Ans. A | Break even point in dollar sales = Fixed cost / Contribution margin ratio | |||
$350,000 / 25% | ||||
$1,400,000 | ||||
Break even point in units = Total fixed cost / (Selling price * Contribution margin ratio) | ||||
$350,000 / ($56 * 25%) | ||||
$350,000 / $14 | ||||
25,000 units | ||||
Ans. B | Dollar sales for target profit = (Fixed expense + Target profit) / Contribution margin ratio | |||
($350,000 + $42,000) / 25% | ||||
$392,000 / 25% | ||||
$1,568,000 | ||||
Unit sales for target profit = (Fixed expense + Target profit) / (Selling price * Contribution margin ratio) | ||||
($350,000 + $42,000) / ($56 * 25%) | ||||
$392,000 / $14 | ||||
28,000 units | ||||
Ans. C | Variable cost per unit at current level of sales = Selling price - (Selling price * Contribution margin ratio) | |||
$56 - ($56 * 0.25) | ||||
$56 - $14 | ||||
$42 per unit | ||||
*New contribution margin ratio if selling price increases and variable cost remain same: | ||||
New selling price = $70 per unit | ||||
Variable cost per unit = $42 per unit | ||||
Contribution margin per unit ($70 - $42) = $28 per unit | ||||
*Contribution margin ratio = Contribution margin / Selling price * 100 | ||||
$28 / $70 * 100 | ||||
40% | ||||
New Break even point in dollar sales = Fixed cost / Contribution margin ratio | ||||
$350,000 / 40% | ||||
$875,000 | ||||
New Break even point in units = Total fixed cost / (Selling price * Contribution margin ratio) | ||||
$350,000 / ($70 * 40%) | ||||
$350,000 / $28 | ||||
12,500 units | ||||
Perez Company reported the following data regarding the product it sells: Sales price Contribution margin ratio...
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