Cantor Products sells a product for $83. Variable costs per unit are $46, and mo
ID: 2439927 • Letter: C
Question
Cantor Products sells a product for $83. Variable costs per unit are $46, and monthly fixed costs are $125,800.
a. What is the break-even point in units?
b. What unit sales would be required to earn a target profit of $321,900?
c. Assume they achieve the level of sales required in part b, what is the degree of operating leverage? (Round your answer to 3 decimal places.)
d. If sales decrease by 30% from that level, by what percentage will profits decrease? (Do not round intermediate calculation. Round your answer to 2 decimal places.)
c. What sales revenue is needed to achieve a $332,250 per month profit?
Explanation / Answer
a. Break even in point = Fixed Cost/Contribution margin per unit = $ 1,25,800 / $ 37 = 3,400 Working; Contribution margin per unit = Sales - Variable cost = $ 83 - $ 46 = $ 37 b. Unit sales = Target Contribution margin / Contribution margin per unit = $ 4,47,700 / $ 37 = 12,100 Working: Target Contribution margin = Fixed Cost + Target profit = $ 1,25,800 + 321900 = $ 4,47,700 c. Degree of operating leverage = Contribution margin/Net operating income = $ 4,47,700 / $ 3,21,900 = 1.391 Working: Per Unit Total Sales $ 83 $ 10,04,300 Variable cost $ 46 $ 5,56,600 Contribution margin $ 37 $ 4,47,700 Fixed cost $ 1,25,800 Net Operating income $ 3,21,900 e. Decrease in profit = Decrease in sales x degree of operating leverage = 30% x 1.391 = 41.72% f. Sales revenue = Target contribution margin / Contribution margin ratio = $ 4,58,050 / 44.58% = $ 10,27,518 Working: Contribution margin ratio = Contribution margin / Sales = $ 37 / $ 83 = 44.58% Target contribution margin = Fixed cost+Target profit = $ 1,25,800 + 3,32,250 = $ 4,58,050
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