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Chapter 20: Q20-9RQ (page 1119)
What is contribution margin?
Answer
When total variable cost is subtracted from sales revenue it results in contribution margin.
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No Slip Co. produces sports socks. The company has fixed costs of\(91,080 and variable costs of \)0.81 per package. Each package sells for $1.80.
Requirements
1. Compute the contribution margin per package and the contribution marginratio. (Round your answers to two decimal places.)
2. Find the breakeven point in units and in dollars using the contributionmargin approach.
What is the relevant range?
Determine how each change effects the elements of the cost-volume-profit graph by placing an X in the appropriate column(s).
| EFFECT | ||||||||
| Sales Line | Fixed Cost Line | Total cost line | Breakeven point | |||||
Change | Slope Increases | Slope decreases | Shifts up | Shifts Down | Slope Increases | Slope Decreases | Increases | Decreases |
Sales price per unit Increases | ||||||||
Sales price per unit Decreases | ||||||||
Variable cost per unit Increases | ||||||||
Variable cost per unit decreases | ||||||||
Total fixed cost increases | ||||||||
Total fixed cost decreases | ||||||||
A furniture manufacturer specializes in wood tables. The tables sell for \(100 per unit and incur \)40 per unit in variable costs. The company has \(6,000 in fixed costs per month. Expected sales are 200 tables per month.
17. Calculate the margin of safety in units.
18. Determine the degree of operating leverage. Use expected sales.
19. The company begins manufacturing wood chairs to match the tables. Chairs sell for \)50 each and have variable costs of \(30. The new production process increases fixed costs to \)7,000 per month. The expected sales mix is one table for every four chairs. Calculate the breakeven point in units for each product.
Question: This problem continues the Piedmont Computer Company situation from Chapter 19. Piedmont Computer Company manufactures personal computers and tablets. Based on the latest information from the cost accountant, using the current sales mix, the weighted-average sales price per unit is \(750 and the weighed-average variable cost per unit is \)450. The company does not expect the sales mix to vary for the next year. Average fixed costs per month are \(156,000.
Requirements
1. What is the number of units that must be sold each month to reach the breakeven point?
2. If the company currently sells 945 units per month, what is the margin of safety in units and dollars?
3. If Piedmont Computer Company desires to make a profit of \)15,000 per month, how many units must be sold?
4. Piedmont Computer Company thinks it can restructure some costs so that fixed costs will be reduced to \(90,000 per month, but the weighted-average variable cost per unit will increase to \)525 per unit. What is the new breakeven point in units? Does this increase or decrease the margin of safety? Why or why not?
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