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Chapter 20: Q27E (page 1126)

No Slip Co. produces sports socks. The company has fixed costs of\(91,080 and variable costs of \)0.81 per package. Each package sells for $1.80.

Requirements

1. Compute the contribution margin per package and the contribution marginratio. (Round your answers to two decimal places.)

2. Find the breakeven point in units and in dollars using the contributionmargin approach.

Short Answer

Expert verified

Answer

1. Contribution margin ratio is $0.99 and contribution margin ratio is 55%

2. Breakeven sales in units are 92,000 package and $165,600 in dollars.

Step by step solution

01

Calculation of contribution margin and contribution margin ratio

$

Sales price per unit 1.80

Variable cost per unit (0.81)

Contribution margin per unit 0.99

Contribution margin ratio (sales price per unit/contribution margin 55%

per unit x100)

02

Calculation of breakeven sales in dollars and units

Breakevensalesinunits=FixedcostContributionmarginperunit=$91,080+$0$0.99=92,000PackageBreakevensalesindollars=FixedcostContributionmarginratio=$91,08055%%=$165,600Package

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Most popular questions from this chapter

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 \(6,000 in fixed costs per month. The company desires to earn an operating profit of \)12,000 per month.

10. Calculate the required sales in units to earn the target profit using the equation method.

11. Calculate the required sales in units to earn the target profit using the contribution margin method.

12. Calculate the required sales in dollars to earn the target profit using the contribution margin ratio method.

13. Calculate the required sales in units to break even using the contribution margin method.

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.

Following is a list of costs for a furniture manufacturer that specializes in wood tables. Classify each cost as variable, fixed, or mixed relative to the number of tables produced and sold.

1. Wood used to build tables

2. Depreciation on saws and other manufacturing equipment

3. Compensation for sales representatives paid on a salary plus commission basis

4. Supervisor’s salary

5. Wages of production workers

How can CVP analysis be used by companies with multiple products?

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?
See all solutions

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