Question

help me solve this problem!

Wesley Company manufactures and sells a single product. The company's sales and expenses for last quarter follow: Total $490,000 294,000 Per Unit $70 Sales Less: Variable expenses Contribution margin 196,000 $28 Less: Fixed expenses 140,000 Net operating income $ 56,000

Answer 1

1.

Break even point ( in units) = Fixed expenses / contribution margin per unit

= $140,000 / $28

= 5,000 units

Break even point (in sales) = Break even point ( in units) * Selling price

= 5,000 units * $70

= $350,000

2.

Contribution margin per unit at break even point = Break even point (in units) * Contribution margin per unit

= 5,000 units * $28

= $140,000

3.

Units sold to attain the Target profit = (fixed cost + Target profit) / Contribution margin per unit

= ($140,000 + $98,000) / $28

= 8,500 units

4.

CM ratio = Contribution margin  / sales

CM ratio = $196,000 / $490,000

= 40%

If sales increases by $19,600

New sales = $490,000 + $19,600

= $509,600

New net income = ($509,600 * 40%) - $140,000

= $63,840

Increased net income = ($63,840 - $56,000)

= $7,840