Question

Polk Company developed the following information for its product:

**Per unit**

Sales price $90

Variable cost 63

Contribution margin $27

Total fixed costs $1,080,000

**Instructions**

Answer the following independent questions and show computations
using the contribution margin technique to support your
answers.

1. How many units must be sold to break even?

2. What is the total sales that must be generated for the company
to earn a profit of $60,000?

3. If the company is presently selling 45,000 units, but plans to
spend an additional $108,000 on an advertising program, how many
additional units must the company sell to earn the same net income
it is now making?

4. Using the original data in the problem, compute a new break-even
point in units if the unit sales price is increased 20%, unit
variable cost is increased by 10%, and total fixed costs are
increased by $210,000.

Answer #1

1 | |||||||

Unit break even = Total fixed costs/Unit Contribution margin = 1080000/27= | 40000 | ||||||

2 | |||||||

Contribution margin ratio = 27/90 = 30% | |||||||

Total sales = (Fixed costs+Profit)/Contribution margin ratio = (1080000+60000)/30%= | 3800000 | ||||||

3 | |||||||

Additional units = 108000/27= | 4000 | ||||||

4 | |||||||

Sales price = 90*1.2 = 108 | |||||||

Variable cost = 63*1.1 = 69.3 | |||||||

Contribution margin = 108-69.3= | 38.7 | ||||||

Unit break even = Total fixed costs/Unit Contribution margin =(1080000+210000)/38.7= | 33333 |

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Sales
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Variable
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Contribution
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Total fixed
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2. What is the total sales
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Variable cost per unit
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