Homework Answers
1. Breakeven point in dollars = Fixed cost/ CM Ratio
=843,625/25%
=$ 3,374,500
Cm ratio= ( Sales - variable)/Sales
= ( 2,977,500- 2,233,125)/2,977,500
= 25%
2. Contribution margin for alternative 1
Sales price before increase = $ 2,977,500/595,500 units
= $ 5 per unit
Sales price after increase= 5× 125% = 6.25 per unit
Total sales = 6.25 per unit × 595,500 units
= $ 3,721,875
CM ratio= (3,721,875- 2,233,125)/3,721,875
= 40%
Contribution margin for alternative 2
Total variable Expenses
Cost of goods sold = 2,042,565
Selling expenses= 109,572+ 5% on 2,977,500= 2,58,447
Administrative expenses= 80,988
Total variable cost= 2,382,000
CM ratio=( 2,977,500-2,382,000)/2,977,500
= 20%
Breakeven point in dollars
Alternative 1 = fixed cost/ Cm ratio
= 843,625/40%
= $ 2,109,062.50
Alternative 2 = fixed cost/ CM ratio
Fixed cost = cost of goods sold = 486,325
Selling expenses= (188,178-178,650)+71,460= 80,988
Administrative expenses= 169,122
Total fixed cost= 736,435
Breakeven point= 736,435/20%
= 3,682,175
We recommend course of action 1 beacuse it's breakeven point is low and profit genrating on the other hand alternative 2 is increasing loss and breakeven point is high Due to lower contribution margin.
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Crane Corp.’s sales slumped badly in 2020. For the first time
in its history, it operated at a loss. The company’s income
statement showed the following results from selling 590,500 units
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and net loss $98,375. Costs and expenses consisted of the amounts
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Cost of goods sold
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Tanek Corp.’s sales slumped badly in 2017. For the first time in
its history, it operated at a loss. The company’s income statement
showed the following results from selling 540,500 units of product:
sales $2,702,500, total costs and expenses $2,810,600, and net loss
$108,100. Costs and expenses consisted of the amounts shown
below.
Total
Variable
Fixed
Cost of goods sold
$2,313,340
$1,718,790
$594,550
Selling expenses
270,250
99,452
170,798
Administrative expenses
227,010
73,508
153,502
$2,810,600
$1,891,750
$918,850
Management is considering the...
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