Question

Question 6:                                                                                                                       10 marks

          Resin Products has estimated that fixed costs per month are $79,200 and variable cost per dollar of sales is $0.52.

Instructions:

1. What is the break-even point per month in sales?
2. What level of sales is needed for a monthly profit of $24,000?
3. For the month of July, the company anticipates sales of $240,000. What is the expected level of profit?

Answer 1

Fixed cost =$79,200

Variable cost per dollar of sales = $0.52

Since variable cost dollar of sales is $0.52 , hence contribution margin per unit is $0.48 per dollar of sales

Contribution margin ratio = 48%

Break even point in dollars = Fixed cost/ Contribution margin ratio

= 79,200/48%

= $165,000

Sales to earn target profit = (Fixed cost + Target profit)/Contribution margin ratio

= (79,200+24,000)/48%

= 103,200/48%

= $215,000

Sales = $240,000

Profit = ( Sales x Contribution margin ratio) - Fixed cost

= (240,000 x 48%)- 79,200

= 115,200-79,200

= $36,000

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