Question

High Tech Manufacturing manufactures 256GB SD cards (memory cards for mobile phones, digital cameras, and other devices). Price and cost data for a relevant range extending to 200.000 units per month are as follows: (Click the icon to view the data.) Data Table Read the requirements. Requirement 1. What is the company's contribution margin per unit? Contribution margin percentage? Total contribution margin? 20.00 Begin by identifying the formula. = Contribution margin per unit The contribution margin per unit is $ . Sales price per unit: (current monthly sales volume is 130,000 units) .... $ Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead ................$ Variable selling and administrative expenses Monthly fixed expenses: Fixed manufacturing overhead ....$ Fixed selling and administrative expenses .............................$ 6.70 7.00 2.00 What is the company's contribution margin percentage? Begin by identifying the formula. ) = Contribution margin percentage 102,300 187,800 (Round your answer to the nearest whole percent.) The contribution margin percentage is %. í Requirements What is the company's total contribution margin? Begin by identifying the formula - 1 = Contribution margin The total contribution margin is $ . Requirement 2. What would the company's monthly operating income be if the company sold 160,000 units? Use the following table to compute the operating income if 160,000 units are sold. 1. What is the company's contribution margin per unit? Contribution margin percentage? Total contribution margin? 2. What would the company's monthly operating income be if the company sold 160,000 units? What would the company's monthly operating income be if the company had sales of $4,500,000? 4. What is the breakeven point in units? In sales dollars? 5. How many units would the company have to sell to earn a target monthly profit of $260,100? 6. Management is currently in contract negotiations with the labor union. If the negotiations fail, direct labor costs will increase by 10%, and fixed costs will increase by $22,500 per month. If these costs increase, how many units will the company have to sell each month to break even? 7. Return to the original data for this question and the rest of the questions. What is the company's current operating leverage factor (round to two decimals)? 8. If sales volume increases by 7%, by what percentage will operating income increase? 9. What is the company's current margin of safety in sales dollars? What is its margin of safety as a percentage of sales? 10. Say the company adds a second size of SD card (512GB in addition to 256GB). A 512GB SD card will sell for $45 and have variable cost per unit of $28 per unit. The expected sales mix is six of the 256GB SD cards for every one of the 512GB SD cards. Given this sales mix, how many of each type of SD card will the company need to sell to reach its target monthly profit of $260,100? Is this volume higher or lower than previously needed (in Question 5) to achieve the same target profit? Why? Less: Choose from any list or enter any number in the innut fields and then continue to the next question

Answer 1

1.Contribution Margin per unit = Selling price per unit – variable costs per unit

= 20-6.7-7-2-1.80

= $2.5 per unit

CM % = CM/Sales

= 2.5/20

= 12.5%

Total CM = 2.5*130,000 = $325,000

2.Operating Income = Contribution Margin – Fixed costs

= 2.5*160,000 – 102,300-187,800

= $109,900

3.Operating Income = 4,500,000*12.5% - 102,300-187,800

= $272,400

4.Break even point in units = Fixed costs/CM per unit

= 290,100/2.5 = 116,040 units

In Sales Dollars = Fixed costs/CM ratio

= 290,100/12.5% = $2,320,800

5.Units required = (260,100+290,100)/2.5

= 220,080 units

6.Break even units = (290,100+22,500)/1.8

= 173,666.67 units

7.Operating leverage factor = CM/Operating Income

= 325,000/34900

= 9.3123 times

8.Operating income will increase by 7%*9.3123

= 65.1861%

9.Margin of safety = Sales – break even sales

= 20*130,000 – 2,320,800

= $279,200

% = 279,200/2,600,000 = 10.74%

10.Weighted average CM

	256 GB	512 GB	Total
Sales price per unit	20	45
Less: Variable cost per unit	17.5	28
Contribution margin per unit	2.5	17
Sales mix	6	1	7
Contribution margin	15	17	32
Weighted average CM			4.571428571

Break even units = 290,100/4.5714 = 63,459.77 units

256 GB = 54,394.09 units

512 GB = 9065.68 units

Units required of 256 GB = [(290,100+260100)/4.5714]*6/7 = 103,163.14 cards

512 GB = 17193.86 cards

Lower, since weighted average contribution margin has increased due to 512 GB Cards