Question

Part II (40 Points) Practice Situation A: Cost-Volume-Profit Analysis Assume the following for Albany Manufacturing Corporation: Fixed costs . Unit selling price Unit variable cost . . . . . . $90,000 $ 25 $ 15

Answer 1

(1)

Compute the break-even dollar sales using the equation as follows:

Fixed expenses Breakeven sales Contribution margin ratio $90,000 40% - S225,000

Hence, the break-even dollar sales are $225,000.

Compute the contribution margin ratio using the equation as follows:

Contribution margin -x100 Contribution margin ratio Sales $10 x100 $25 = 40%

Hence, the contribution margin ratio is 40%.

(2)

Compute the break-even unit sales using the equation as follows:

Fixed expenses Breakeven unit sales Contribution per unit $90,000 $25-$15 $90,000 $10 9,000

Hence, the break-even sales level is 9,000 units.

(3)

Compute the number of units to be sold to achieve the target profit using the equation as follows:

Fixed expenses+Target profit Target unit sal es Contribution per unit $90,000+S30,000 $25-$15 $120,000 $10 =12,000

Hence, the sales required to achieve the profit of $30,000 are 12,000 units.