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Question: Use the following information to complete Short Exercises S20-10 through S20-15.

Funday Park competes with Cool World by providing a variety of rides. Funday Park sells tickets at \(70 per person as a one-day entrance fee. Variable costs are \)42 per person, and fixed costs are $170,800 per month.

S20-10 Computing contribution margin per unit, breakeven point in sales units

Compute the contribution margin per unit and the number of tickets Funday Park must sell to break even. Perform a numerical proof to show that your answer is correct.

Short Answer

Expert verified

Answer

The number of break-even sales are 6,100.

Step by step solution

01

Calculation of Contribution margin

Contributionmargin=Salesprice--Variablecost=$70-$42=$28

02

 Step 2: Calculation of number of tickets funday park must sell to break even

Netsalesrevenue-Variablecosts-Fixedcosts=TargetprofitNumberofunitssold×$28-$170,800=$0Numberofunitssold=6,100Units

03

Substituting the number of units into operating income equation

Totalcontributionmargin-Fixedcosts=Operatingincome6,100Units×$28-$170,800=Operatingincome$170,800-$170,800=Operatingincome$0=Operatingincome

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Most popular questions from this chapter

National Investor Group is opening an office in Portland, Oregon. Fixed monthly costs are office rent (\(8,100), depreciation on office furniture (\)1,700), utilities (\(2,000), special telephone lines (\)1,500), a connection with an online brokerage service (\(2,500), and the salary of a financial planner (\)5,200). Variable costs include payments to the financial planner (9% of revenue), advertising (11% of revenue), supplies and postage (4% of revenue), and usage fees for the telephone lines and computerized brokerage service (6% of revenue).

Requirements

  1. Use the contribution margin ratio approach to compute National’s breakeven revenue in dollars. If the average trade leads to \(1,000 in revenue for National, how many trades must be made to break even?
  2. Use the equation approach to compute the dollar revenues needed to earn a monthly target profit of \)12,600.
  3. Graph National’s CVP relationships. Assume that an average trade leads to \(1,000 in revenue for National. Show the breakeven point, the sales revenue line, the fixed cost line, the total cost line, the operating loss area, the operating income area, and the sales in units (trades) and dollars when monthly operating income of \)12,600 is earned.
  4. Suppose that the average revenue National earns increases to $1,500 per trade. Compute the new breakeven point in trades. How does this affect the breakeven point?

What is the breakeven point?

What are the three ways contribution margin can be ex

What is a mixed cost? Give an example.

What is cost stickiness? Why do managers need to be aware of cost stickiness?

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