ACME sells a single product. The company\'s most recent incomestatement is given

Question

ACME sells a single product. The company's most recent incomestatement is given below.

         Sales (4,000units)                                       $120,000

         Less variableexpenses                                   (68,000)

         Contributionmargin                                        52,000

         Less fixedexpenses                                       (40,000)

         Netincome                                                  $ 12,000

           

        a.      What is contribution margin perunit ?

        b.      If sales are doubled to $240,000,what will total variable costs be?

        c.      If sales are doubled to $240,000,what will total fixed costsbe?                                

        d.      If ACME is past the breakevenpoint and 10 more units are sold, profits will increase by howmuch?

        e.      Compute how many units must besold to break even.                                               

        f.       Compute how many units mustbe sold to achieve a profit of $20,000.

        

Explanation / Answer

a. What is contribution margin per unit ?     ==========================                                                              Contribution margin perunit       = Total Contribution/ no. of unitssold      =   $52,000/ 4,000 = $13.00 per unit b. If sales are doubled to $240,000, what will totalvariable costs be?    ============================================= Total Varible cost for doubled sales = Totalvariable cost x Expected Sales/ Existing Sales    = $68,000 x 240,000/ 120,000 =$136,000 c. If sales are doubled to $240,000, what will totalfixed costs be?    ===========================================                Apparentlyno change in fixed cost d. If ACME is past the breakeven point and 10 more unitsare sold, profits will increase by how much?    ===================================================================     After break even any units sold will fetchprofits = Contribution per unit x no. of additional unitssold       =   $52,000x 10 / 4,000 = 13 x 10 units = $130 e. Compute how many units must be sold to breakeven    =====================================     Break even(Units)      = Fixed cost /contribution per unit      = $40,000/ $13   =   3,077 units f. Compute how many units must be sold to achieve aprofit of $20,000.   ===============================================    Units required to be sold to gain desire profitof $20,000        =   Fixed Cost + desiredprofit / Contribution per unit     =   ($40,000 + $20,000) /$13   =   4,615 units

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