69728 Question8 (12 marks) A company had the following results for this year: Sa
ID: 2411826 • Letter: 6
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69728 Question8 (12 marks) A company had the following results for this year: Sales (15,000 units) Variable expenses Fixed expenses Net profit $300,000 180,000 80,000 $40,000 Answer the following questions independently. (a) What are the company's breakeven sales in dollars? (2 marks) (b) What are the company's breakeven sales in units? (2 marks) (c) What is the company's contribution margin in dollars? (2 marks) (d) What is the company's contribution margin ratio? (2 marks) (e) How many additional units must be sold to increase net profit from the current $40,000 to $100,000? (4 marks)Explanation / Answer
Question 8 :
a. Break-even sales in dollars = Fixed Expenses / Contribution Margin Ratio = [$ 80,000 / $ ( 300,000 - 180,000)] x $ 300,000 = $ 200,000.
b. Break-even sales in units = Fixed Expenses / Unit Contribution Margin = $ 80,000 / $ 8 = 10,000 units.
c. Contribution margin in dollars = Sales Revenue - Variable Costs = $ 300,000 - $ 180,000 = $ 120,000.
d. Contribution margin ratio = Contribution Margin / Sales = $ 120,000 / $ 300,000 = 0.40 or 40 %.
e. Additional units to be sold to increase net profit to $ 100,000 = $ ( 100,000 - 40,000) / $ 8 = 7,500 units.
Question 5:
a. Total fixed cost = $ ( 60,000 + 30,000 + 24,000 + 10,000) = $ 124,000.
Variable cost per person per night = $ ( 4.00 + 6.00) = $ 10.00
Contribution margin per person per night = $ 50.00 - $ 10.00 = $ 40.00
Number of rentals to break-even = Total Fixed Cost / Contribution margin per person per night = $ 124,000 / $ 40 = 3,100 rentals.
Sales revenue to break-even = 3,100 x $ 50 = $ 155,000.
b. Margin of safety percentage = ( Actual Sales - Break-even Sales ) / Actual Sales = ( 4,000 - 3,100) / 4,000 = 0.225 or 22.5 %.
Rentals can decrease by 22.5 % before Kelly should worry about net loss.
c. Variable cost per person per night = $ 10.00 + $ 5.00 = $ 15.00
Contribution margin per person per night = $ 65 - $ 15 = $ 50.
Number of rentals to break-even = $ 124,000 / $ 50 = 2,480 rentals.
Sales revenue required to break-even = 2,480 x $ 65 = $ 161,200.
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