|Income Statement |Sales Revenue|$2,250,000 |Variable Costs| | Purchases|$425,000 |Direct...

Question:

Income Statement
Sales Revenue $2,250,000
Variable Costs
Purchases $425,000
Direct labor $395,000
$820,000
$1,430,000
Fixed Costs
Selling $175,000
Administrative $110,000
$285,000

The above is based on sales of 20,000 units.

Compute:

1. Contribution Margin

2. Selling price per unit

3. Variable labor cost per unit

4. Variable purchases cost per unit

5. Breakeven point in units and dollars

Answer and Explanation:

Answer to 1

The contribution margin per unit is given by:

  • = Total contribution margin / number of units sold
  • {eq}= \dfrac{\$1,430,000}{20,000} {/eq}
  • = $71.5 per unit

Answer to 2

The selling price per unit is given by:

  • = Sales revenue / number of units sold
  • {eq}= \dfrac{\$2,250,000}{20,000} {/eq}
  • = $112.5 per unit

Answer to 3

The variable labor cost per unit is given by:

  • = Total variable labor cost / number of units sold
  • {eq}= \dfrac{\$395,000}{20,000} {/eq}
  • = $19.75 per unit

Answer to 4

The variable purchases cost per unit is given by:

  • = Total variable purchases cost / number of units sold
  • {eq}= \dfrac{\$425,000}{20,000} {/eq}
  • = $21.25 per unit

Answer to 5

The break-even point in units is given by:

  • = Total fixed costs / contribution margin per unit
  • {eq}= \dfrac{\$285,000}{\$71.5} {/eq}
  • = 3,986 units

The contribution margin ratio is given by:

  • = Contribution margin per unit / selling price per unit
  • {eq}= \dfrac{\$71.5}{\$112.5} {/eq}
  • = 63.56%

The break-even point in sales dollars is given by:

  • = Total fixed costs / contribution margin ratio
  • {eq}= \dfrac{\$285,000}{63.56\%} {/eq}
  • = $448,427

Learn more about this topic:

Break-Even Analysis: Definition & Example

from Financial Accounting: Help and Review

Chapter 4 / Lesson 3
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