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The budgets of four companies yield the following information:

Company

Beach Lake Mountain Valley

Net Sales Revenue \( 1,615,000 \)(d) \( 1,050,000 \)(j)

Variable Costs (a) 60,000 525,000 100,800

Fixed Costs (b) 232,000 260,000 (k)

Operating Income (Loss) 285,600 (e) (g) 31,500

Units Sold 170,000 10,000 (h) (l)

Contribution Margin per Unit \( 3.80 \) (f) \( 75.00 \) 9.00

Contribution Margin Ratio (c) 80% (i) 30%

Requirements

1. Fill in the blanks for each missing value. (Round the contribution margin per unit to the nearest cent.)

2. Which company has the lowest breakeven point in sales dollars?

3. What causes the low breakeven point?

Short Answer

Expert verified

(1)(a) $969,000

(b) 360,000

(c) 40%

(d) $300,000

(e) $8,000

(f) $24

(g) $265,000

(h) 7,000

(i) 50%

(j) $144,000

(k) $11,700

(l) 4,800

(2) The lowest breakeven point in sales dollars equals $39,000.

(3) Lower contribution margin ratio and lower fixed costs

Step by step solution

01

Calculation of (a), (b), (c)

Net sales revenue

$1,615,000

Variable costs ($1,615,000 / 170,000)-$3.80 ) x 170,000

(a)$969,000

Fixed costs ($1,615,000-$969,000 -$285,600)

(b)$360,400

Operating income (Loss)

$285,600

Units sold

170,000

Contribution margin per unit

$3.80

Contribution margin ratio (($3.80 x 170,000) / $1,615,000)

(c)40%

02

Calculation of (d), (e), (f)

Net sales revenue ($60,000 / (1-80%)

(d) $300,000

Variable costs

$60,000

Fixed costs

$232,000

Operating income (Loss) ($300,000-$60,000-$232,000)

(e) $8,000

Units sold

10,000

Contribution margin per unit ($300,000-$60,000)/10,000

(f)$24

Contribution margin ratio

80%

03

Calculation of (g), (h), (i)

Net sales revenue

$1,050,000

Variable costs

$525,000

Fixed costs

$260,000

Operating income (Loss) ($1,050,000-$525,000-$260,000)

(g) $265,000

Units sold ($1,050,000-$525,000) / $75

(h) 7,000

Contribution margin per unit

$75

Contribution margin ratio ($1,050,000-$525,000)/$1,050,000)

(i)50%

04

Calculation of (j), (k), (l) 

Net sales revenue ($100,800 / (1-30%))

(j)$144,000

Variable costs

$100,800

Fixed costs ($144,000-$100,800-$31,500)

(k)$11,700

Operating income (Loss)

$31,500

Units sold ($144,000 - $100,800)/$9)

(l)4,800

Contribution margin per unit

$9

Contribution margin ratio ($144,000-$100,800)/$144,000)

30%

Step 4: Calculation of breakeven sales in dollars

Breakevensales(Beach)=FixedcostsContributionmarginratio=$360,40040%=$901,000

Breakevensales(Lake)=FixedcostsContributionmarginratio=$232,00080%=$290,000

Breakevensales(Mountain)=FixedcostsContributionmarginratio=$260,00050%=$520,000

Breakevensales(Valley)=FixedcostsContributionmarginratio=$11,70030%=$39,000

Valley has the lowest breakeven point that is $39,000.

Step 4: Reason for low breakeven point

Low contribution margin causes the low breakeven point. Valley has the lowest contribution margin ratio that is why it has the lowest breakeven point.

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