Question

Question 1

Bags Unlimited manufactures and markets backpacks for the youth market. Financial projections for this line of products are revenues of $1,238,000, total variable costs of $841,840 and fixed costs of $218,000. Answer each of the following independent questions.

a. Compute the contribution margin. ______________________

b. Compute the contribution rate. ______________________________

c. How much of this product line does the business need to sell to break even? ___________

d. If the business was to save $56,000 in variable costs by offering fewer colours of backpacks, how much of this product line does the business need to sell to break even?

________________________

Question 2

An appliance that cost a retailer $1,800 less trade discounts of 37.5% and 18%, carries a price tag with a regular selling price at a markup of 120% of cost. For quick sale, the item was marked down 40%.

a.   What is the net price of the appliance? ___________

b.   What is the regular selling price? __________

c.   What is the sale price? __________

d.   What rate of markup based on cost was realized? ___________

     Question 3

Adam borrowed $1,750 from Eva on November 28, 2019 and agreed to repay the debt with simple interest at the rate of 3.4% p.a. on July 15, 2020.

a. How much interest will Adam owe when the loan matures? __________

b. What is the maturity value (future value) of the loan on July 15, 2020? _________

c. Suppose Adam repays the loan on March 31, 2020. How much interest will he save?   _________________

Question 4

You currently owe $1,000 today, $4,000 in three months, and $4,500 in 10 months. If interest at 6% p.a. is allowed, what single payment three months from today is required to settle the three scheduled payments, if the focal date is three months from today?   __________________

Answer 1

Answer to Question 1.
Part a.
Contribution Margin = Sales – Variable Cost
Contribution Margin = $1,238,000 - $841,840
Contribution Margin = $396,160

Part b.
Contribution Rate = Contribution Margin / Sales * 100
Contribution Rate = $396,160 / $1,238,000 * 100
Contribution Rate = 32%

Part c.
Break Even Point (Dollar Sales) = Fixed Cost / Contribution rate
Break Even Point (Dollar Sales) = $218,000 / 0.32
Break Even Point (Dollar Sales) = $681,250

Part d.
Proposed Variable Cost = $841,840 - $56,000
Proposed Variable Cost = $785,840

Proposed Contribution Margin = $1,238,000 - $785,840
Proposed Contribution Margin = $452,160

Proposed Contribution Rate = $452,160 / $1,238,000 * 100
Proposed Contribution Rate = 36.52%

Break Even Point (Dollar Sales) = Fixed Cost / Contribution rate
New Break Even Point (Dollar Sales) = $218,000 / 0.3652
New Break Even Point (Dollar Sales) = $596,933