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Chapter 20: Q10SE (page 1122)

Question: Use the following information to complete Short Exercises S20-10 through S20-15.

Funday Park competes with Cool World by providing a variety of rides. Funday Park sells tickets at \(70 per person as a one-day entrance fee. Variable costs are \)42 per person, and fixed costs are $170,800 per month.

S20-10 Computing contribution margin per unit, breakeven point in sales units

Compute the contribution margin per unit and the number of tickets Funday Park must sell to break even. Perform a numerical proof to show that your answer is correct.

Short Answer

Expert verified

Answer

The number of break-even sales are 6,100.

Step by step solution

01

Calculation of Contribution margin

Contributionmargin=Salesprice--Variablecost=$70-$42=$28

02

 Step 2: Calculation of number of tickets funday park must sell to break even

Netsalesrevenue-Variablecosts-Fixedcosts=TargetprofitNumberofunitssold×$28-$170,800=$0Numberofunitssold=6,100Units

03

Substituting the number of units into operating income equation

Totalcontributionmargin-Fixedcosts=Operatingincome6,100Units×$28-$170,800=Operatingincome$170,800-$170,800=Operatingincome$0=Operatingincome

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Most popular questions from this chapter

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

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?

What is a variable cost? Give an example.

What is the relevant range?

Calculating breakeven sales and sales to earn a target profit;preparing a contribution margin income statement

Famous Productions performs London shows. The average show sells 1,000 ticketsat \(60 per ticket. There are 175 shows a year. No additional shows can be held as thetheater is also used by other production companies. The average show has a cast of60, each earning a net average of \)320 per show. The cast is paid after each show. Theother variable cost is a program-printing cost of \(8 per guest. Annual fixed costs total\)459,200.

Requirements

1. Compute revenue and variable costs for each show.

2. Use the equation approach to compute the number of shows Famous Productionsmust perform each year to break even.

3. Use the contribution margin ratio approach to compute the number of showsneeded each year to earn a profit of $4,264,000. Is this profit goal realistic? Giveyour reasoning.

4. Prepare Famous Productions’s contribution margin income statement for 175shows performed in 2018. Report only two categories of costs: variable andfixed.
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