Question

Perez Company makes and sells products with variable costs of $57 each. Perez incurs annual fixed costs of $30,000. The current sales price is $72.

The following requirements are interdependent. For example, the $6,000 desired profit introduced in Requirement c also applies to subsequent requirements. Likewise, the $67 sales price introduced in Requirement d applies to the subsequent requirements.

a. Determine the contribution margin per unit

b. Determine the break-even point in units and in dollars. Prepare an income statement using the contribution margin format.

c. Suppose that Perez desires to earn a $6,000 profit. Determine the sales volume in units and dollars required to earn the desired profit. Prepare an income statement using the contribution margin format.

d. If the sales price drops to $67 per unit, what level of sales is required to earn the desired profit? Express your answer in units and dollars. Prepare an income statement using the contribution margin format.

e. If fixed costs drop to $24,000, what level of sales is required to earn the desired profit? Express your answer in units and dollars. Prepare an income statement using the contribution margin format.

f. If variable cost rises to $55 per unit, what level of sales is required to earn the desired profit? Express your answer in units and dollars. Prepare an income statement using the contribution margin format.

g. Assume that Perez concludes that it can sell 2,200 units of product for $67 each. Recall that variable costs are $55 each and fixed costs are $24,000. Compute the margin of safety in units and dollars and as a percentage. (Do not round intermediate calculations. Round your answers to the nearest whole number.)

Answer 1

Answer 1

Selling Price	$ 72
Less: variable Cost per unit	$ 57
Contribution per unit	$ 15

Answer 2

Break even Point (in units) = Fixed Cost / Contribution per unit

= $ 30,000/15

= 2,000 units

Break even Point (in $) = Break even Point (in units) * Selling Price

= 2,000 units * $ 72

= $ 144,000

Income statement
Sales	$ 144,000
Less: variable Cost	$ 114,000
Contribution	$   30,000
Less: Fixed Cost	$   30,000
Net Income	$            -

Answer c

Sales for desired profit (in units) = (Fixed Cost + Desired profit) / Contribution per unit

=(30000+6000)/15

= 2,400 units

Sales for desired profit (in $) = Sales for desired profit (in units) * Selling Price

= 2400 units * $ 72

= $ 172,800

Income statement
Sales	$ 172,800
Less: variable Cost	$ 136,800
Contribution	$   36,000
Less: Fixed Cost	$   30,000
Net Income	$      6,000

Answer d

Selling Price	$ 67
Less: variable Cost per unit	$ 57
Contribution per unit	$ 10

Sales for desired profit (in units) = (Fixed Cost + Desired profit) / Contribution per unit

=(30000+6000)/10

= 3,600 units

Sales for desired profit (in $) = Sales for desired profit (in units) * Selling Price

= 3600 units * $ 67

= $241200

Income statement
Sales	$ 241,200
Less: variable Cost	$ 205,200
Contribution	$   36,000
Less: Fixed Cost	$   30,000
Net Income	$      6,000

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Answer 2

The answer has been presented in the supporting sheet. As per HomeworkLib policy we are required to solve the first 4 parts only. For remaining parts you have to post seprate question.

2 3 4 5 5 7 Answer Parta) Contribution margin per unit = sales price per unit - variable cost per unit = 72-57 = $ 15 Thus the contribution margin per unit = $ 15 e Part 2) 0 Break even point in units = fixed cost / contribution margin per unit 1 = 30000/15 2 = 2000 Units 3. Thus the break even point in units = 2000 units 5 Break even point in dollar sales = break even units * selling price per unit 6 = 2000*72 7 = $144000 8 Thus the braek even dollar sales = $144000 0 Contribution Format Income Statement 1 Particulars Amount 2 Sales (72*2000) 144000 3 Variable cost (57*2000) 114000 4 Contribution Margin 5 Fixed cost 30000 6 Net Income 30000

Part 3) desired sale in units in =(desired profit+ fixed cost) /contribution margin per unit = (6000+30000)/15 = 2400 Units Thus the desired units to be sold = 2400 Units selling price desired point in dollar sales - bdesired units to be sold = 2400*72 = $ 172800 Thus the braek even dollar sales = $ 172800 Contribution Format Income Statement Particulars Amount Sales (72*2400) 172800 Variable cost (57*2400) 136800 Contribution Margin 36000 Fixed cost 30000 Net Income 6000

50 Point 4) 52 desired sale in units in =(desired profit+ fixed cost) /revised contribution margin per unit 53 = (6000+30000)/(67-57) 54 = 3600 Units 56 Thus the desired units to be sold = 3600 Units 58 desired point in dollar sales = desired units to be sold * selling price per unit 59 = 3600*67 50 = $ 241200 52 Thus the braek even dollar sales = $ 241200 54 Contribution Format Income Statement 55 Particulars Amount 56 Sales (67*3600) 241200 57 Variable cost (57*3600) 205200 58 Contribution Margin 36000 59 Fixed cost 30000 70 Net Income 6000 F2 As per HomeworkLib policy we are required to solve the first 4 parts only. For remaining parts you have to post separate question. 3 Thank You