Question

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.)

Answer 1

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