Question

In 2016, Blue Spruce Company had a break-even point of $305,000 based on a selling price of $5 per unit and fixed costs of $122,000. In 2017, the selling price and the variable costs per unit did not change, but the break-even point increased to $437,000. Compute the variable costs per unit and the contri bution margin ratio for 2016. (Round Variable cost per unit to 2 decimal places, e.g. 2.25 and Contribution margin ratio to 0 decimal places, e.g. 20.) $ Variable costs per unit Contribution margin ratio eTextbook and Media Compute the increase in fixed costs for 2017. $ Increase in fixed cost

Answer 1

Answers

• 2016

>At Break even, contribution margin equals Fixed Cost.
>Contribution margin = $ 122,000
>Sales = $ 305000
>variable cost = $ 305000 - 122000 = $ 183,000

Calculation:
>Variable cost per unit = $ 183000 / 61000 units = $ 3.00
>CM Ratio = ($122000 / 305000) x 100 = 40%

• 2017
  >New Break even = $ 437000
  >Fixed Cost = Contribution margin = $ 437000 x 40% = $ 174,800
  >Past fixed cost= $ 122,000

Increase in Fixed Cost = $ 174800 – 122000
= $ 52,800