements

1. Use the contribution margin ratio approach to find a franchise鈥檚 breakevensales in dollars.

2. Mu believes most locations could generate \)61,500 in monthly sales. Isfranchising a good idea for Mu if franchisees want a minimum monthlyoperating income of $21,000? Explain your answer.

A chain of convenience stores has one manager per store who is paid a monthly salary. Relative to the number of stores, is the manager鈥檚 salary fixed or variable? Why?

Calculating breakeven point in units, contribution margin given Mackler, Inc. sells a product with a contribution margin of \(50 per unit. Fixed costs are \)8000 per month. How many units must Mackler sell to break even?

Question: Gilbert鈥檚 Steel Parts produces parts for the automobile industry. Thecompany has monthly fixed costs of \(640,220 and a contribution margin of85% of revenues.

Requirements

1. Compute Gilbert鈥檚 monthly breakeven sales in dollars. Use the contributionmargin ratio approach.

2. Use contribution margin income statements to compute Gilbert鈥檚 monthlyoperating income or operating loss if revenues are \)500,000 and if they are$1,050,000.

3. Do the results in Requirement 2 make sense given the breakeven sales youcomputed in Requirement 1? Explain.

What is cost stickiness? Why do managers need to be aware of cost stickiness?
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