Homework Answers
Answer-2:
(a) Target operating income = Expected sales - variable cost – Fixed costs
= $56,250 – 15,625 – 32,825 = $7,800
(b) Sales per unit = $56,250 / 12,500 =$4.50
Variable cost per unit = $15,625 / 12,500 = $1.25
Contribution margin per unit = $4.50 - $1.25 = $3.25
Break even units = Fixed cost / contribution per unit = $32,825 / $3.25 = 10,100 units
(c) Margin of safety = Actual Sales – Break even sales
= $56,250 – (10,100 × 4.50) = $56,250 - $45,450 = $10,800
Answer-3:
Sell price per unit = $0.90
Variable cost per unit = $0.10
Sales unit =1,500,000
Tax rate = 25%
Contribution margin = ($0.90 - $0.10) × 1,500,000 = $1,200,000
Net income = $480,000
Income before tax = $480,000/75% = $640,000
(a) Income before tax = Contribution margin – Fixed cost
$640,000 = $1,200,000 – Fixed cost
Fixed cost = $1,200,000 - $640,000 = $560,000
(b) Revised Sales unit =1,500,000 + 600,000 = 2,100,000
Revised Sell price per unit = $0.80
Revised Variable cost per unit = $0.20
Contribution margin = ($0.80 - $0.20) × 2,100,000 = $1,260,000
Income before tax = $1,260,000 – Fixed cost
= $1,260,000 - $560,000 = $700,000
Net income = $700,000 × (1 – 25%) = $525,000
(c) As there is an increase of $45,000 (i.e. $525,000 - $480,000) in net income, Bonnibel's plan may be implemented.
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