Question

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

Short answer

Answer

$$\begin{gathered} \mathbf{1}\mathbf{.}\mathbf{}\mathbf{A}\mathbf{=}\mathbf{\$}\mathbf{120}\mathbf{,}\mathbf{B}\mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{000}\mathbf{,}\mathbf{C}\mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{132} \\ \mathbf{2}\mathbf{.}\mathbf{A}\mathbf{=}\mathbf{60}\mathbf{\%}\mathbf{,}\mathbf{B}\mathbf{=}\mathbf{75}\mathbf{\%}\mathbf{,}\mathbf{C}\mathbf{=}\mathbf{60}\mathbf{\%} \\ \mathbf{3}\mathbf{.}\mathbf{}\mathbf{A}\mathbf{=}\mathbf{610}\mathbf{,}\mathbf{B}\mathbf{=}\mathbf{220}\mathbf{,}\mathbf{C}\mathbf{=}\mathbf{1}\mathbf{,}\mathbf{200} \\ \mathbf{4}\mathbf{.}\mathbf{A}\mathbf{=}\mathbf{\$}\mathbf{122}\mathbf{,}\mathbf{000}\mathbf{,}\mathbf{B}\mathbf{=}\mathbf{\$}\mathbf{880}\mathbf{,}\mathbf{000}\mathbf{,}\mathbf{C}\mathbf{=}\mathbf{\$}\mathbf{6}\mathbf{,}\mathbf{264}\mathbf{,}\mathbf{000} \\ \mathbf{5}\mathbf{.}\mathbf{A}\mathbf{=}\mathbf{2}\mathbf{,}\mathbf{833}\mathbf{,}\mathbf{B}\mathbf{=}\mathbf{1}\mathbf{,}\mathbf{220}\mathbf{,}\mathbf{C}\mathbf{=}\mathbf{2}\mathbf{,}\mathbf{200} \end{gathered}$$

Step-by-step solution

Calculation of contribution margin per unit

	A	B	C
Sales price per unit	$200	$4,000	$5,220
Less: Variable cost per unit	$80	$1,000	$2,088
Contribution per unit	$120	$3,000	$3,132

Calculation of contribution margin ratio 

	A	B	C
Sales price per unit	$200	$4,000	$5,220
Less: Variable cost per unit	$80	$1,000	$2,088
Contribution per unit	$120	$3,000	$3,132
Contribution margin ratio = Contribution margin/ net sales revenue	$120/$200 =60%	$3,000/$4,000 =75%	$3,132/$5,220 =60%

Calculation of required units to breakeven

	A	B	C
Fixed costs	73,200	660,000	3,758,400
Contribution per unit	$120	$3,000	$3,132
Required sales in units = Fixed costs/ Contribution margin per unit	610	220	1,200

Calculation of required sales dollars to breakeven

	A	B	C
Fixed costs	73,200	660,000	3,758,400
Contribution margin ratio = Contribution margin/ net sales revenue	$120/$200 =60%	$3,000/$4,000 =75%	$3,132/$5,220 =60%
Required sales in dollars = Fixed costs/ Contribution margin ratio	$122,000	$880,000	$6,264,000

Calculation of required units to achieve target profit