Question

In 2016, Manhoff Company had a break-even point of $309,000 based on a selling price of $8 per unit and fixed costs of $172,000. In 2017, the selling price and the variable costs per unit did not change, but the break-even point increased to $442,000.

Compute the variable costs per unit and the contribution margin ratio for 2016. (Round Variable cost per unit to 2 decimal places, e.g. 2.25 and Contribution margin ratio to 0 decimal places, e.g. 25.)


Compute the increase in fixed costs for 2017. (Round answer to 0 decimal places, e.g. 1,225.)

Answer 1

1. Variable costs per unit for 2016 = $ 3.52 per unit

2. Contribution margin ratio for 2016 = 56%

3. Increase in fixed costs for 2017 = $ 75,520

Explanation

2. Break-even point in dollar sales = Fixed expense / Contribution margin ratio

  $309,000 = $172,000 / Contribution margin ratio

Contribution margin ratio = $172,000 / $309,000 = 56%

1. Variable costs per unit for 2016 = Selling price - Contribution margin per unit

= 8 - ( 8 x 56%)

= 8 - 4.48

= $ 3.52 per unit

3. New break-even point =  $442,000

$442,000 = Fixed cost / 56%

Fixed cost =   $442,000 x 56%

= $ 247,520

Increase in Fixed cost = $ 247,520 - $172,000 = $ 75,520