Question

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i Data Table The budgets of four companies yield the following information: (Click the icon to view the budget information for the four companies.) 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? Requirement 1. Fill in the blanks for each company. (Round the contribution margin per unit and ratio calculations to two decimal places.) Target sales................$ Company Q R S 687,500 $ 415,625 $ 162,500 - 192,500 160,000 81,000 Q R S Variable expenses ...... 270,000 415,625 $ 162,500 Fixed expenses ........... Target sales .................. $ Variable expenses ........ 687,500 $ 192,500 270,000 $ $ 90,000 $ $ 133,000 Operating income (loss) 160,000 81,000 Units sold. ................. 118,750 15,625 18,000 90,000 133,000 Contribution margin per unit .. $ 6.60 8.32 $ 35.00 Fixed expenses ............. Operating income (loss) $ Units sold. .................... Contribution margin per unit .... $ Contribution margin ratio........ 118,750 Contribution margin ratio ..... 0.64 . 6.60 15,625 8.32 $ 18,000 35.00 $ 0.64 Print Done Requirement 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? Begin by determining the formula, then compute the break even sales for each company one at a time. (Complete all answer boxes. For amounts with a $0 balance, make sure to enter "0" in the appropriate cell.) + = Breakeven sales + ) + Q ( R. ( S (D I ( + + Which company has the lowest breakeven point in sales dollars? What causes the low breakeven point? has the lowest breakeven point, primarily due to

Answer 1

Answer 1

	Q	R	S	T
Target Sales	687500	415625	162500	900000
Less: Variable Expenses	192500	149625	32500	270000
Contribution Margin	495000	266000	130000	630000
Less: Fixed Expense	405000	160000	81000	497000
Operating Income / (Loss)	90000	106000	49000	133000
Units sold	75000	118750	15625	18000
Contribution Margin per unit	6.6	2.24	8.32	35
Contribution margin ratio	0.72	0.64	0.8	0.7

1) Calculations for P:

a) Fixed Expenses = Contribution margin - Operating Income = $495000 - $405000 = $90000

b) Units sold = Contribution margin / Contribution margin per unit = $495000 / $6.6 = 75000 units

c) Contribution margin ratio = Contribution / Sales = $495000 / $687500 = 0.72

2) Calculations for R:

a) Contribution margin ratio = 0.64 = Contribution margin / Sales

Contribution margin = 0.64 x $415625 = $266000

b) Variable Expenses = Sales - Contribution = $415625 - $266000 = $149625

c) Net operating Income = Contribution margin - Fixed Costs = $266000 - $160000 = $106000

d) Contribution margin per unit = Contribution margin / Units sold = $266000 / 118750 = $2.24

3) Calculations for S:

a) Contribution Margin = Contribution margin per unit x Units sold = $8.32 x 15625 = $130000

b) Variable Expenses = Sales - Contribution Margin = $162500 - $130000 = $32500

c) Net operating Income = Contribution margin - Fixed costs = $130000 - $81000 = $49000

d) Contribution margin = Contribution / Sales = $130000 / $162500 = 0.8

4) Calculations for R:

a) Contribution Margin = Contribution margin per unit x Units sold = $35 x 18000 = $630000

b) Sales = Contribution margin + Variable Expenses = $630000 + $270000 = $900000

c) Fixed Expenses = Contribution margin - Net operating income = $630000 - $133000 = $497000

d) Contribution margin ratio = Contribution margin / Sales = $630000 / 900000 = 0.7

Answer 2 Calculation of Break even sales (in $)

	(	Fixed Costs	+	0	)/Contribution margin percentage		=	Break Even Sales
P	(	405000	+	0	)/ 0.72		=	$562500
Q	(	160000	+	0	)/ 0.64		=	$250000
R	(	81000	+	0	)/ 0.8		=	$101250
S	(	497000	+	0	)/ 0.7		=	$710000

Break even sales is the point at which company's fixed costs will be covered. High contribution margin percentage in the business will help cover fixed costs with ease. Therefore, company with higher contribution margin percentage will have lower break-even sales.

Answer 3

Company R has the lowest Break even sales of $101250. As the contribution margin percentage is higher for company R, it covers fixed cost earlier compared to other companies. Higher contribution margin percentage leads to lower break even sales.

R has the lowest breakeven point, primarily due to highest contribution margin percentage.