(25 points) he problem below will have you perform some basic calculations relat
ID: 2397548 • Letter: #
Question
(25 points)
he problem below will have you perform some basic calculations related to cost concepts. Space for each calculation is provided below, along with highlighted areas for you to enter your solutions.
McKnight Enterprises sells only a single product. Data from the company’s most recent income statement is provided below. Using that data, complete the calculations required.
Sales (4,000 units)
$120,000
Less variable expenses
(68,000)
Contribution margin
52,000
Less fixed expenses
(40,000)
Net income
$ 12,000
Please enter your answer (no calculations necessary) in the “Answer/Solution” column.
Requirement
Answer/Solution
Points
Possible
The contribution margin per unit is:
$
5
If sales doubled to $240,000, then the total variable costs would equal:
$
5
If sales doubled to $240,000, then the total fixed costs would equal:
$
5
Compute the number of units that must be sold to break even.
5
Compute the number of units that must be sold to achieve a profit of $20,000.
5
Sales (4,000 units)
$120,000
Less variable expenses
(68,000)
Contribution margin
52,000
Less fixed expenses
(40,000)
Net income
$ 12,000
Explanation / Answer
Question - 1
Contribution Margin per Unit = Selling price per Unit - Variable cost per Unit = 120,000 / 4000 - 68000 / 4000
= 30 - 17 = 13 per Unit
Question - 2
When sales double, variable cost also doubles = 2 * 68000 = 136000
Question - 3
Fixed cost remains constant, even if sales doubles. Hence Fixed cost equal ............40000
Question - 4
Number of units needed to break even = Fixed cost / Contribution margin per Unit = 40000 / 13 = 3077 Units
Question - 5
Number of units needed to achieve a profit of 20000
= (Fixed cost + Required profit) / Contribution margin per Unit = (40000 + 20000) / 13 = 4616 Units
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