Question

7) Total Variable cost = Number of units sold x variable cost per unit 8) Operating Leverage = Contribution Margin / Net Income Complete the below table: Sales Variable Cost Total Contribution Margin Fixed Costs Operating Income Break-even Sales Revenue 150,000 125,000 50,000 B 85,000 35,000 15,000 75,000 65,000 113,750 D 180,000 50,000 144,000 Remember: 1) Variable costs rise and fall with an increase or decrease in revenue 2) Fixed costs do not rise and fall with an increase or decrease in revenue

Answer 1

A) Given:

Variable Cost =150000

Contribution margin =125000

Operating income = 50000

Required:

i) Sales = Variable cost + Contribution margin

=150000+125000

=275000

ii) Fixed Cost = Contribution margin - operating income

=125000-50000

=75000

iii) Break even sales revenue = fixed cost / contribution margin %

=75000/(125000/275000)*100)%

=75000/45.45%

=165000

B) Given:

Sales = 85000

VC=35000

Operating income =15000

Required :

i) Contribution margin =Sales - VC

=85000-35000

=50000

ii) Fixed Cost = Contribution margin - Operating income

=50000-15000

=35000

iii) Break even Sales = Fixed cost / contribution margin %

= 35000/(50000/85000)*100%

=59500

C) Given:

VC=75000

FC=65000

BES=113750

Required :

i) Sales

Variable cost margin%=Variable cost/sales *100

Variable cost margin at BES and sales will be same

=(113750-65000)/113750*100

=48750/113750*100

=42.86%

Contribution margin % = 100- Variable cost margin %

= 100-42.86

=57.14%

Variable cost =75000 which is 42.86% of sales

So, Sales = 75000/42.86%

= 174988

ii) Contribution margin = sales - vc

=174988-75000

=99988

iii) Operating income = Contribution margin - FC

=99988-65000

=34988

D) Given:

Sales=180000

Contribution margin = 50000

BES=144000

Required :

i) VC=sales- contribution margin

= 180000-50000

=130000

ii) Fixed cost= BES*contribution margin %

= 144000*(50000/180000)

=40000

iii) Operating income = contribution margin - fc

= 50000-40000

=10000