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The budgets of four companies yield the following information:

Company

Blue Red Green Yellow

Net Sales Revenue \( 1,900,000 \) (d) \( 1,500,000 \) (j) Variable Costs (a) 47,250 1,050,000 256,200 Fixed Costs (b) 168,000 159,000 (k) Operating Income (Loss) 298,500 (e) (g) 97,800

Units Sold 190,000 9,000 (h) (l) Contribution Margin per Unit \( 3.00 \) (f) \( 75.00 \) 18.00

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) $1,330,000

(b) 271,500

(c) 30%

(d) $236,250

(e) $21,000

(f) $21

(g) $291,000

(h) 6,000

(i) 30%

(j) $366,000

(k) $12,000

(l) 6,100

(2)Yellow has the lowest breakeven point that is $40,000.

(3) Low contribution margin ratio and sales.

Step by step solution

01

Calculation of (a), (b), (c) 

Net sales revenue

$1,900,000

Variable costs ($1,900,000 / 190,000)-$3 ) x 190,000

(a)$1,330,000

Fixed costs ($1,900,000 - $1,330,000-$298,500)

(b)$271,500

Operating income (Loss)

$298,500

Units sold

190,000

Contribution margin per unit

$3

Contribution margin ratio ($3 / ($1,900,000 / 190,000)

(c)30%

02

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

Net sales revenue ($47,250 / (1-80%))

(d)$236,250

Variable costs

$47,250

Fixed costs

$168,000

Operating income (Loss) ($236,250 -$47,250-$168,000)

(e) $21,000

Units sold

9,000

Contribution margin per unit ($236,250/9,000) x 80%

(f)$21

Contribution margin ratio

80%

03

Calculation of (g), (h), (i) 

Net sales revenue

$1,500,000

Variable costs

$1,050,000

Fixed costs

$159,000

Operating income (Loss) ($1,500,000-$1,050,000-$159,000)

(g) $291,000

Units sold ($1,500,000-$1,050,000) / 75

(h) 6,000

Contribution margin per unit

$75

Contribution margin ratio

(i)30%

04

Calculation of (j), (k), (l) 

Net sales revenue ($256,200 / (1-30%)

(j)$366,000

Variable costs

$256,200

Fixed costs ($366,000 - $256,200 - $97,800)

(k)$12,000

Operating income (Loss)

$97,800

Units sold ($366,000 - $256,200) / $18

(l)6,100

Contribution margin per unit

$18

Contribution margin ratio

30%

05

Calculation of breakeven sales in dollars

Breakevensales(Blue)=FixedcostsContributionmarginratio=$271,50030%=$905,000

Breakevensales(Red)=FixedcostsContributionmarginratio=$168,00080%=$210,000

Breakevensales(Green)=FixedcostsContributionmarginratio=$159,00030%=$530,000

Breakevensales(Yellow)=FixedcostsContributionmarginratio=$12,00030%=$40,000

06

Cause of low breakeven point 

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

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Most popular questions from this chapter

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.

Compute Funday Parkโ€™s contribution margin ratio. Carry your computation to two decimal places. Use the contribution margin ratio approach to determine the sales revenue Funday Park needs to break even

A furniture manufacturer specializes in wood tables. The tables sell for \(100 per unit and incur \)40 per unit in variable costs. The company has \(6,000 in fixed costs per month. Calculate the breakeven point in units under each independent scenario.

14. Variable costs increase by \)10 per unit.

15. Fixed costs decrease by $600.

16. Sales price increases by 10%.

Calculating breakeven point in units, contribution margin given Mackler, Inc. sells a product with a contribution margin of \(50 per unit. Fixed costs are \)8000 per month. How many units must Mackler sell to break even?

Question: Determining total variable cost

For each variable cost per unit listed below, determine the total variable cost when units produced and sold are 25, 50, and 100 units.

Direct materials $ 40

Direct labor 80

Variable overhead 9

Sales commission 12

Computing margin of safety

Robbieโ€™s Repair Shop has a monthly target profit of \(31,000. Variable costs are 20%of sales, and monthly fixed costs are \)19,000.

Requirements

1. Compute the monthly margin of safety in dollars if the shop achieves its income goal.

2. Express Robbieโ€™s margin of safety as a percentage of target sales.

3. Why would Robbieโ€™s management want to know the shopโ€™s margin of safety?

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