Question

Use the following contribution margin statement for 20X9:

	20X9
Sales volume (#units)	100
Revenue	$7,500
Variable costs	$4,500
Contribution margin	$3,000
Fixed costs	$1,800
Profit	$1,200

Required:
a) How much is the price per unit, unit variable cost and unit contribution margin?
price=    unit VC=    unit CM=

b) Write down the CVP relation: profit as a function of sales volume in units
(fill in the missing numbers in an equation like: Profit = 2 *Volume - 50).
Profit =  *Volume -

c) If sales volume increases by 20% (from 100 to 120), how much is the $ change in profits?


d) What is the sales volume required to achieve target profit of $2,100?


e) How much is the breakeven volume?

Breakeven revenue?


f) How much is the margin of safety percentage (at current sales volume of 100 units)?
(enter percentages as a fraction of 1, i.e., enter 23.47% as 0.2347)

g) Based on the margin of safety computed in (f), will you start making a loss if sales drop by 30%?
(enter 1 for yes, 2 for no)

h) How much is the operating leverage (at current sales volume of 100 units)?
(enter percentages as a fraction of 1, i.e., enter 23.47% as 0.2347)

If fixed costs increase, will it increase or decrease the operating risk?
(enter 1=increase, 2=decrease)

Answer 1

Statement showing Computations
Particulars	Amount -100 Unist
Sales	7,500.00
Less Variable Expenses	(4,500.00)
Contribution Margin = Sales - VC	3,000.00
Less Fixed cost	(1,800.00)
Net operating income	1,200.00
a) price per unit = 7500/100	75.00
unit VC =4500/100	45.00
unit CM =3000/100	30.00
b) Profit = 30*Volume - 1800
c)
Contribution =120*30	3,600.00
Less Fixed cost	(1,800.00)
Net operating income	1,800.00
$ change in profits = 1800 - 1200	600.00
d)
Target Profit	2,100.00
Add Fixed cost	1,800.00
Target contribution	3,900.00
sales volume required to achieve target profit of $2,100 = 3900/30	130.00
e) Break even Volume =1800/30	60.00