Question

June runs a vineyard that produces wine that has a recommended retail sales price of $9.00. Her selling price to the retailer is $6.50/bottle and her variable costs of goods sold are $3.10/bottle. She has operating costs (overhead) of $140,000 per month and she sells, on average, 60,000 bottles per month.

Calculate for an average month:

a)   Retail margin %:
b)   June's Gross margin %:
c)   Breakeven point:
d)   Operating Income:
e)   Operating Income (if sales volume increases by 10%):
f)   Operating Income (if selling price is increased by 10%):

Answer 1

a.
Retail margin %	(9-6.50)/9
Retail margin %	27.78%
June's Gross margin %	Gross margin/Sales revenue
b.
Gross margin	Sales revenue - Cost of goods sold
Gross margin	6.50-3.10
Gross margin	$3.40
June's Gross margin %	3.40/6.50
June's Gross margin %	52.31%
c.
Breakeven point (unit)	Fixed costs/Contribution margin per unit
Breakeven point (unit)	140000/3.40
Breakeven point (unit)	41,176
Breakeven point (amount)	Fixed costs/Contribution margin ratio
Breakeven point (amount)	140000/52.31%
Breakeven point (amount)	267,647
d.
Calculation of operating income
Sales revenue (60000*6.50)	$390,000
Less: Variable cost of goods sold	$186,000	60000*3.10
Contribution margin	$204,000
Fixed costs	$140,000
Operating income	$64,000
e.
Calculation of operating income if sales volume increase by 10%
Sales revenue (60000*6.50*1.1)	$429,000
Less: Variable cost of goods sold	$204,600	60000*3.10*1.1
Contribution margin	$224,400
Fixed costs	$140,000
Operating income	$84,400
f.
Calculation of operating income if sales price increase by 10%
Sales revenue (60000*6.50*1.1)	$429,000
Less: Variable cost of goods sold	$186,000	60000*3.10
Contribution margin	$243,000
Fixed costs	$140,000
Operating income	$103,000