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Chapter 20: Q4SE (page 1121)

Calculating contribution margin

Glenn Company sells a product for \(80 per unit. Variable costs are \)60 per unit, and fixed costs are $800 per month. The company expects to sell 560 units in September. Calculate the contribution margin per unit, in total, and as a ratio.

Short Answer

Expert verified
  1. Contribution margin per unit=$20
  2. Contribution margin in total = $11,200
  3. Contribution margin ratio = 25%

Step by step solution

01

Calculation of contribution margin per unit

Contributionmarginperunit=Salespriceperunit-variablecostperunit=$80-$60=$20

02

Calculation of contribution margin in total

Contributionmarginintotal=Totalsalesinunits脳contributionmarginperunit=560Units脳$20=$11,200

03

Calculation of contribution margin ratio

Contributionmarginratio=ContributionmarginNetsalesrevenue=$11,200$44,800=25%

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Most popular questions from this chapter

Determining mixed costs鈥攖he high-low method

The manager of Trusty Car Inspection reviewed the monthly operating costs for the past year. The costs ranged from \(4,300 for 1,300 inspections to \)3,900 for 900 inspections.

Requirements

1. Use the high-low method to calculate the variable cost per inspection.

2. Calculate the total fixed costs.

3. Write the equation and calculate the operating costs for 1,000 inspections.

4. Draw a graph illustrating the total cost under this plan. Label the axes, and show the costs at 900, 1,000, and 1,300 inspections.

On the CVP graph, where is the breakeven point shown? Why?

Determining cost behavior

Identify each cost below as variable (V), fixed (F), or mixed (M), relative to units sold. Explain your reason.

Units Sold 25 50 75 100

a. Total phone cost \( 150 \) 200 \( 250 \) 300

b. Materials cost per unit 35 35 35 35

c. Manager鈥檚 salary 3,000 3,000 3,000 3,000

d. Depreciation cost per unit 60 30 20 15

e. Total utility cost 400 650 900 1,150

f. Total cost of goods sold 3,125 6,250 9,375 12,500

White Company sells flags with team logos. White has fixed costs of \(639,600 per year plus variable costs of \)4.20 per flag. Each flag sells for \(12.00.

Requirements

1. Use the equation approach to compute the number of flags White must sell each year to break even.

2. Use the contribution margin ratio approach to compute the dollar sales White needs to earn \)32,500 in operating income for 2018. (Round the contribution margin to two decimal places.)

3. Prepare White鈥檚 contribution margin income statement for the year ended December 31, 2018, for sales of 73,000 flags. (Round your final answers up to the next whole number.)

4. The company is considering an expansion that will increase fixed costs by 23% and variable costs by $0.60 per flag. Compute the new breakeven point in units and in dollars. Should White undertake the expansion? Give your reasoning. (Round your final answers up to the next whole number.)

Identifying variable, fixed, and mixed costs Holly鈥檚 Day Care has been in operation for several years. Identify each cost as variable (V), fixed (F), or mixed (M), relative to number of students enrolled.

1. Building rent.

2. Toys.

3. Compensation of the office manager, who receives a salary plus a bonus based on number of students enrolled.

4. Afternoon snacks.

5. Lawn service contract at $200 per month.

6. Holly鈥檚 salary.

7. Wages of afterschool employees.

8. Drawing paper for students鈥� artwork.

9. Straight-line depreciation on furniture and playground equipment.

10. Fee paid to security company for monthly service.
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