Question

ne vice president for Sales and Marketing at Waterways Corporation is planning for production needs to meet sales demand in the coming year. He is also trying to determine how the company's profits might be increased in the coming year. This problem asks you to use cost volume profit concepts to help Waterways understand contribution margins of some of its products and decide whether to mass produce any of them. Waterways markets a simple water control and timer that it mass produces. Last year, the company sold 741,000 units at an average selling price of $4.90 per unit. The variable costs were $2,541,630, and the fixed costs were $ 762,489. Your answer is correct What is the product's contribution margin ratio? (Round ratio to o decimal places, e.g. 25%) Contribution margin ratio SHOW SOLUTION LINK TO TEXT LINK TO TEXT LINK TO TEXT Your answer is correct. What is the company's break-even point in units and in dollars for this product? Break-even point in units 518700 units

Answer 1

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Waterways
Workings for Answer 1
Calculation of Variable cost per unit		Note
Total Variable costs	2,541,630.00	A
Units sold	741,000.00	B
Variable cost per unit	$                     3.43	C=A/B
Answer 1
Contribution margin ratio
Sell Price	4.90	D
Less: Variable cost per unit	3.43	See C
Contribution margin per unit	1.47	E=D-C
Contribution margin ratio	30%	F=E/D
Answer 2
Contribution margin per unit	1.47	See E
Fixed costs	762,489.00	G
Break-even units	518,700.00	H=G/E
Break-even units $	$     2,541,630.00	I=H*D
Workings for Answer 3
Units sold	741,000.00	See B
Sell Price	4.90	See D
Total sales	$     3,630,900.00	J=B*D
Answer 3
Margin of safety in dollars	$     1,089,270.00	K=J-I
Margin of safety ratio	30.00%	L=K/J
Workings for Answer 4
Total sales	3,630,900.00
Less: Variable costs	2,541,630.00
Contribution margin	$     1,089,270.00	M
Less: Fixed costs	762,489.00
Current by Net Income	$        326,781.00	N
Answer 4
Current by Net Income	326,781.00	See N
Increase by 10%	32,678.10	O=N*10%
Contribution margin per unit	1.47	See E
Additional units to be sole	22,230.00	P=O/E
Answer 5
Increase in sales by	57,000.00	Q
Contribution margin per unit	1.47	See E
Increase in net income	$          83,790.00	R=Q*E
Workings for Answer 6
Calculation of Variable manufacturing cost per unit
Variable manufacturing cost	5,811,160.00
Add: Variable selling and administrative cost	2,673,680.00
Total Variable cost	8,484,840.00	S
Units sold	481,000.00	T
Variable cost per unit	$                  17.64	U=S/T
Increase by	$                     0.70	V
Revised Variable cost per unit	$                  18.34	W=U+V
Current Units sold	481,000.00
Add: Increase by 10%	48,100.00
Revised Units sold	529,100.00	X
Current Sakes price	25.20
Add: Increase by	0.20
Revised Sakes price	25.40	Y

Answer 6	Current	New	Effect
Sell price	25.20	25.40
Less: Variable costs	17.64	$             18.34
Contribution margin	$                     7.56	$               7.06
Contribution margin ratio	30.00%	28.00%	Decrease by	2.00%
Units sold	481,000.00	529,100.00
Total Contribution margin	3,636,360.00	3,735,446.00
Less: Fixed costs
Manufacturing cost	2,155,660.00	2,155,660.00
Selling and administrative cost	798,370.00	798,370.00
Total Fixed costs	2,954,030.00	2,954,030.00
Net Income	$        682,330.00	$   781,416.00	Increase by	99,086.00