Question

Include the contribution margin on your spreadsheeT

VILLA1425 000000000000000 SONGS 01317300000OOOOOOOOOOOO 5 700301317300OOOOOOOOOOO0002305SOS P7-61A Find missing data in CVP relationships (Learning Objectives 1 & 2) The budgets of four companies yield the following information: Company R S Target sales $680,000 $445,000 $224.000 Variable expenses 170,000 270.000 Fixed expenses $159.000 $.93.000 Operating income (loss) $.150.000 $ $133.000 Units sold 106,800 12,500 18,000 Contribution margin per unit $ 6.25 $ 8.96 $ 35.00 Contribution margin ratio 0.60 Requirements 1. Fill in the blanks for each company 2. Compute breakeven, in sales dollars, for each company. Which company has the lowest breakeven point in sales dollars? What causes the low breakeven point?

Answer 1

		Q		R		S		T
Target Sales		$680,000		$445,000		$224,000		$900,000
Variable Expenses		$170,000		$178,000		$112,000		270000
Fixed Expenses		$ 360,000		159000		$93,000		$497,000
Operating Income		$150,000		$19,000		19000		$133,000
Units Sold		81600		106800		12500		18000
Contribution Margin per unit		$6.25		$2.50		$8.96		$35
Contribution Margin Ratio		0.75	(510000/680000)	0.6
Break Even Point =Fixed Cost/ Contribution Margin per unit (In Units)		57600	(360000/6.25)	63600	(159000/2.50)	10379.46	(930000/8.96)	14200	(497000/35)
Break Even In dollars ( Break Even in Units*Sales/ No of units sold)		$480,000		$265,000		$186,000		$710,000
Company C has lowest Break Even Point in Sales dollar of $ 186000
	Company Q				Company R
Operating Income =	Sales-Variable Expenses- Fixed Expenses				Contribution Margin Ratio	Contribution Margin/ Sales
					.60=	Contribution Margin/445000
Fixed Expenses=	Sales-Variable Expenses- operating Income				Contribution Margin =	$445000*.6
	$680000-$170000-$150000				Contribution Margin =	267000
	$360,000
					Contribution Margin per Unit=	Contribution Margin/ No of units
Contribution Margin	Sales-Variable Cost				Contribution Margin per Unit=	$267000/106800
	$680000-$170000				Contribution Margin per Unit=	2.5
	510000
					Variable Cost=	Sales- Contribution Margin
Contribution Margin per unit=	Contribution Margin/ No of units				Variable Cost=	$445000-$267000
6.25=	510000/No of units				Variable Cost=	178000
No of units sold	510000/6.25
Units sold	81600				Operating Income =	Sales-Variable Expenses- Fixed Expenses
					Operating Income =	$445000-$267000-$159000
Contribution Margin Ratio	Contribution Margin/ Sales				Operating Income =	19000
Company S					Company T
Contribution Margin=	Units sold*Contribution Margin per unit				Contribution Margin=	Units sold*Contribution Margin per unit
	12500*8.96					18000*35
Contribution Margin =	112000				Contribution Margin =	630000
Variable Cost=	Sales- Contribution Margin				Sales =	Variable Cost+Contribution Margin
Variable Cost=	$224000-$112000				Sales =	$270000+$630000
Variable Cost=	112000				Sales =	900000
Operating Income =	Sales-Variable Expenses- Fixed Expenses				Operating Income =	Sales-Variable Expenses- Fixed Expenses
Operating Income =	$224000-$112000-$93000				Fixed Expenses	Sales-Variable Expenses-Operating Income
Operating Income =	19000				Fixed Expenses	$900000-$270000-$133000
					Fixed Expenses	497000