Chapter 20: Q8SE (page 1121)

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

Short Answer

Expert verified

Answer

$1 . A = $ 120, B = $ 3, 000, C = $ 3, 132 2 . A = 60 %, B = 75 %, C = 60 % 3 . A = 610, B = 220, C = 1, 200 4 . A = $ 122, 000, B = $ 880, 000, C = $ 6, 264, 000 5 . A = 2, 833, B = 1, 220, C = 2, 200$

Step by step solution

Calculation of contribution margin per unit

	A	B	C
Sales price per unit	$200	$4,000	$5,220
Less: Variable cost per unit	$80	$1,000	$2,088
Contribution per unit	$120	$3,000	$3,132

Calculation of contribution margin ratio

	A	B	C
Sales price per unit	$200	$4,000	$5,220
Less: Variable cost per unit	$80	$1,000	$2,088
Contribution per unit	$120	$3,000	$3,132
Contribution margin ratio = Contribution margin/ net sales revenue	$120/$200 =60%	$3,000/$4,000 =75%	$3,132/$5,220 =60%

Calculation of required units to breakeven

	A	B	C
Fixed costs	73,200	660,000	3,758,400
Contribution per unit	$120	$3,000	$3,132
Required sales in units = Fixed costs/ Contribution margin per unit	610	220	1,200

Calculation of required sales dollars to breakeven

	A	B	C
Fixed costs	73,200	660,000	3,758,400
Contribution margin ratio = Contribution margin/ net sales revenue	$120/$200 =60%	$3,000/$4,000 =75%	$3,132/$5,220 =60%
Required sales in dollars = Fixed costs/ Contribution margin ratio	$122,000	$880,000	$6,264,000