Question

Question 2: CVP relation version 2 Current sales revenue is $5,000, total variable costs are $1,000, and total fixed costs are $2,000 (no data on units). a) Compute the contribution margin ratio: CMR b) Write down the CVP relation (version 2): profit as a function of sales revenue. Profit = * Revenue - (e.g., if profit = 0.1*Revenue-500, enter 0.1 in the first box and 500 in the second box). c) Predict profit at sales revenue of $10,000: d) Your boss gave you a profit target of $5,000. How much do you need to sell in dollars to meet this target? e) Compute the breakeven revenue: f) When sales revenue increases by $1,000 (from any initial level in the relevant range), profit increases by: CMR $1,000 - $800 (1-CMR)*$1,000 = $200 not enough information

Answer 1

1

Contriution Margin Ratio = 80%

CM = Sales - Variable Cost = 5000 - 1000 = 4000

CMR = 4000 / 5000 x 100 % = 80%

2

Profit = 0.8 x Revenue - 5000

3