Question

+ Cm 30. Webber, Inc, developed the following information for its product: Per Unit Sales price Variable cost Contribution margin 527 $90 Total fixed costs $1.215.000 Instructions Answer the following independent questions and show computations using the contribution margin technique to support your answers. 1. Prepare a CVP income statement assuming the company is presently selling 50,000 units. 2. Calculate the contribution margin ratio and the per unit contribution margin. 3 Calculate break even in unit sales and in sales dollars. 4. What is the total sales that must be generated for the company to earn a profit of $60,000? 5. Calculate the company's margin of safety as a dollar amount and calculate the margin of safety ratio.

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and format. For detailed answer refer to the supporting sheet.

Answer 3 Part 1) Webber Inc. 5 Contribution Margin Income Statement 6 Particulars Amount 7 Revenue (50000*90) $ 4,500,000 8 Variable Cost (50000*63) $ 3,150,000 9 Contribution Margin $ 1,350,000 10 Fixed Expenses $ 1,215,000 11 Operating Income $ 135,000 12 13 Part 2) 15 Contribution margin ratio = contribution margin/ sales 16 = (1350000/4500000)*100 17 = 30% 19 Per Unit contribution margin = sale price per unit - variable cost per unit 20 = $90-63 21 = $ 27

3 Part 3) 4 Break even point in units = fixed cost / contribution margin per unit 5 = 1215000/27 6 = 45000 Units 8 Break even point in dollars = break even units* sale price 9 = 45000*90 0 = $ 4050000 2 Part 4) 3 Total sales required to earn desired profit ($60000) =(fixed cost+profit) contribution margin ratio 4 = (1215000+60000)/30% 5 = $ 4250000 7 Part 5) 8 Margin of safety in dollar = total sales - break even sales 9 = 4500000-4050000 -0 = $ 450000 -2 Margin of safety ratio = (margin of safety in dollars/total sales)*100 -3 = (450000/4500000)*100 4 = 10%