Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 20: Q3TI (page 1102)

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.

Short Answer

Expert verified
  1. Units sold = 300
  2. Units sold = 300
  3. Required sales in dollars =$26,000
  4. Units sold = 300

Step by step solution

01

Calculation of the required sales in units to earn the target profit using the equation method

Target profit = Net sales revenue – Variable costs – Fixed costs

$12,000 = ($100 x Units sold) – ($40 x Units sold) - $6,000

$12,000 - $6,000 =$60 x Units sold

Units sold = 300 Units

02

Calculation of the required sales in units to earn the target profit using the contribution margin method.

Contribution Margin Per Unit = Sale Price-Variable Cost

=$100-$40

=$60

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

=($6,000+$12,000)/$60

=300 Units

03

Calculation of the required sales in dollars to earn the target profit using the contribution margin ratio method

Contribution margin ratio = Contribution Margin Per Unit/ Sale price per unit

=$60/$100

=60%

Required sales in dollars =Fixed costs + Target profit/ Contribution margin ratio

=($6,000+$12,000)/60%

=$30,000

04

Calculation of the required sales in units to break even using the contribution margin method. 

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

=($6,000+$12,000)/$60

=300 units

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

What are the three ways contribution margin can be ex

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.

Refer to the original information (ignoring the changes considered in Short Exercise S20-12). Suppose Funday Park increases fixed costs from \)170,800 per month to $231,000 per month. Compute the new breakeven point in tickets and in sales dollars.

Following is the income statement for Marrow Mufflers for the month of June 2018:

MARROW MUFFLERS

Contribution Margin Income Statement

Month Ended June 30, 2018

Net Sales Revenue (140 units _ \(250) \) 35,000

Variable Costs (140 units _ \(50) 7,000

Contribution Margin 28,000

Fixed Costs 11,500

Operating Income \) 16,500

Requirements

1. Calculate the degree of operating leverage. (Round to four decimal places.)

2. Use the degree of operating leverage calculated in Requirement 1 to estimate the change in operating income if total sales increase by 40% (assuming no change in sales price per unit). (Round interim calculations to four decimal places and final answer to the nearest dollar.)

3. Verify your answer in Requirement 2 by preparing a contribution margin income statement with the total sales increase of 40%.

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.

Determining cost behavior

Identify each cost below as variable (V), fixed (F), or mixed (M), relative to units sold. Explain your reason.

Units Sold 25 50 75 100

a. Total phone cost \( 150 \) 200 \( 250 \) 300

b. Materials cost per unit 35 35 35 35

c. Manager’s salary 3,000 3,000 3,000 3,000

d. Depreciation cost per unit 60 30 20 15

e. Total utility cost 400 650 900 1,150

f. Total cost of goods sold 3,125 6,250 9,375 12,500
See all solutions

Recommended explanations on Business Studies Textbooks

Introduction to Business

Read Explanation

Business Operations

Read Explanation

Managerial Economics

Read Explanation

Operational Management

Read Explanation

Human Resources

Read Explanation

Business Case Studies

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