Question

The budgets of four companies yield the following information: (Click the icon to view the budget information for the four companies.) Read the requirements. Requirement 1. Fill in the blanks for each missing value. (Round the contribution margin per unit to the nearest cent. Use a minu Down Right Up 1,625,000 $ Left $1,251,250 750,750 208.000 316.800 48,000 216,000 Net Sales Revenue Variable Costs Fixed Costs Operating Income (Loss) Units Sold Contribution Margin per Unit Contribution Margin Ratio $ 71,400 8,000 216,600 125,000 3.90 % $ $ 77.00 $ 18.00 20 % 80% Requirements 2. and 3. Which company has the lowest breakeven point in sales dollars? What causes the low breakeven point + + Begin by showing the formula and then entering the amounts to calculate the breakeven point in sales dollars for each company. contribution margin.) v = Required sales in dollars Up % =0 Down % = Left % = Right B) + + + Which company has the lowest breakeven point in sales dollars? What causes the low breakeven point? has the lowest breakeven point, primarily due to its low fixed costs

Answer 1

Answer to Requirement 1.:

Up:
Selling Price per Unit = Sales Revenue / Units Sold
Selling Price per Unit = $1,625,000 / 125,000
Selling Price per Unit = $13.00

Contribution Margin Ratio = Contribution Margin per Unit/ Selling Price per Unit * 100
Contribution Margin Ratio = $3.90 / $13.00 * 100
Contribution Margin Ratio = 30%

Contribution Margin per Unit = Selling Price per Unit – Variable Cost per Unit
$3.90 = $13.00 - Variable Cost per Unit
Variable Cost per Unit = $9.10

Total Variable Costs = Variable Cost per Unit * Units Sold
Total Variable Costs = $9.10 * 125,000
Total Variable Costs = $1,137,500

Operating Income (Loss) = Net Sales Revenue - Variable Costs – Fixed Costs
$216,600 = $1,625,000 - $1,137,500 – Fixed Cost
Fixed Cost = $270,900

Down:
Contribution Margin ratio = (Net Sales – Variable Costs) / Net Sales * 100
80 = (Net Sales - $48,000) / Sales * 100
0.80 * Net Sales = Net Sales - $48,000
Net Sales = $240,000

Operating Income (Loss) = Net Sales Revenue - Variable Costs – Fixed Costs
Operating Income (Loss) = $240,000 - $48,000 - $216,000
Operating Loss = -$24,000

Contribution Margin = Net Sales – Variable Costs
Contribution Margin = $240,000 - $48,000
Contribution Margin = $192,000

Contribution Margin per Unit = Contribution Margin / Units Sold
Contribution Margin per Unit = $192,000 / 8,000
Contribution Margin per Unit = $24.00

Left:
Operating Income (Loss) = Net Sales Revenue - Variable Costs – Fixed Costs
Operating Income (Loss) = $1,251,250 - $750,750 - $208,000
Operating Income = $292,500

Contribution Margin ratio = (Net Sales – Variable Costs) / Net Sales * 100
Contribution Margin ratio = ($1,251,250 - $750,750) / $1,251,250 * 100
Contribution Margin ratio = 40%

Total Contribution Margin = Net Sales – Variable Costs
Total Contribution Margin = $1,251,250 - $750,750
Total Contribution Margin = $500,500

Contribution Margin per Unit = Total Contribution Margin / Units Sold
$77.00 = $500,500 / Units Sold
Units Sold = 6,500

Right:
Contribution Margin ratio = (Net Sales – Variable Costs) / Net Sales * 100
20 = (Net Sales - $316,800) / Net Sales * 100
0.20 = Net Sales - $316,800
Net Sales = $396,000

Operating Income (Loss) = Net Sales Revenue - Variable Costs – Fixed Costs
$71,400 = $396,000 - $316,800 – Fixed Cost
Fixed Cost = $7,800

Total Contribution Margin = Net Sales – Variable Costs
Total Contribution Margin = $396,000 - $316,800
Total Contribution Margin = $79,200

Contribution Margin per Unit = Total Contribution Margin / Units Sold
$18.00 = $79,200 / Units Sold
Units Sold = 4,400

Answer to Requirement 2.:

Up:
Required Sales in Dollars = (Fixed Cost + Desired Profit) / Contribution Margin Ratio
Required Sales in Dollars = ($270,900 + $0) / 30%
Required Sales in Dollars = $903,000

Down:
Required Sales in Dollars = (Fixed Cost + Desired Profit) / Contribution Margin Ratio
Required Sales in Dollars = ($216,000 + $0) / 80%
Required Sales in Dollars = $270,000

Left:
Required Sales in Dollars = (Fixed Cost + Desired Profit) / Contribution Margin Ratio
Required Sales in Dollars = ($208,000 + $0) / 40%
Required Sales in Dollars = $520,000

Right:
Required Sales in Dollars = (Fixed Cost + Desired Profit) / Contribution Margin Ratio
Required Sales in Dollars = ($7,800 + $0) / 20%
Required Sales in Dollars = $39,000

Answer to Requirement 3.:

Right has the lowest breakeven point, primarily due to its low fixed costs.