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# PA6-1 Calculating Contribution Margin, Contribution Margin Ratio, Break-Even Point [LO 6-1, 6-2] Hermosa, Inc., produces one...

PA6-1 Calculating Contribution Margin, Contribution Margin Ratio, Break-Even Point [LO 6-1, 6-2]

Hermosa, Inc., produces one model of mountain bike. Partial information for the company follows:

 Number of bikes produced and sold 520 850 950 Total costs Variable costs \$ 129,480 \$ ? \$ ? Fixed costs per year ? ? ? Total costs ? ? ? Cost per unit Variable cost per unit ? ? ? Fixed cost per unit ? ? ? Total cost per unit ? \$ 523.75 ?

Required:
1. Complete the table. (Round your "Cost per Unit" answers to 2 decimal places.)

2. Calculate Hermosa’s contribution margin ratio and its total contribution margin at each sales level indicated in the table assuming the company sells each bike for \$800. (Round your percentage answers to 2 decimal places. (i.e. .1234 should be entered as 12.34%.))

4. Calculate Hermosa’s break-even point in units and sales revenue. (Round your answers to the nearest whole number.)

1) Complete table :

 Number of bikes produced and sold 520 850 950 Total Cost Variable cost 129480 249*850 = 211650 249*950 = 236550 Fixed cost 233537.50 233537.50 233537.50 Total Cost 363017.50 523.75*850 = 445187.50 470087.50 Cost per unit Variable cost per unit 129480/520 = 249 249 249 Fixed cost per unit 449.11 274.75 245.83 Total cost per unit 698.11 523.75 494.83

2. Calculate Hermosa’s contribution margin ratio and its total contribution margin at each sales level indicated in the table assuming the company sells each bike for \$800.

 520 850 950 Contribution margin ratio (800-249/800) = 68.88% 68.88% 68.88% Total Contribution margin 551*520 = 286520 551*850 = 468350 551*950 = 523450

4) Break even point = 233537.50/551 = 424 Units

Break even sales = 424*800 = \$339200

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