Chapter 20: Q20-14RQ (page 1119)
What is the breakeven point?
Answer
The breakeven point is company at no profit or loss condition because contribution is equal to total fixed cost.
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A chain of convenience stores has one manager per store who is paid a monthly salary. Relative to Store #36 located in Atlanta, Georgia, is the manager’s salary fixed or variable? Why?
Question: What is target profit?
Complete the table below for the missing amounts:
A B C
Number of units 2,064 units (d) 2,570 units
Sales price per unit \( 250 \) 125 $ (g)
Variable costs per unit (a) 50 4,528
Contribution margin per unit 125 (e) (h)
Total contribution margin (b) 1,567,500 (i)
Contribution margin ratio (c) (f) 20%
Following is the income statement for Marrow Mufflers for the month of June 2018:
MARROW MUFFLERS
Contribution Margin Income Statement
Month Ended June 30, 2018
Net Sales Revenue (140 units _ \(250) \) 35,000
Variable Costs (140 units _ \(50) 7,000
Contribution Margin 28,000
Fixed Costs 11,500
Operating Income \) 16,500
Requirements
1. Calculate the degree of operating leverage. (Round to four decimal places.)
2. Use the degree of operating leverage calculated in Requirement 1 to estimate the change in operating income if total sales increase by 40% (assuming no change in sales price per unit). (Round interim calculations to four decimal places and final answer to the nearest dollar.)
3. Verify your answer in Requirement 2 by preparing a contribution margin income statement with the total sales increase of 40%.
What is contribution margin?
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