Question

# Sales \$60,000 Less: Variable Expenses 45,000 Contribution Margin 15,000 Less: Fixed Expenses 18,000 Net Income -\$3,000...

 Sales \$60,000 Less: Variable Expenses 45,000 Contribution Margin 15,000 Less: Fixed Expenses 18,000 Net Income -\$3,000

a. What are the total sales in dollars at the break-even point?

b. What are the total variable expenses at the break-even point?

c. What is the company's contribution margin ratio?

d. If unit sales were increased by 10% and fixed expenses were reduced by \$2,000, what would be the company's expected net income? (Prepare a new income statement.)

• Requirement [a]
>At Break even point, Contribution margin is EQUAL to Fixed expenses.
>Hence, Contribution margin = \$ 18000 at Break even sales
>Total Sales in Dollars at Break even point = (\$60000 Sales / \$ 15000 contribution margin) x \$ 18000 required contribution margin
= (60000/15000) x 18000
• Requirement [b]
Total Variable Expense at Break even point
= (\$45000 / 60000 sales) x \$ 72000 break even sales
= \$ 54,000
• Requirement [c]
CM ratio = (\$15000 contribution margin / \$ 60000 sales) x 100
=25% (or 0.25)
• Requirement [d]
 Sales [\$60000 + 10%] \$66,000 Variable expense [\$66000 x 75%] \$49,500 Contribution margin \$16,500 Fixed expenses [\$18000 - 2000] \$16,000 Net Income \$500

#### Earn Coins

Coins can be redeemed for fabulous gifts.