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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

What is the purpose of using the high-low method?

Use the following information to complete Short Exercises S20-16 and S20-17.

Wild Waters Swim Park sells individual and family tickets. With a ticket, each person receives a meal, three beverages, and unlimited use of the swimming pools. Wild Waters has the following ticket prices and variable costs for 2018:

Individual Family Sales price per ticket \( 50 \) 150 Variable cost per ticket 35 140

Wild Waters expects to sell one individual ticket for every four family tickets. Wild Waters鈥檚 total fixed costs are $27,500.

S20-17 Calculating breakeven point for two products

For 2019, Wild Waters expects a sales mix of four individual tickets for every one family ticket.

Requirements

1. Compute the new weighted-average contribution margin per ticket.

2. Calculate the total number of tickets Wild Waters must sell to break even.

3. Calculate the number of individual tickets and the number of family tickets the company must sell to break even.

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.

Following is the income statement for Marrow Mufflers for the month of June 2018:

MARROW MUFFLERS

Contribution Margin Income Statement

Month Ended June 30, 2018

Net Sales Revenue (140 units _ \(250) \) 35,000

Variable Costs (140 units _ \(50) 7,000

Contribution Margin 28,000

Fixed Costs 11,500

Operating Income \) 16,500

Requirements

1. Calculate the degree of operating leverage. (Round to four decimal places.)

2. Use the degree of operating leverage calculated in Requirement 1 to estimate the change in operating income if total sales increase by 40% (assuming no change in sales price per unit). (Round interim calculations to four decimal places and final answer to the nearest dollar.)

3. Verify your answer in Requirement 2 by preparing a contribution margin income statement with the total sales increase of 40%.

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.

6. Prepare a contribution margin income statement for one month if the company sells 200 tables.

7. What is the total contribution margin for the month when the company sells 200 tables?

8. What is the unit contribution margin?

9. What is the contribution margin ratio?
See all solutions

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