Question

1.

Wang Co. manufactures and sells a single product that sells for $540 per unit; variable costs are $324 per unit. Annual fixed costs are $836,000. Current sales volume is $4,290,000. Compute the contribution margin per unit.

2.

A firm expects to sell 24,800 units of its product at $10.80 per unit and to incur variable costs per unit of $5.80. Total fixed costs are $68,000. The total contribution margin is:

3.

McCoy Brothers manufactures and sells two products, A and Z in the ratio of 5:2. Product A sells for $86; Z sells for $124. Variable costs for product A are $45; for Z $49. Fixed costs are $518,300. Compute the number of units of Product A McCoy must sell to break even.

4.

A company has fixed costs of $98,800. Its contribution margin ratio is 38% and the product sells for $59 per unit. What is the company's break-even point in dollar sales?

Answer 1

1. Contribution margin per units

	Amount
Sales per units	$540
- Variable per units	$324
= contribution margin per units	= $216

2. Total contribution margin

	Amount
Sales 24,800 units *$10.80	$267,840
- Variable 24,800 *$5.80	$143,840
= contribution margin	= $124,000

3. Break-even per units

	A	Z	Total
Sales per units	$86	$124
- Variable per units	$45	$49
= contribution per units	$41	$75
sales mix	*5	*2	7
= Average Contribution Margin	$205	$150	$355

Average Contribution Margin = $355 / 7 = $50.71

Break-even per units = Fixed cost / average contribution margin

= $518,300 / $50.71 = 10,220.86 units

4. Break-even points in dollar sales

break-even point in dollar sales = Fixed cost / contribution ratio

= $98,800 / 38% = $260,000