Chapter 20: Q16RQ (page 1119)
Of the three approaches to calculate sales required to achieve the breakeven point, which one(s) calculate the required sales in units and which one(s) calculate the required sales in dollars?
Answer
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Question: What is target profit?
What is cost stickiness? Why do managers need to be aware of cost stickiness?
What effect does an increase in sales price have on contribution margin? An increase in fixed costs? An increase in variable costs?
Question: Computing contribution margin, units and required sales to break even, and units to achieve target profit
Compute the missing amounts for the following table.
A B C Sales price per unit \( 200 \) 4,000 $ 5,220 Variable costs per unit 80 1,000 2,088 Total fixed costs 73,200 660,000 3,758,400 Target profit 266,760 3,000,000 3,132,000 Calculate:
Contribution margin per unit
Contribution margin ratio
Required units to break even
Required sales dollars to break even
Required units to achieve target profit
What is operating leverage? What does it mean if a company has a degree of operating leverage of 3?
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