Q37PGA The budgets of four companies yi... [FREE SOLUTION]

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Chapter 20: Q37PGA (page 1130)

The budgets of four companies yield the following information:
Company
Beach Lake Mountain Valley
Net Sales Revenue $ 1,615,000 $(d) $ 1,050,000 $(j)
Variable Costs (a) 60,000 525,000 100,800
Fixed Costs (b) 232,000 260,000 (k)
Operating Income (Loss) 285,600 (e) (g) 31,500
Units Sold 170,000 10,000 (h) (l)
Contribution Margin per Unit $ 3.80 $ (f) $ 75.00 $ 9.00
Contribution Margin Ratio (c) 80% (i) 30%
Requirements
1. Fill in the blanks for each missing value. (Round the contribution margin per unit to the nearest cent.)
2. Which company has the lowest breakeven point in sales dollars?
3. What causes the low breakeven point?

Short Answer

Expert verified

(1)(a) $969,000

(b) 360,000

(d) $300,000

(e) $8,000

(f) $24

(g) $265,000

(h) 7,000

(i) 50%

(j) $144,000

(k) $11,700

(l) 4,800

(2) The lowest breakeven point in sales dollars equals $39,000.

(3) Lower contribution margin ratio and lower fixed costs

Step by step solution

Calculation of (a), (b), (c)

Net sales revenue	$1,615,000
Variable costs ($1,615,000 / 170,000)-$3.80 ) x 170,000	(a)$969,000
Fixed costs ($1,615,000-$969,000 -$285,600)	(b)$360,400
Operating income (Loss)	$285,600
Units sold	170,000
Contribution margin per unit	$3.80
Contribution margin ratio (($3.80 x 170,000) / $1,615,000)	(c)40%

Calculation of (d), (e), (f)

Net sales revenue ($60,000 / (1-80%)	(d) $300,000
Variable costs	$60,000
Fixed costs	$232,000
Operating income (Loss) ($300,000-$60,000-$232,000)	(e) $8,000
Units sold	10,000
Contribution margin per unit ($300,000-$60,000)/10,000	(f)$24
Contribution margin ratio	80%

Calculation of (g), (h), (i)

Net sales revenue	$1,050,000
Variable costs	$525,000
Fixed costs	$260,000
Operating income (Loss) ($1,050,000-$525,000-$260,000)	(g) $265,000
Units sold ($1,050,000-$525,000) / $75	(h) 7,000
Contribution margin per unit	$75
Contribution margin ratio ($1,050,000-$525,000)/$1,050,000)	(i)50%

Calculation of (j), (k), (l)

Net sales revenue ($100,800 / (1-30%))	(j)$144,000
Variable costs	$100,800
Fixed costs ($144,000-$100,800-$31,500)	(k)$11,700
Operating income (Loss)	$31,500
Units sold ($144,000 - $100,800)/$9)	(l)4,800
Contribution margin per unit	$9
Contribution margin ratio ($144,000-$100,800)/$144,000)	30%

Step 4: Calculation of breakeven sales in dollars

$Breakevensales (Beach) = \frac{Fixedcosts}{Contributionmarginratio} = \frac{$ 360, 400}{40 %} = $ 901, 000$

$Breakevensales (Lake) = \frac{Fixedcosts}{Contributionmarginratio} = \frac{$ 232, 000}{80 %} = $ 290, 000$

$Breakevensales (Mountain) = \frac{Fixedcosts}{Contributionmarginratio} = \frac{$ 260, 000}{50 %} = $ 520, 000$

$Breakevensales (Valley) = \frac{Fixedcosts}{Contributionmarginratio} = \frac{$ 11, 700}{30 %} = $ 39, 000$

Valley has the lowest breakeven point that is $39,000.

Step 4: Reason for low breakeven point

Low contribution margin causes the low breakeven point. Valley has the lowest contribution margin ratio that is why it has the lowest breakeven point.

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Short Answer

Step by step solution

Calculation of (a), (b), (c)

Calculation of (d), (e), (f)

Calculation of (g), (h), (i)

Calculation of (j), (k), (l)

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