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Chapter 20: Q8SE (page 1121)

Question: Computing contribution margin, units and required sales to break even, and units to achieve target profit

Compute the missing amounts for the following table.

A B C Sales price per unit \( 200 \) 4,000 $ 5,220 Variable costs per unit 80 1,000 2,088 Total fixed costs 73,200 660,000 3,758,400 Target profit 266,760 3,000,000 3,132,000 Calculate:                          

Contribution margin per unit                          

Contribution margin ratio                          

Required units to break even                          

Required sales dollars to break even

Required units to achieve target profit

Short Answer

Expert verified

Answer

1.A=$120,B=$3,000,C=$3,1322.A=60%,B=75%,C=60%3.A=610,B=220,C=1,2004.A=$122,000,B=$880,000,C=$6,264,0005.A=2,833,B=1,220,C=2,200

Step by step solution

01

Calculation of contribution margin per unit

A

B

C

Sales price per unit

$200

$4,000

$5,220

Less: Variable cost per unit

$80

$1,000

$2,088

Contribution per unit

$120

$3,000

$3,132

02

Calculation of contribution margin ratio 

A

B

C

Sales price per unit

$200

$4,000

$5,220

Less: Variable cost per unit

$80

$1,000

$2,088

Contribution per unit

$120

$3,000

$3,132

Contribution margin ratio = Contribution margin/ net sales revenue

$120/$200 =60%

$3,000/$4,000 =75%

$3,132/$5,220 =60%

03

Calculation of required units to breakeven

A

B

C

Fixed costs

73,200

660,000

3,758,400

Contribution per unit

$120

$3,000

$3,132

Required sales in units = Fixed costs/ Contribution margin per unit

610

220

1,200

04

Calculation of required sales dollars to breakeven

A

B

C

Fixed costs

73,200

660,000

3,758,400

Contribution margin ratio = Contribution margin/ net sales revenue

$120/$200 =60%

$3,000/$4,000 =75%

$3,132/$5,220 =60%

Required sales in dollars = Fixed costs/ Contribution margin ratio

$122,000

$880,000

$6,264,000

05

Calculation of required units to achieve target profit

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Most popular questions from this chapter

Question: Computing contribution margin in total, per unit, and as a ratio

Complete the table below for contribution margin per unit, total contribution margin, and contribution margin ratio:

A B C Number of units 1,720 units 14,920 units 4,620 units

Sales price per unit \( 1,800 \) 4,500 $ 5,550

Variable costs per unit 720 3,600 1,665

Calculate:                  

Contribution margin per unit                      

Total contribution margin                        

Contribution margin ratio

The budgets of four companies yield the following information:

Company

Blue Red Green Yellow

Net Sales Revenue \( 1,900,000 \) (d) \( 1,500,000 \) (j) Variable Costs (a) 47,250 1,050,000 256,200 Fixed Costs (b) 168,000 159,000 (k) Operating Income (Loss) 298,500 (e) (g) 97,800

Units Sold 190,000 9,000 (h) (l) Contribution Margin per Unit \( 3.00 \) (f) \( 75.00 \) 18.00

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?

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. Calculate the breakeven point in units under each independent scenario.

14. Variable costs increase by \)10 per unit.

15. Fixed costs decrease by $600.

16. Sales price increases by 10%.

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’s 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.

Using the high-low method

Mark owns a machine shop. In reviewing the shop’s utility bills for the past 12 months, he found that the highest bill of \(2,600 occurred in August when the machines worked 1,200 machine hours. The lowest utility bill of \)2,300 occurred in December when the machines worked 600 machine hours.

Requirements

1. Use the high-low method to calculate the variable cost per machine hour and the total fixed utility cost.

2. Show the equation for determining the total utility cost for the machine shop.

3. If Mark anticipates using 800 machine hours in January, predict the shop’s total utility bill using the equation from Requirement 2.
See all solutions

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