Problem 3 The following information is available for Hearst Company. Sales Price
ID: 2328465 • Letter: P
Question
Problem 3
The following information is available for Hearst Company.
Sales Price
$60
Variable manufacturing costs
-34
Sales commission
10% of sales
price
-6
Fixed costs
$180,000
Answer the following questions
1
What is the contribution margin?
2
What is the CM ratio?
3
What is the income if we sell 8,000 units?
4
What is the break-even point in units?, in dollars?
5
How many units must be sold to earn $40,000
6
The tax rate is 30%. How many units must be sold to earn $45,000 after taxes?
7
A new machine will reduce variabe costs by $5 per unit.
They are selling 12,000 units now.
8
Refer to the original data. They are currently selling 12,500 units.
They want to lower the sales price to $56. How many units must they
sell to earn as much as they do now with the new numbers?
Problem 3
The following information is available for Hearst Company.
Sales Price
$60
Variable manufacturing costs
-34
Sales commission
10% of sales
price
-6
Fixed costs
$180,000
Answer the following questions
1
What is the contribution margin?
2
What is the CM ratio?
3
What is the income if we sell 8,000 units?
4
What is the break-even point in units?, in dollars?
5
How many units must be sold to earn $40,000
6
The tax rate is 30%. How many units must be sold to earn $45,000 after taxes?
7
A new machine will reduce variabe costs by $5 per unit.
They are selling 12,000 units now.
8
Refer to the original data. They are currently selling 12,500 units.
They want to lower the sales price to $56. How many units must they
sell to earn as much as they do now with the new numbers?
Explanation / Answer
1. Contribution margin = sales - variable cost = sales - (variable manufacturing costs + sales commission) = 60-(34+6)=20
2. CM ratio = contribution margin Per unit / sales price per unit = 20/60 = 33.33%
3. Income is calculated below
Sales (8000*60)...................480000
-variable cost (8000*34).....272000
-sales commission (480000*10%).....48000
Contribution margin.................160000
-fixed cost............................... 180000
Net loss.....................................20000
4. Breakeven point in units = fixed cost / contribution margin Per unit = 180000/20 = 90000 units
Breakeven point in dollars = fixed cost / contribution margin ratio = 180000/(20/60) = $540,000
5. Desired sales = (fixed cost + targeted profit) / contribution margin Per unit = (180000+40000)/20 = 110000 units
6. Income before tax = 45000/(1-30%) = 64286
Desired sales = (fixed cost + targeted profit) / contribution margin Per unit = (180000+64286) / 20 = 12214 units
7. Income is calculated as follows
Sales (8000*60).................................... 480000
- variable manufacturing cost (8000*(34-5))..................232000
- sales commission (480000*10%).......................48000
Contribution margin........................ 200000
-fixed cost........................................ 180000
Net income...................................... 20000
8. Profit = sales - variable cost - sales commission - fixed cost
20000= 56X - 29X - 5.6X - 180000
200000=21.4 X
X = 200000/21.4 = 9346 units
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.