Please answer a2
The Vice President for Sales and Marketing at Waterways
Corporation is planning for production needs to meet sales demand
in the coming year. He is also trying to determine how the
company’s profits might be increased in the coming year. This
problem asks you to use cost-volume-profit concepts to help
Waterways understand contribution margins of some of its products
and decide whether to mass-produce any of them.
Waterways markets a simple water control and timer that it mass-produces. Last year, the company sold 738,000 units at an average selling price of $4.20 per unit. The variable costs were $1,859,760, and the fixed costs were $867,888.
Correct answer iconYour answer is correct.
What is the product’s contribution margin ratio? (Round ratio to 0 decimal places, e.g. 25%.)
|Contribution margin ratio||40%|
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Attempts: 2 of 5 used
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What is the company’s break-even point in units and in dollars for this product?
|Break-even point in units||units|
|Break-even point in dollars||
a1 Computation of Contribution Margin Ratio:
Contribution per unit = Selling price per unit - Variable expense per unit
Variable Cost per unit = $1,859,760 / 738,000 units = $2.52 per unit
Therefore, Contribution per unit = $4.20 - $2.52 = $1.68 per unit
Contribution Margin Ratio = Contribution per unit / Selling price per unit * 100
Contribution Margin Ratio = $1.68 / $4.20 *100 = 40%
a2 Computation of company’s break-even point in units and in dollars for this product:
Break Even Units = Fixed Cost/Average Contribution Margin per unit
Break Even Units = $867,888/$1.68 = 516,600 units
Computation of Breakeven in dollars:
Breakeven in dollars = Break Even Units * Selling price per unit
Breakeven in dollars = 516,600 * $4.20 = $2,169,720
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