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Advanced Microcomputer Systems had annual sales of $31,979,000 with total variable costs of $20,934,000 and total...

Advanced Microcomputer Systems had annual sales of $31,979,000 with total variable costs of $20,934,000 and total fixed costs of $6,211,000.

a. What is the company's contribution rate?

b. What annual revenue is required to break even?

c. In the following year, a competitor dealt a severe blow to sales and total revenues dropped to $15,000,000. Calculate the net income.

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Answer #1

Answer of Part a:

Contribution Margin = Sales – Variable Cost
Contribution Margin = $31,979,000 - $20,934,000
Contribution Margin = $11,045,000

Contribution Margin rate = Contribution Margin / Sales *100
Contribution Margin rate = $11,045,000 / $31,979,000 * 100
Contribution Margin rate = 34.54%

Answer of Part b:

Break Even Point in Dollars = Fixed Cost / Contribution margin rate
Break Even Point in Dollars = $6,211,000 / 0.3454
Break Even Point in Dollars = $17,982,049.80

Answer of Part c:

Net Income = Sales * Contribution Margi Ratio – Fixed Cost
Net Income = $15,000,000 * 34.54% - $6,211,000
Net Income = $5,181,000 - $6,211,000
Net Loss = -$1,030,000

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