Question

Please solve the incorrect answers! Idk what I did wrong

Exercise 3.27 Stellar produces one single product, a small reading tablet, and sells it at $130 per unit. Its current annual sales are $312,000. Its annual fixed costs include factory rent, 562,400; depreciation expense; equipment, $15,600; utilities, $31,200; insurance, $12,480. Its variable costs include materials, $39 per unit, and direct labour, $52 per unit. Stellar's income tax rate is 20%. Your answer is correct. What is the contribution margin per unit? Contribution margin per unit SHOW SOLUTION SHOW ANSWER LINK TO TEXT LINK TO TEXT LINK TO TEXT Your answer is correct. What is the contribution margin ratio? Contribution margin ratio 30. SHOW SOLUTION SHOW ANSWER LINK TO TEXT LINK TO TEXT LINK TO TEXT

Answer 1

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Stellar
Calculation of total fixed costs of the company	Amount $	Note
Factory rent	62,400.00
Depreciation	15,600.00
Utilities	31,200.00
Insurance	12,480.00
Fixed costs	121,680.00	A
Calculation of breakeven units
Fixed costs	121,680.00	See A
Contribution per unit	39.00	B
Breakeven units	3,120.00	C=B/A
If Stellar would like to earn after tax profit of $ 16,000.	Amount $
After tax profit	16,000.00	D
Tax rate	20%	E
Profit	80,000.00	F=D/E
Sales value $	Amount $
Profit	80,000.00	See F
Fixed costs	121,680.00	See A
Desired Contribution	201,680.00	G=A+F
Contribution margin ratio	30%	See B
Sales value $	672,267.00	H=G/B
Degree of operating leverage	Amount $
Sales value $	672,267.00	See H
Contribution margin ratio	30%	See B
Contribution Margin	201,680.10	I=H*B
Less: Total Fixed costs	121,680.00	See A
Operating Income	80,000.10	J=I-A
Degree of operating leverage	2.52	K=I/J
Margin of safety
Sales value $	672,267.00	See H
Sell price per unit	130.00	L
Sales units	5,171.28	M=H/L
Less: Breakeven units	3,120.00	See C
Margin of safety (units)	2,051.00	N=M-C
This may be 2,015 or 2,052 depending upon how you round off.
If Stellar would like to earn after tax profit of 8% of sales.
Let sales $ be 100X
Contribution is 30% of sales i.e. 30% of 100X= 30X
Operating profit= Contribution less fixed costs
Operating profit= 30X- $ 121,680.
Profit after tax=	(30X- $ 121,680)- 20%(30X- $ 121,680)
Profit after tax=	(30X- $ 121,680)- 6X + $ 24,336
Profit after tax=	24X- $ 97,344.
As per question Profit after tax should be 8% of sales i.e. 8% of 100X= 8X
So,
8X=	24X- $ 97,344.
24X- 8X =	97,344.00
16X=	97,344.00
X	6,084.00
So sales is 100X= 100*6084= $ 608,400.
So total sales should be $ 608,400 to earn after tax profit of 8%.
Calculation of units	Current	At 8% after tax profit	Note
Sales value	312,000.00	608,400.00	O
Sell price per unit	130.00	130.00	See L
Number of units	2,400.00	4,680.00	P=O/L
Increase in units		2,280.00
So sales will be increase by 2,280 units.