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Chapter 20: Q9SE (page 1122)

S20-9 Computing contribution margin, units and required sales to break even, units to achieve target profit

Compute the missing amounts for the following table:

Short Answer

Expert verified

Answer

1.A=$120,B=$3,000,C=$3,1322.A=60%,B=75%,C=60%3.A=610,B=220,C=1,2004.A=$122,000,B=$880,000,C=$6,264,0005.A=772,B=13,260,C=1,575

Step by step solution

01

Calculation of contribution margin per unit 

A

B

C

Sales price per unit

$1,400

(f) 4,900

$2,500

Less: Variable cost per unit

  1. $700

$2,940

$1,250

Contribution per unit

$700

(g)1,960

(I) $1,250

Contribution margin ratio = Contribution margin/ net sales revenue

  1. $700/$1,400 =50%

40%

(m) $1,250/$2,500

=50%

A

B

C

Sales price per unit

$1,400

(f) 4,900

$2,500

Less: Variable cost per unit

  1. $700

$2,940

$1,250

Contribution per unit

$700

(g)1,960

(I) $1,250

Contribution margin ratio = Contribution margin/ net sales revenue

  1. $700/$1,400 =50%

40%

(m) $1,250/$2,500

=50%

02

 Step 2: Calculation of required units to breakeven

A

B

C

Fixed costs

273,000

1,097,600

(k) 406,250

Contribution per unit

$700

$1,950

$1,250

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

390

563

325

03

Calculation of required sales dollars to breakeven

A

B

C

Fixed costs

273,000

1,097,600

(k) 406,250

Contribution margin ratio = Contribution margin/ net sales revenue

  1. $700/$1,400 =50%

40%

(m) $1,250/$2,500

=50%

Required sales in dollars = Fixed costs/ Contribution margin ratio

$546,000

$2,744,000

$812,500

04

 Step 5: Calculation of required units to achieve target profit

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Most popular questions from this chapter

Computing margin of safety

Robbie’s Repair Shop has a monthly target profit of \(31,000. Variable costs are 20%of sales, and monthly fixed costs are \)19,000.

Requirements

1. Compute the monthly margin of safety in dollars if the shop achieves its income goal.

2. Express Robbie’s margin of safety as a percentage of target sales.

3. Why would Robbie’s management want to know the shop’s margin of safety?

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.

S20-14 Computing margin of safety

Refer to the original information (ignoring the changes considered in Short Exercises S20-12 and S20-13). If Funday Park expects to sell 8,100 tickets, compute the margin of safety in tickets and in sales dollars.

Identifying variable, fixed, and mixed costs

Philadelphia Acoustics builds innovative speakers for music and home theater systems. Identify each cost as variable (V), fixed (F), or mixed (M), relative to number of speakers produced and sold.

1. Units of production depreciation on routers used to cut wood enclosures.

2. Wood for speaker enclosures.

3. Patents on crossover relays.

4. Total compensation to salesperson who receives a salary plus a commission based on meeting sales goals.

5. Crossover relays.

6. Straight-line depreciation on manufacturing plant.

7. Grill cloth.

8. Insurance on the corporate office.

9. Glue.

10. Quality inspector’s salary.

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?

What are the three approaches to calculating the sales required to achieve the breakeven point? Give the formula for each one.
See all solutions

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