Revenues.....................................................$160,000 Cost of Go

Question

Revenues.....................................................$160,000
Cost of Goods sold($16,000+$3.20/unit)..................$80,000
Gross Profit...................................................$80,000
Operating expenses
Selling ($4,500+$1.40/unit)..............................$32,500
Administration($7,500+$1.00/unit).....................$27,500
Operating Income...........................................$20,000

B.) Calculate the contribution margin per unit and the contribution margin ratio

C) Calculate the firm's operating income (or loss) if the volume changed from 20,000 units to
1.) 25,000 units
2.) 11,000 units

Explanation / Answer

Revenues $160,000 Less:variable costs COGS 64,000 (80,000-16,000) Selling 28,000 (32,500-4500) Admin 20,000 (27,500-7,500) Total variable costs 112,000 Contribution margin 48,000 Less Fixed Costs COGS 16,000 Selling 4,500 Admin 7,500 Total Fixed costs 28,000 Operating income $20,000 B) Total units sold were (using COGS) (80,000-16,000)/3.20= 20,000 So revenue per unit was 160,000/20,000= $8 Contribution margin per unit was $8- (3.20+1.40+1.00)=$2.40 So CM ratio would be 2.40/8.00 0.3 or 30%. C) 25,000*2.40 -28,000= 32,000 11,000*2.40- 28,000= (1,600) loss

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