Question

Basic Cost-Volume-Profit Concepts

Klamath Company produces a single product. The projected income statement for the coming year is as follows:

Sales (79,300 units @ $26.00)	$2,061,800
Total variable cost	1,257,698
Contribution margin	$ 804,102
Total fixed cost	867,984
Operating income	$ (63,882)

Required:

1. Compute the unit contribution margin and the units that must be sold to break even.

Unit contribution margin	$
Break-even units	units

2. Suppose 10,000 units are sold above breakeven. What is the operating income?
$

3. Compute the contribution margin ratio. Use the contribution margin ratio to compute the break-even point in sales revenue.

Contribution margin ratio	%
Break-even sales revenue	$

Suppose that revenues are $200,000 more than expected for the coming year. What would the total operating income be?
$

Answer 1

Number of units sold 79300

Selling price per unit is $26.00

Contribution margin is $804,102

Fixed cost is $867,984

Contribution margin per unit = contribution/ number of units sold

Contribution margin per unit = $804,102/79300 = $10.14

Contribution margin per unit is $10.14

Break even points units = fixed cost/ contribution per unit

Break even points units = $867984/$10.14 = 85600 units

Operating income when 10000 units sold above break even sales

Break even point sales 85600

Excess sales units 10000

Total sales units 95600

Income statement as follows

Sales @ $26×95600. $2485 600

Less: Variable cost per unit @ $15.86×95600 . $ 1516 216

(Selling price- contribution price= variable cost

$26-$10.14=$15.86)

Contribution $969384

Less: Fixed cost $867 984

Operating income is $ 101 400

Contribution margin Ratio and break even revenue when sales revenue is increases by $200,000

Number of units increase for $200,000 revenue is $200,000/$26=7692.30 round of to 7692 units

Income statement as follows

A ) Sales @$26 ×(79300+7692) units . $ 2069 492

B ) Variable cost @ $15.86×86992 units. $ 1379693

Contribution margin . ( A-B) $689,799

Contribution margin ratio = contribution margin / sales

Contribution margin = $689,799/$2069 492 =33.33%

Break even sales revenue = fixed cost / contribution margin ratio

Break even sales revenue = 867,984/33.33% = $ 2604 212