Question

Bubba's Western Wear is a western hat retailer in Lubbock, Texas. Although Bubba's carries numerous styles of western hats, each hat has approximately the same price and invoice (purchase) cost, as shown in the following table. Sales personnel receive a commission to encourage them to be more aggressive in their sales efforts. Currently, the Lubbock economy is really humming, and sales growth at Bubba's has been great. The business is very competitive, however, and Bubba, the owner, has relied on his knowledgeable and courteous staff to attract and retain customers who otherwise might go to other western wear stores. Because of the rapid growth in sales, Bubba is also finding the management of certain aspects of the business more difficult, such as restocking inventory and hiring and training new salespeople. S 50.00 31.50 03.50 55.00 S leil. Tahle DXCCS Purchase cost Sales comissions Toll per unit wariable costs Total annuel fixed expenses Adeling Rent Salaries To fix RSS S 2.7,500 205.000 328,000 S 753.500

Answer 1

Solution :- (a) Amual Breakeven point in Units & amounts * In Units: Contribution Margin = Sales price - Variable cost Pere unit . Perunit per unit = $90 - $55 = $25 Break Even Point = Fixed cost (in units) contribution. Margin per unit = $753,500 $25 = 30,140 units (hat) * In amount ($) Break Even Point Fixed cost = (in amount) . x contribution Margin Sales Price Peronit Per unit $753, 500 x $80 $25 = $2,411,200 * Breakeven Point (units) = 30,1Mo units * Breakeven Point (amount) = $2,411,800 (6) Before Tax Income or(Loss) Before Tax Income orlloss) = "Contribution Margin - fixed cost = $775,000 - $753,500 = $21,500 * Contribution Margin = $25 x 31,000 units = $775,000

Contribution Margin Income Statement - Particulars Amount ($) Sales ($80X 31,000 units) $2,480,000 Variable Cost ($55.00x 31,000 units) |($1,705,000) Contribution Margin $775,000 Fixed cost $ 753,500) Before Tax Income $21,500 (C) Margin of Safety (Mos) and Mos ratio * Margin of Safety (Mos) = "Current Sales - Break even sales = $3,520,000 - $2,411,200 = $1,108,800 * Margin of Safety Ratio = Cwount Sales - Breakeven Seles. - X 100 Current Sales - $3,520,000 - $2,411,200 - Xloo $3,520,000 = 31.5% O Cuecent Sales - Sales price perunit x unit Sold = $80 X 44,000 hats = $ 5,520,000

(d) New Break even point and Before Tax Income I (Loss) * Break Even Point (in Units) - Fixed Cast(WN+) Contribution Margin (WN-2) Per unit = $1,018,500 $48.50 = 21,000 units Chat) WN-I :-New Fixed cost = $753,500 + $ 205,000 = $1,018,500 WN-2:- New Contribution Margin - Sales Price - Variable Perunit Perunit . cost per unit = $ 80 - $ $1.50 = $48.50 * Before Tax Income (Loss) = contribution Margin - fixed cost = $1,503,500 - $1,018,500 = $485,000 # Contribution Margin = Units sold X contribution Margin - Perunit = 31,000 units X $48.50 = $1,503, 500