Question

Holiday Vista Inc. has sales of $20 million and variable costs of $5 million. Its output is 1 million.

Using above information, complete the below statements, filling in your final, complete answer in the space/box provided to the right of the statement.

a.) Holiday Vista Inc.’s original contribution margin is equal to
b.) Holiday Vista Inc.’s original contribution margin per unit is equal to
c.) Holiday Vista Inc.’s original contribution margin percent is equal to
d.) If the price per unit decreases by 20%, total sales the company must now capture to maintain its original contribution margin are

Answer 1

a)

Contribution Margin = Total Sales - Variable Cost = 20 - 5 =$15 million

b)

Contribution Margin per unit = Contribution margin/output = 15/1 = $15 per unit

c)

Contribution Margin (%) = 100*Contribution margin/Total Sales = 100*15/20 = 75%

d)

Originial Price per unit = Total Sales/Output = $20 per unit

Variable Cost per unit = Total Variable Cost / Output =$5 per unit

Unit Sale price after decrease in price = (1-0.20)*20 = $16 per unit

Required Contribution Margin = $15 million

Let's assume required sale is X units

Total Sales - Total Variable Cost = 15

16*X - 5*X = 15

11*X = 15

X = 1.3636 million