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Chapter 20: Q6RQ (page 1119)
What is the relevant range?
The range where the variable cost per unit and fixed cost remains constant is known as the relevant range.
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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 \(6,000 in fixed costs per month. Expected sales are 200 tables per month.
17. Calculate the margin of safety in units.
18. Determine the degree of operating leverage. Use expected sales.
19. The company begins manufacturing wood chairs to match the tables. Chairs sell for \)50 each and have variable costs of \(30. The new production process increases fixed costs to \)7,000 per month. The expected sales mix is one table for every four chairs. Calculate the breakeven point in units for each product.
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.
What is a fixed cost? Give an example.
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
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.
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