Question

Question 2.

Case 6 (1 Mark) A company has fixed costs of $90,000. Its contribution margin ratio is 30% and the product sells for $75 per unit. What is the company's break-even point in dollar sales?

Case 7 (1 Mark) Lee Company manufactures and sells widgets for $2.00 per unit. Its variable cost per unit is $1.70. Lee's total fixed costs are $10,500. If the Company wants a profit of $20,000 what is the sales revenue required?

Case 8 (1 Mark) The Haskins Company manufactures and sells radios. Each radio sells for $23.75 and the variable cost per unit is $16.25. Haskin's total fixed costs are $25,000, and budgeted sales are 8,000 units. If actual sales are 10,000 units what is the Margin of safety?

What is the contribution margin per unit?

Answer 1

6. Break-even dollars = Fixed cost/Contribution margin ratio = 90,000/30% = 300,000

7. Contribution margin ratio = (Sales price - Variable costs)/Sales price = (2-1.70)/2 = 15% Sales needed = (Fixed costs + Target profit)/Contribution margin ratio = (10,500+20,000)/15% = 203,333

8. Break-even sales = Fixed cost/Contribution margin per unit = 25,000/(23.75-16.25) = 3333 units Margin of Safety = Sales - Breakeven sales = 8000-3333 = 4667 units Contribution margin per unit = Sales price per unit - Variable costs per unit = 23.75 - 16.25 = 7.50