Question

Risk assessment calculations

Baseline information: 40,000 units sold at a unit selling price of $100,

variable costs of $80 per unit, fixed costs of $750,000

1. Calculate the contribution margin per unit in dollars and as a percentage

2. Prepare a financial report in the contribution margin format

Calculate the breakeven point in dollars and unit sales

4. Prove the validity of the breakeven calculation by preparing a financial

report using the contribution margin format

5. Calculate the performance level in unit sales to earn net income of

$100,000

**6. Prove the validity of the desired net income
calculation by preparing a**

**financial report using the contribution margin
format**

**7. Calculate the degrees of operating
leverage**

**ithout preparing a financial report, calculate the
increase in net income**

**f the number of units sold increased by 10%**

**9. Prove the validity of the operating leverage
calculation by preparing a**

**financial report using the contribution margin format
and assuming a 10%**

**increase in units sold**

**What-if calculation**

**Calculate net income resulting from these changes to the
baseline**

**information: units sold and selling price remained the
same, variable costs**

**were increased by $10, and fixed costs were decreased by
$250,000**

**SOLUTION**

1. Contribution margin per unit = Sales price - Variable costs

= $100 - $80 = $20

Contribution margin ratio = Contribution margin per unit / Sales price * 100

= $20 / $100 * 100 = 20%

2. Contribution margin format

Particulars |
Amount
($) |

Sales price (40,000*$100) | 4,000,000 |

Variable cost (40,000*$80) | 3,200,000 |

Contribution margin | 800,000 |

Fixed Expenses | 750,000 |

Net Operating Income | 50,000 |

Breakeven point in sales units = Fixed expense / Contribution margin per unit

= $750,000 / $20 = 37,500 units

Breakeven point in dollars = Fixed expense / Contribution margin ratio

= $750,000 / 20% = $3,750,000

4. Contribution margin format

Particulars |
Amount
($) |

Sales price (37,500*$100) | 3,750,000 |

Variable cost (37,500*$80) | 3,000,000 |

Contribution margin | 750,000 |

Fixed Expenses | 750,000 |

Net Operating Income | 0 |

5. Performance level in unit sales = (Fixed cost + Desired profit) / Contribution margin per unit

= ($750,000 + $100,000) / $20

= $850,000 / $20

= 42,500 units

Answer #1

The following information relate to
AAA Company
Sales price per unit
$ 50
Variable costs per unit
30
Total fixed costs
40,000
Required:
1- Calculate Contribution margin per
unit
2- Calculate Contribution margin
ratio
3- Calculate required units to
achieve target profit $460,000
4- Calculate required units to
breakeven
5- Calculate required sales dollars
to breakeven
6- Prove your answer in requirements
4

When sales units go up by 25% (assuming the unit selling price
and unit variable expense are constant):
A.
Net income will go up by 25%.
B.
Contribution margin will go up by 75%.
C.
Variable expenses go up by 25%.
D.
Fixed expenses will go up by 75%.

Exercise 5-13 Changes in Selling Price, Sales Volume, Variable
Cost per Unit, and Total Fixed Costs [LO5-1, LO5-4] Miller
Company’s contribution format income statement for the most recent
month is shown below: Total Per Unit Sales (31,000 units) $ 248,000
$ 8.00 Variable expenses 155,000 5.00 Contribution margin 93,000 $
3.00 Fixed expenses 42,000 Net operating income $ 51,000 Required:
(Consider each case independently): 1. What is the revised net
operating income if unit sales increase by 10%? 2. What...

Total fixed cost = $66,000
Selling price per unit = $14
Variable costs per unit = $6
Net target income (after tax) = $52,000
Tax rate = 35%.
a)Calculate break even point in units
b) calculate the sales revenue (in dollars) required to achieve
the target income
c) calculate the difference in operating income when one extra
unit is sold
d) if fixed cost increased by 20%, what is the new unit
contribution margin required to maintain the same break-even...

Exercise 6-13 Changes in Selling Price, Sales Volume, Variable
Cost per Unit, and Total Fixed Costs [LO6-1, LO6-4]
Miller Company’s contribution format income statement for the
most recent month is shown below:
Total
Per Unit
Sales (42,000
units)
$
294,000
$
7.00
Variable expenses
168,000
4.00
Contribution margin
126,000
$
3.00
Fixed expenses
46,000
Net operating income
$
80,000
Required:
(Consider each case independently):
1. What is the revised net operating income if unit sales
increase by 14%?
2. What...

Exercise 5-13 Changes in Selling Price, Sales Volume, Variable
Cost per Unit, and Total Fixed Costs [LO5-1, LO5-4] Miller
Company’s contribution format income statement for the most recent
month is shown below: Total Per Unit Sales (31,000 units) $ 248,000
$ 8.00 Variable expenses 155,000 5.00 Contribution margin 93,000 $
3.00 Fixed expenses 42,000 Net operating income $ 51,000 Required:
(Consider each case independently): 1. What is the revised net
operating income if unit sales increase by 10%? 2. What...

Steven Company has fixed costs of $289,518. The unit selling
price, variable cost per unit, and contribution margin per unit for
the company's two products are provided below.
Product
Selling Price per Unit
Variable Cost per Unit
Contribution Margin per Unit
X
$848
$318
$530
Y
645
345
300
The sales mix for Products X and Y is 60% and 40%, respectively.
Determine the break-even point in units of X and Y. Round
answers to the nearest whole number.
units...

eyden Company has fixed costs of $350,900. The unit selling
price, variable cost per unit, and contribution margin per unit for
the company’s two products follow:
Product Model
Selling Price
Variable Cost per Unit
Contribution Margin per Unit
Yankee
$100
$60
$40
Zoro
140
80
60
The sales mix for products Yankee and Zoro is 10% and 90%,
respectively. Determine the break-even point in units of Yankee and
Zoro.
a. Product Model Yankee fill in the blank 1
units
b....

Heyden Company has fixed costs of $705,600. The unit selling
price, variable cost per unit, and contribution margin per unit for
the company's two products follow:
Product
Selling Price
Variable Cost per Unit
Contribution Margin per Unit
QQ
$700
$460
$240
ZZ
380
260
120
The sales mix for Products QQ and ZZ is 20% and 80%,
respectively. Determine the break-even point in units of QQ and ZZ.
If required, round your answers to the nearest whole number.
a. Product...

Unit sales 20,000 units
Selling price per unit $60 per unit
Variable expenses per unit $45 per unit
Fixed expenses $240,000
CVP Relationships Compute the CM ratio
Selling price per unit Variable expenses per unit =
Contribution margin per unit =
CM ratio =
Compute the break-even
Break-even in unit sales=
Break-even in dollar sales=
Compute the margin of safety
Margin of safety in dollars=
Margin of safety percentage=

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 22 minutes ago

asked 25 minutes ago

asked 41 minutes ago

asked 54 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago