Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 20: Q2TI (page 1097)

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?

Short Answer

Expert verified
  1. Operating Income is $6,000
  2. Total contribution margin $12,000
  3. Unit contribution margin $60
  4. Contribution margin ratio is 60%

Step by step solution

01

Preparation of contribution margin income statement

Particulars

Amount ($)

Sales revenue (200 tablesx$100)

20,000

Less: Variable cost (200 tablesx$40)

(8,000)

Contribution Margin

12,000

Less: Fixed cost

(6,000)

Operating income

6,000

02

Total contribution margin

The total contribution margin of 200 tables is $12,000

03

Calculation of unit contribution margin

Unit contribution margin =Total Contribution Margin/No. of tables sold

=$12,000/200

=$60

04

Calculation of contribution margin ratio

Contribution margin ratio =Contribution margin/net sales revenue

=$12,000/$20,000

=60%

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

The contribution margin income statement of Sugar Lips Donuts for August 2018 follows:

Sugar Lips sells three dozen plain donuts for every dozen custard-filled donuts. A dozen plain donuts sells for \(4.00, with total variable cost of \)1.80 per dozen. A dozen custard-filled donuts sells for \(8.00, with total variable cost of \)3.60 per dozen.

Requirements

1. Calculate the weighted-average contribution margin.

2. Determine Sugar Lips’s monthly breakeven point in dozens of plain donuts and custard-filled donuts. Prove your answer by preparing a summary contribution margin income statement at the breakeven level of sales. Show only two categories of costs: variable and fixed.

3. Compute Sugar Lips’s margin of safety in dollars for August 2018.

4. Compute the degree of operating leverage for Sugar Lips Donuts. Estimate the new operating income if total sales increase by 30%. (Round the degree of operating leverage to four decimal places and the final answer to the nearest dollar. Assume the sales mix remains unchanged.)

5. Prove your answer to Requirement 4 by preparing a contribution margin income statement with a 30% increase in total sales. (The sales mix remains unchanged.)

Mi Tierra Driving School charges \(680 per student to prepare and administer written and driving tests. Variable costs of \)408 per student include trainers’ wages, study materials, and gasoline. Annual fixed costs of \(63,920 include the training facility and fleet of cars.

Requirements

1. For each of the following independent situations, calculate the contribution margin per unit and the breakeven point in units by first referring to the original data provided:

a. Breakeven point with no change in information.

b. Decrease sales price to \)544 per student.

c. Decrease variable costs to \(340 per student.

d. Decrease fixed costs to \)53,040.

2. Compare the impact of changes in the sales price, variable costs, and fixed costs on the contribution margin per unit and the breakeven point in units.

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.

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.

Using terminology Match the following terms with the correct definitions:

1. Costs that do not change in total over wide ranges of volume.

2. Technique that estimates profit or loss results when conditions change.

3. The sales level at which operating income is zero.

4. Drop in sales a company can absorb without incurring an operating loss.

5. Combination of products that make up total sales.

6. Net sales revenue minus variable costs.

7. Describes how a cost changes as volume changes.

8. Costs that change in total in direct proportion to changes in volume.

9. The band of volume where total fixed costs and variable cost per unit remain constant.

a. Breakeven point

b. Contribution margin

c. Cost behavior

d. Margin of safety

e. Relevant range

f. Sales mix

g. Fixed costs

h. Variable costs

i. Sensitivity analysis
See all solutions

Recommended explanations on Business Studies Textbooks

Nature of Business

Read Explanation

Organizational Behavior

Read Explanation

Introduction to Business

Read Explanation

Operational Management

Read Explanation

Business Development

Read Explanation

Change Management

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free