11. XYZ Company is a retailer of widgets. XYZ pays $4.75 for each widget and sells...
11. XYZ Company is a retailer of widgets. XYZ pays $4.75 for each widget and sells them for $8.00. Monthly fixed costs are $26,000. The widget cost is the only variable cost.
a. What is the contribution margin per unit?
b. What is the break-even point in units?
c. How many units will XYZ need to sell to earn target profit of
$13,000?
Homework Answers
| Particulars | ($) | |
| 1 | Variable cost | 4.75 |
| 2 | Selling orice of widget | 8 |
| 3 | Fixed Cost | 26,000 |
| 4 | Contribution Margin (2-1) | 3.25 |
| 5 | Break Even Point (in units) [3/(2-1)] | 8,000 |
| 6 | Units (Fixed expenses + Target profit) / Unit contribution margin | 12,000 |
Cost= $4.75
Sale= $8.00
Fixed Cost= 26000
a. Contribution Margin Per Unit=
Contribution margin is defined as revenues minus variable expenses= 8-4.75= $3.25
b. Breakeven is where Revenue-Cost= 0, ie. Profit is Zero.
Let x be the number of Units
26000+4.75x= 8x
X= 26000/3.25= 8000 Units
c. 13000= 8x-26000-4.75x
39000= 3.25x
X= 39000/3.25= 12000 Units
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