Answer:
(a) | Break even point in dollars | $1,200,000 |
Break even point in units | 30,000 | |
(b) | Sales in dollars | 1,400,000 |
Sales in units | 35,000 | |
(c) | Break even point in dollars | 480,000 |
Break even point in units | 7,500 |
EXPLANATION
(a)
Contribution margin ratio = 20%
Contribution margin ratio = (sales - variable cost)/sales*100
i.e Variable cost is 80% of sales
Contribution = Sales price - Variable cost
Sales price = $40
Variable cost = 80% of 40
= $32
Let's check the answer:
Contribution margin ratio = (40-32)/40*100
= 20%
Break even point (units) = Fixed cost/ contribution margin per unit
Fixed cost = $240,000
Contribution margin per unit = Sales price Per unit- Variable cost per unit
= $40 - $32
= $8
Break even point (units) = 240,000/8
= 30,000 units
Break even point (dollars) = Fixed cost/ contribution margin ratio
= 240,000/20*100
= $1,200,000
(b) Desired Profit = $40,000
Sales in dollars = (Fixed cost + Desired Profit)/contribution margin ratio
= ($240,000+$40,000)/20*100
= $1,400,000
Sales in units = (Fixed cost + Desired Profit)/contribution margin per unit
= ($240,000+$40,000)/8
=35,000 units
Let's check the answer
Number of units sold = 35,000 units
Sales price per unit = $40
Sales value = $40*35,000
= $1,400,000
Variable cost = $32*35,000
= $1,120,000
Fixed cost = $240,000
Profit = $1,400,000-($1,120,000+$240,000)
Profit = $40,000
(c)
If sales price = $64
Variable cost = $32 (remain same)
Contribution margin per unit = $64-$32
= $32
Contribution margin ratio = (sales - variable cost)/sales*100
Contribution margin ratio = (64-32)/64*100
= 50%
Break even point (units) = Fixed cost / contribution margin per unit
= $240,000 / 32
= 7,500 units
Break even point (dollars) = Fixed cost/contribution margin ratio
= $240,000/50*100
=$480,000
Thank you :)
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