Question

QS 18-8 Contribution margin ratio and break-even dollars LO P2 SBD Phone Company sells its waterproof phone case for $130 per unit. Fixed costs total $262,000, and variable costs are $52 per unit. (1) Determine the contribution margin ratio. per unit Contribution margin Contribution margin ratio Choose Numerator: Choose Denominator: Contribution margin ratio Contribution margin ratio (2) Determine the break-even point in dollars. Choose Numerator: Choose Denominator: Break-Even Point in Dollars Break-even point in dollars

Answer 1

(1) For contribution margin ratio, we will calculate contribution margin first.

Contribution margin per unit = Selling price per unit - Variable cost per unit

Contribution margin per unit = $130 - $52 = $78 per unit

Now, contribution margin ratio is give by:

Contribution margin ratio = Contribution margin per unit / Selling price per unit * 100

Putting the values in the above formula, we get,

Contribution margin ratio = $78 / $130 * 100

Contribution margin ratio = 0.6 or 60%.

(2) Break even point can be calculated by the following formula:

Break even point = Fixed cost / Contribution margin ratio

Putting the values in the above formula, we get,

Break even point = $262000 / 60% = $436666.67