Question

Raven Ltd. makes phone cases that retail for $20 each. For the coming year, Raven expects fixed costs to be $140,000 and variable costs to be $6 per case.

Round UP to the nearest $ or unit (we will always round up in break-even analysis!!)

(a) Calculate the contribution margin per case. $ /phone case?

(b) Calculate the contribution margin ratio?

(c) Calculate the break-even point in dollars?

(d) Calculate the break-even point in units. phone cases ?

Answer 1

Solution:
a.	Contribution margin per case	$14 per phone case
Working Notes:
	Contribution margin per case = selling price per case - variable cost per case
		=$20 - $6
		=$14
b.	Contribution margin ratio	70%
Working Notes:
	contribution margin ratio = Contribution margin per case/Selling price per case
		=$14/$20
		=0.70
		=70%
c.	Break-even point in dollars	$200,000
Working Notes:
	Break-even point in dollar = Total fixed cost / contribution margin ratio
		=140,000/70%
		=$200,000
d.	Break-even point in units	10,000 phone cases
Working Notes:
	Break-even point in units = Total fixed cost /Contribution margin per unit
		=$140,000/$14
		=10,000
Please feel free to ask if anything about above solution in comment section of the question.