1. Werth Company produces tie racks. The estimated fixed costs for the year are $288,000, and the estimated variable costs per unit are $14. Werth expects to produce and sell 60,000 units at a price of $20 per unit.
A. |
| Calculate the contribution margin ratio |
B. | Calculate the contribution margin of each tie rack. | |
C. |
| Determine the break-even point in units. |
D. | Determine Werth’s margin of safety ratio. | |
2 – Donough Company had the following income statement:
Sales revenue (800 units) | $80,000 | |
Cost of goods sold: | ||
Fixed costs | $20,000 | |
Variable costs | 18,500 | 38,500 |
Gross profit | $41,500 | |
Operating expenses: | ||
Fixed costs | 12,000 | |
Variable costs | 13,500 | 25,500 |
Operating income | $16,000 |
A. How much is Donough’s contribution margin?
B. How many units must Donough sell in order to break even?
3 – Evans Company makes and sells cologne. This product has a unit sales price of $40 and a unit variable cost of $24. Fixed expenses are $32,000 per month.
1. Calculate the contribution margin ratio.
2. Calculate the contribution margin of each unit.
3. How many units must Evans sell to break even?
4. How much will total sales be at break even?
5. How much will total variable costs be at break even?
6. How many units must Evans sell in order to report income before taxes of $28,000?
7. If the company sells 3,500 units, how much is:
A. the total contribution margin?
B. income for the period?
C. The margin of safety in dollars?
D. Operating leverage?
8. Based on sales of 3,500 units, by what percentage would profit increase if sales increased by 20%?
4 – In Company manufactures and sells two products, Dings and Dongs. In provides you with the following:
| Dings | Dongs |
Selling price per unit | $20 | $16 |
Variable cost per unit | 10 | 12 |
Monthly fixed costs are $23,200. Thirty percent of sales each month are for Dings, while the remaining 70% are for Dongs.
A. Calculate the contribution margin per unit for each product.
B. Calculate the weighted-average contribution margin ratio
5 – Allen Company sells homework machines for $100 each. Variable costs per unit are $75 and total fixed costs are $62,000. Allen is considering the purchase of new equipment that would increase fixed costs to $84,000, but decrease the variable costs per unit to $60. At that level Allen Company expects to sell 3,000 units next year.
What is Allen’s break-even point in units if it purchases the new equipment?
How many units can Allen’s sales drop before he loses his ‘cushion’?
6- Aukens Company produces homework machines. During July of 2004, Aukens produced and sold 600 units at $40 per unit. At July’s level of production, it costs Aukens $18 variable costs per unit and fixed costs of $5 per unit. How much will total sales be if Aukens earns a profit of $8,000?
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