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Chapter 20: Q9SE (page 1122)

S20-9 Computing contribution margin, units and required sales to break even, units to achieve target profit

Compute the missing amounts for the following table:

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=772,B=13,260,C=1,575

Step by step solution

01

Calculation of contribution margin per unit 

A

B

C

Sales price per unit

$1,400

(f) 4,900

$2,500

Less: Variable cost per unit

  1. $700

$2,940

$1,250

Contribution per unit

$700

(g)1,960

(I) $1,250

Contribution margin ratio = Contribution margin/ net sales revenue

  1. $700/$1,400 =50%

40%

(m) $1,250/$2,500

=50%

A

B

C

Sales price per unit

$1,400

(f) 4,900

$2,500

Less: Variable cost per unit

  1. $700

$2,940

$1,250

Contribution per unit

$700

(g)1,960

(I) $1,250

Contribution margin ratio = Contribution margin/ net sales revenue

  1. $700/$1,400 =50%

40%

(m) $1,250/$2,500

=50%

02

 Step 2: Calculation of required units to breakeven

A

B

C

Fixed costs

273,000

1,097,600

(k) 406,250

Contribution per unit

$700

$1,950

$1,250

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

390

563

325

03

Calculation of required sales dollars to breakeven

A

B

C

Fixed costs

273,000

1,097,600

(k) 406,250

Contribution margin ratio = Contribution margin/ net sales revenue

  1. $700/$1,400 =50%

40%

(m) $1,250/$2,500

=50%

Required sales in dollars = Fixed costs/ Contribution margin ratio

$546,000

$2,744,000

$812,500

04

 Step 5: Calculation of required units to achieve target profit

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Most popular questions from this chapter

Question: Of the three approaches to calculate sales required to achieve the breakeven point, which one(s) calculate the required sales in units and which one(s) calculate the required sales in dollars?

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?

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.

What is sensitivity analysis? How do managers use this tool?

What is operating leverage? What does it mean if a company has a degree of operating leverage of 3?
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