Question

2. Cutlass Company's projected profit for the coming year is as follows: Total Per Unit Sales $200,000 $20 Total variable cost 120,000 Contribution margin 80,000 8 Total fixed cost 64,000 Contribution margin $16,000 Required (40 marks): a. Compute the variable cost ratio. Compute the contribution margin ratio. b. Compute the break-even point in units. c. Compute the break-even point in sales dollars. d. How many units must be sold to earn a profit of $30,000?

Answer 1

a)Variable cost ratio = Variable cost /sales

                             = 120000 / 200000

                             = .60 or60%

Contribution margin ratio = 1 -Variable cost ratio

                    = 1 -.60

                    = .40 or 40%

B)Breakeven point (units) =Fixed cost /contribution per unit

                        = 64000 / 8

                       = 8000 units

c)Breakeven point in $ =Fixed cost /contribution margin ratio

                   = 64000/ .40

                   = $ 160000

d)

Units to be sold to achieve target profit = [Fixed cost+ target profit ]/contribution per unit

                              =[64000 + 30000 ]/8

                              = 94000 / 8

                              = 11750 units