Question

Hermosa, Inc., produces one model of mountain bike. Partial information for the company follows: 470 778 940 $109,989 $ ? Number of bikes produced and sold Total costs Variable costs Fixed costs per year Total costs Cost per unit Variable cost per unit Fixed cost per unit Total cost per unit $ 525.75 Required: 1. Complete the table. 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 $760. 4. Calculate Hermosa's break-even point in units and sales revenue.

Answer 1

1)

Number of bikes produced and sold	470 Units	770 Units	940 Units
Total costs
Variable costs                          A	$109,980	$180,180	$219,960
Fixed costs per year B	$224,647.50	$224,647.50	$224,647.50
Total cost C=A+B	$334,627.50	$404,827.50	$444,607.50
Cost per unit
Variable cost per unit	$234	$234	$234
Fixed cost per unit	$477.97	$291.75	$238.99
Total cost per unit	$711.97	$525.75	$472.99

2)

	470 Units	770 Units	940 UNITS
Contribution Margin Ratio(note-1) A	69.21%	69.21%	69.21%
Total Contribution Margin B=(A*units)	$247,220	$405,020	$494,440

Note

1)Contribution Margin Ratio =Contribution per unit/Sale value per unit *100

Contribution per unit =Sale value per unit -Variable cost per unit

So ,Contribution per unit =($760-$234) =$526 per unit

3)

Break-Even Units (note 2)	427	Bikes
Break-Even Sales revenue (note 3)	324586

Note

2) Break Even Units = Fixed cost /Contribution per unit

=$224,647.50/$526

=427 units

3)Break even sales revenue=Fixed cost /Contribution Margin Ratio

Contribution Margin Ratio =$526/$760*100

= 69.21%

So ,Break even sales revenue=$224,647.50/69.21%

=$324586