Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

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.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

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

On the CVP graph, where is the breakeven point shown? Why?

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 managerโ€™s salary fixed or variable? Why?

Question: Gilbertโ€™s Steel Parts produces parts for the automobile industry. Thecompany has monthly fixed costs of \(640,220 and a contribution margin of85% of revenues.

Requirements

1. Compute Gilbertโ€™s monthly breakeven sales in dollars. Use the contributionmargin ratio approach.

2. Use contribution margin income statements to compute Gilbertโ€™s monthlyoperating income or operating loss if revenues are \)500,000 and if they are$1,050,000.

3. Do the results in Requirement 2 make sense given the breakeven sales youcomputed in Requirement 1? Explain.

Using the high-low method

Mark owns a machine shop. In reviewing the shopโ€™s utility bills for the past 12 months, he found that the highest bill of \(2,600 occurred in August when the machines worked 1,200 machine hours. The lowest utility bill of \)2,300 occurred in December when the machines worked 600 machine hours.

Requirements

1. Use the high-low method to calculate the variable cost per machine hour and the total fixed utility cost.

2. Show the equation for determining the total utility cost for the machine shop.

3. If Mark anticipates using 800 machine hours in January, predict the shopโ€™s total utility bill using the equation from Requirement 2.

See all solutions

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free