Question

Last year, Twins Company reported $750,000 in sales (25,000 units) and a net operating income of $25,000. At the break-even point, the company's total contribution margin equals $500,000. Based on this information, the company's:

	a.	contribution margin ratio is 40%.
	b.	break-even point is 24,000 units.
	c.	variable expense per unit is $9.
	d.	variable expenses are 60% of sales.

Answer 1

The Correct Answer is “C. The Company’s Variable Expense per unit is $9”

  

Contribution Margin Ratio = [(Net Operating Income + Contribution Margin at Break Even Point) / Sales] x 100

= [($25,000 + 500,000) / $750,000] x 100

= 70%

Variable Expense Ratio = 100% - Contribution Margin Ratio

= 100% - 70%

= 30%

Selling Price per unit = Total Sales / Number of units sold

= $750,000 / 25,000 Units

= $30 per unit

Variable Expense per unit = Selling price per unit x Variable Expense Ratio

= $30 x 30%

= $9 per unit