Question

SBD Phone Company sells its waterproof phone case for $116 per unit. Fixed costs total $227,000, and variable costs are $58 per unit. 

(1) Determine the contribution margin ratio. 

(2) Determine the break-even point in dollars. 

SBD Phone Company sells its waterproof phone case for $107 per unit. Fixed costs total $197,000, and variable costs are $32 per unit. Compute the units of product that must be sold to earn pretax income of $224,500. 

Units to be sold to achieve targeted income 

Choose Numerator:	/	Choose Denominator:	=	Units to achieve target
	/		=	Units to achieve target
				0

Answer 1

1)

(1) Determine the contribution margin ratio
			per unit
	Sales		$116
Less:	Variable costs		58
	Contribution margin		$58
Contribution margin ratio
	Choose Numerator:	/	Choose Denominator:	=	Contribution margin ratio
	Contribution margin	/	Sales	=	Contribution margin ratio
	$58	/	116	=	50%
(2) Determined the break-even point in dollars.
	Choose Numerator	/	Choose Denominator	=	Break-even point in dollars
	Fixed cost	/	Contribution margin ratio	=	Break-even point in dollars
	$227000	/	50%	=	$454000

2)

Units to be sold to achieve targeted income
Choose Numerator:	/	Choose Denominator	=	Units to achieve target
Total fixed costs plus pretax income	/	Contribution margin per unit	=	Units to achieve target
$421500	/	75	=	5620	units

Total fixed costs plus pretax income= Fixed costs+Pretax income

= $197000+224500= $421500

Contribution margin per unit= Sales price per unit-Variable costs per unit

= $107-32= $75