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    Solution 106 2 15 22

    Uploaded by

    Trine De Leon

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    Solution 106 2 15 22

    Uploaded by

    Trine De Leon
    36 views3 pages

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    Solution-106-2-15-22

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    36 views3 pages

    Solution 106 2 15 22

    Uploaded by

    Trine De Leon

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    of 3

    Solution

    Ex. 1
    (a) Fixed Costs $240,000
    Unit contribution margin = ———————————— = ————————
    Break-even Sales in units ($800,000 ÷ $10)

    $240,000
    = ———— = $3.00
    80,000

    Variable cost per unit = $10 – $3 = $7


    Contribution margin ratio = $3 ÷ $10 = 30%

    (b) Fixed costs = Break-even Sales × CM Ratio


    = $900,000 × 30% = $270,000
    Therefore, fixed costs increased $30,000 ($270,000 – $240,000).

    EX 2
    (a) Selling price = $2,125,000 ÷ 500,000 = $4.25 per unit
    Variable cost per unit = $1,500,000  500,000 = $3 per unit
    Sales – Variable cost – Fixed cost = 0
    $4.25X – $3.00X – $1,000,000 = 0
    Break-even point in units = 800,000 units ($1,000,000 ÷ $1.25)
    Break-even point in dollars = 800,000 × $4.25 = $3,400,000

    (b) New variable cost per unit = (45% × $2,500,000) ÷ 500,000 = $2.25 per unit
    $4.25X – $2.25X – ($2,500,000 × 55%) = 0
    New break-even point in units = 687,500 units ($1,375,000 ÷ $2)
    New break-even point in dollars = 687,500 × $4.25 = $2,921,875

    EX 3
    (a) Break-even sales in units
    $10X = $6X + $1,920,000
    $4X = $1,920,000
    X = 480,000 units
    Break-even point in dollars
    X = .4X + $1,920,000
    .4X = $1,920,000
    X = $4,800,000

    (b) Margin of safety in dollars


    $6,000,000 – $4,800,000 = $1,200,000
    Margin of safety ratio
    $1,200,000 ÷ $6,000,000 = 20%
    (c) Net Income
    Sales $6,000,000
    Variable Costs (3,600,000)
    Fixed Costs (1,920,000)
    Net Income $ 480,000

    EX 5
    (a) 70%X – $84,000 = $140,000
    Required sales = $320,000 ($224,000 ÷ .70)

    (b) Sales revenue $320,000


    Variable costs ($320,000 ×.30) 96,000
    Contribution margin 224,000
    Fixed costs 84,000
    Net income $140,000

    EX 7
    (a) Break-even Sales = Variable Costs + Fixed Costs
    X = .75X + $240,000
    .25X = $240,000
    X = $960,000

    (b) Contribution Margin per Unit = Unit Selling Price – Unit Variable Cost
    CM = $20 – $15 = $5

    Contribution Margin per Unit


    Contribution Margin Ratio = —————————————
    Unit Selling Price

    CM Ratio = $5 ÷ $20 = 25%

    Fixed Costs
    Break-even Sales = ————————————
    Contribution Margin Ratio

    = $240,000 ÷ 25% = $960,000

    (c) Sales $1,200,000


    Less: Break-even Sales 960,000
    Margin of Safety $ 240,000

    Margin of Safety
    Margin of Safety Ratio = ———————
    Actual Sales

    = $240,000 ÷ $1,200,000 = 20%


    (d) Required Sales = Variable Costs + Fixed Costs + Targeted Net Income
    X = .75X + $240,000 + $120,000

    EX 8
    1. D Activity base
    2. A Break-even point
    3. E Dollars
    4. C Fixed costs
    5. G Loss
    6. B Profit
    7. I Revenues
    8. H Total costs
    9. F Variable costs

    EX 10
    Break-even point in dollars: $450,000 ÷ 30% = $1,500,000
    Margin of safety in dollars: $2,000,000 – $1,500,000 = $500,000
    Margin of safety ratio: $500,000 ÷ $2,000,000 = 25%

    Class activity Exercises

    Solution Genavine
    (a) Product
    X21 R45
    Contribution margin per unit $25 $40
    Machine hours required ÷ 2.5 ÷ 4.2
    Contribution margin per unit of limited resource $10 $9.52

    (b) The X21 product should be manufactured because it results in the highest contribution
    margin per machine hour: $10 × 1,200 = $12,000

    Solution SAM
    Contribution margin per unit:
    Footballs: [$60,000 – $36,000] ÷ 4,000 = $6
    Baseballs: [$25,000 – $7,000] ÷ 2,500 = $7.20

    Sam should tell his sales people to sell more baseballs due to the higher contribution margin per
    unit.

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