Homework Answers
3.
a)
Selling price per unit = $80
Variable cost per unit = $32
Contribution margin per unit = Selling price per unit – Variable cost per unit
= 80 - 32
= $48
Contribution margin ratio = Contribution margin per unit/Selling price per unit
= 48/80
= 60%
b)
Break even point (units) = Fixed cost/Contribution margin per unit
= 630,000/48
= 13,125
4.
Selling price per unit = $12
Variable cost per unit = $7
Contribution margin per unit = Selling price per unit – Variable cost per unit
= 12 - 7
= $5
Break even point (units) = Fixed cost/Contribution margin per unit
= 96,000/5
= 19,200
New machine will increase fixed costs by $22,800 and decrease variable cost per unit by $0.40
Variable cost per unit = $7 - 0.40
= $6.60
Fixed costs = 96,000 + 22,800
= $118,800
Contribution margin per unit = Selling price per unit – Variable cost per unit
= 12 - 6.60
= $5.40
Break even point (units) = Fixed cost/Contribution margin per unit
= 118,800/5.40
= 22,000
New machine should not be purchased since if new machine is purchased, break even point will increase from 19,200 units to 22,000 units.
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