Question

PA5-4 (Algo) Predicting Cost Behavior, Calculating Contribution Margin and Contribution Margin Ratio, Calculating Profit [LO 5-1, 5-5] Presidio, Inc., produces one model of mountain bike. Partial information for the company follows: Required: 1. Complete Presidio's cost data table. 2. Calculate Presidio's contribution margin ratio and its total contribution margin at each sales level indicated in the cost data table assuming the company sells each bike for $640. 3. Calculate net operating income (loss) at each of the sales levels assuming a sales price of $640. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Complete Presidio's cost data table. (Round your Cost per Unit answers to 2 decimal places.) Bikes Produced and Sold 730 Units 770 Units 1,424 Units Total costs Variable costs $ 182,500 Fixed costs per year Total costs $ 182,500 $ 0 $ 0 Cost per unit Variable cost per unit Fixed cost per unit Total cost per unit $ 0.00 $ 554.00 $ 0.00

Answer 1

730 Units 770 Units 1,424 Units Answer to Requirement 1. Bikes produced and sold Total Costs Variable Costs Fixed Cost per year Total Costs Cost per Unit Variable Cost per unit Fixed Cost per unit Total Cost per unit 182,500 234,080 416,580 192,500 234,080 426,580 356,000 234,080 590,080 250.00 320.66 570.66 250.00 304.00 554.00 250.00 164.38 414.38

Calculation:
Bikes produced and sold = 730 Units:
Variable Cost per unit = Variable Costs / Bikes produced and sold
Variable Cost per unit = $182,500 / 730
Variable Cost per unit = $250.00

Bikes produced and sold = 770 Units:
Total Cost per unit = Variable Cost per unit + Fixed Cost per unit
$554.00 = $250.00 + Fixed Cost per unit
Fixed Cost per unit = $304.00

Total Fixed Costs per year = Fixed Cost per unit * Units Produced
Total Fixed Costs per year = $304.00 * 770
Total Fixed Costs per year = $234,080

Variable Cost per unit i.e. $250.00 will remain same for all level of Bikes produced and sold

Variable Cost for 770 Units = $250.00 * 770
Variable Cost for 770 Units = $192,500

Bikes produced and sold = 730 Units:
Total Fixed Cost per year will remain same for all level of Bikes produced and sold

Total Fixed Costs per year = $234,080

Fixed Cost per unit = Total Fixed Cost / Bikes produced and sold
Fixed Cost per unit = $234,080 / 730
Fixed Cost per unit = $320.66

Bikes produced and sold = 1,424 Units:
Total Fixed Cost per year will remain same for all level of Bikes produced and sold

Total Fixed Costs per year = $234,080

Fixed Cost per unit = Total Fixed Cost / Bikes produced and sold
Fixed Cost per unit = $234,080 / 1,424
Fixed Cost per unit = $164.38

Variable Cost per unit i.e. $250.00 will remain same for all level of Bikes produced and sold

Variable Cost for 1,424 Units = $250.00 * 1,424
Variable Cost for 1,424 Units = $356,000

Answer to Requirement 2.
Bikes produced and sold = 730 Units:
Sales Revenue = 730 * $640
Sales Revenue = $467,200

Total Contribution Margin = Sales Revenue – Variable Cost
Total Contribution Margin = $467,200 - $182,500
Total Contribution Margin = $284,700

Contribution Margin ratio = Total Contribution Margin / Sales Revenue * 100
Contribution Margin ratio = $284,700 / $467,200 * 100
Contribution Margin ratio = 60.94%

Bikes produced and sold = 770 Units:
Sales Revenue = 770 * $640
Sales Revenue = $492,800

Total Contribution Margin = Sales Revenue – Variable Cost
Total Contribution Margin = $492,800 - $192,500
Total Contribution Margin = $300,300

Contribution Margin ratio = Total Contribution Margin / Sales Revenue * 100
Contribution Margin ratio = $300,300 / $492,800 * 100
Contribution Margin ratio = 60.94%

Bikes produced and sold = 1,424 Units:
Sales Revenue = 1,424 * $640
Sales Revenue = $911,360

Total Contribution Margin = Sales Revenue – Variable Cost
Total Contribution Margin = $911,360 - $356,000
Total Contribution Margin = $555,360

Contribution Margin ratio = Total Contribution Margin / Sales Revenue * 100
Contribution Margin ratio = $555,360 / $911,360 * 100
Contribution Margin ratio = 60.94%

Answer to Requirement 3. Sales Revenue Variable Costs Contribution Margin Fixed Costs Net Operating Income 730 Units 467,200 182,500 284,700 234,080 50,620 770 Units 492,800 192,500 300,300 234,080 66,220 1,424 Units 911,360 356,000 555,360 234,080 321,280